86 Comments

Friend-shoring seems like a great idea. I think a key to it would be to raise awareness about the products and services we receive from unfriendly/unethical countries. Just like the growing number of consumers willing to spend more to support environmentally friendly businesses, I would imagine you could sell people on the idea of supporting our allies. The sentiment for buy-American could easily be transformed into buy from our allies.

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China pulled the mask off long ago in Tiananmen Square, it has not changed course since.

We are in agreement with the need to keep our allies afloat, both economically and under our secure military umbrella. America needs to restrain itself, gain a sense of perspective, and do what is necessary to insure that both America and its allies are strong economically and remain so.

According to a a pair of demographers, each a pair themselves, by 2100 China's population will be under 1 billion, that should do enough to give us some space going forward.

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FWIW, it seems Sony (and probably Nikon and Canon) are moving their camera production out of China to South/Southeast Asia. Prior to late last year, all my Sony stuff was made in China, but the latest version of my main camera was made in Thailand.

Also, while previously most stuff I had ordered from Land's End was made in China, the most recent three (two shirts and a hoodie) were made in Cambodia, Bangladesh, and India.

I submit that the move away from China is happening faster than you think.

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Feb 1, 2023Liked by Noah Smith

Great post. If we rewind the clock back to the 1990s leading up to China's entry into the WTO in 1999, who in the American political sphere was strongly advocating for unrestricted free trade with China? Was it large corporate interests, ala Wal-Mart, or globalists who believed that China would liberalize as it became integrated with the global free market, or some combination thereof?

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Last I checked, Vietnam is still a communist country. Offshoring to Vietnam has nothing to do with supporting democracy. The US is playing protectionism. Period. You are trying to compete with the 2nd largest economy(China) with protectionism. Free trade is dead. WTO is dead. Shifting manufacturing from China to other countries still won't bring manufacturing jobs back to US. In the end, even the dirty strategy may hurt the Chinese economy but the US will gain nothing from the game.

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Admirable self restraint in saying nice things about people who say idiotic things.

I'd just add that there is no need to attempt to de-Chinafy all our imports. Not everything is strategic. Our beef is with the CCP not the guy on the teddy bear assembly line.

And are subsidies necessary to execute a friendshoring strategy?

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Feb 1, 2023·edited Feb 1, 2023

I'm certainly not any sort of expert on these issues, but the idea that we can somehow magically erase China from international supply chains strikes me as wildly naive at best. The issue isn’t just moving American or Korean or Japanese production out of China. The issue is also preventing Chinese components and technology from being part of a non-China global supply chain.

Chinese battery companies make up over 55% of the global EV market. CATL alone makes up more than 1/3 of the global market for electric vehicles and supplies batteries for companies like Tesla. Tesla’s Shanghai plant is a paragon of productivity and efficiency and has played an integral part in the company being able to hit its global production quotas. In fact, the Shanghai factory has been so productive that Tesla is bringing over engineers from Shanghai to their Fremont factory in an attempt to bolster productivity in California. How does all of this fit into the notion that we need to friend-shore and isolate China entirely?

It'd certainly be nice if every country in the world apart from evil ones like China, Russia, North Korea and Iran became vassal states to America, completely subjugated their own self-interest to that of ours and existed for the sole purpose of propping up American preeminence vis-à-vis China. But at the risk of coming across as flippant and crude, which certainly isn't my intention, it’d also be pretty nice if Taylor Swift, Scarlett Johansson, Anna Kendrick, Jennifer Lawrence, Anya Taylor-Joy and Gal Gadot suddenly found me to be the most irresistibly attractive man in the world and decided to come over to my place to have a sevensome.

I guess only time will tell what’s possible and distinguish between the plausible and the fantastic.

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Granted, you were not necessarily going through the actual specific subsidies here (which I regrettably am in the weeds on) but saying we need to give all of the tax credits, presumably including production tax credits, to foreign produced items is a “wut, LOL” moment for me. Quoting: “ We need to negate that advantage by offering Japan and Korea full access to the U.S. market, including all the same tax credits that we give to domestic producers. Otherwise it will look like the U.S. is the kind of country that hangs its key allies out to dry. And that is an image we absolutely can’t afford.”

A few points:

1. If it’s an image we can’t afford we’re going to be declaring bankruptcy because the political route to do this is very close to zero probability, at least for the next two years.

2. The consumer tax credits on things like EVs have very plausible arguments that they should apply to non-North American produced vehicles, but regarding the vast bulk of other subsidies - they are not consumer credits, but paid to the company which (presumably) has US tax liability to use them. Giving tax credits to a foreign company, doing the work in another country, booking income in the home country, and paying the bulk of its taxes in another country is not only politically difficult, but economically bewildering to me. Someone would have to convince me that this is remotely efficient and wouldn’t result in XYZ, Inc simply becoming an entity that has two business lines in the US - manufacturing and selling tax credits into the financial markets, with US taxpayers footing the bill issuing credits for items that likely would have been made and sent here anyway except for a small marginal adjustment.

3. It’s a small thing, but although the free trade country sourcing provisions for the EV credit have all sorts of issues - it is the ONLY pro free trade thing I can think of being legislated in recent past. It’s actually led members of the EU, Japan, Indonesia, some African nations, to start asking “what if we revisit those efforts”... Even Yellen has said as much, and floated the idea of reconsidering agreements with Europe and others, while bipartisan members of Congress have raised secure lithium and copper supplies as urgent reasons to support renewing the (soon to expire) Chilean trade treaty. It’s definitely swimming against the tide, but I’ll take small small victories.

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I mostly agree, with the major caveat that one significant difference between “Cold War II” and version 1.0 is that last time the US didn’t have a domestic version of the “enemy” ideology that could take over the country.

Joe McCarthy was a demagogue, but he was at least aimed at the US’ stated adversaries.

Now, Trumpism/Putinism/Xi-ism are the other camp. The call is coming from inside the US House. Literally.

No less than Tim Snyder has said the Midwest was fertile ground for Trumpism because of deindustrialization. Isn’t reversing that the bet Biden is making, not sticking it to South Korea or France just because?

If the US is just another pole in the world, than the concern between allies and friends over socio-economic and political health should be mutual. We also have a duty to fight Trumpism here and not inflict it on our allies and friends again.

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The problem is that “buy American” isn’t just just about nationalism, it’s also about social class, regional resentment, and national stability. Fairly or not, American establishment has gotten a reputation for the last 40 years of destroying jobs of the working class in Ohio to enrich professional class people in in New York and LA. This is one of the greatest factors leading up to Trumps rise.. rebuilding trust in these communities, and the high cost of having lost that trust should has lead me to be a lot more sympathetic to protectionism even if I know it’s makes little economic sense. What’s the point in keeping South Korea and Japan happy to protect democracy if we lose Wisconsin to authoritarians?

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Economists love to say this and that doesn't work because their model says so, unfortunately in the real world your models are useless. Assume we have a can opener. Down here in Oz we are having the same argument, pollies left, right, and centre are saying we should make stuff. Now, that doesn't mean we will but it is worth the conversation. The pandemic showed just in time supply chains and management that had cut every last cost out of their businesses to fuel share buybacks were left exposed and needed to be saved by the big bad government. Do you buy insurance? I do, why don't we have the ability to make stuff if we need to, and why don't companies (and governments) have enough things on hand if the world turns to shit again

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Also FWIW, "semiconductors" are complicated. The latest greatest fastest whizz-bang chips from the latest fab aren't the ones in your car, or anything else (except, maybe, your cell phone, and even there, not really). The problem is that most "semiconductors" are made on fab lines that used to be latest greatest fastest whizz-bang lines, but now have been depreciated, so chips from them, while comparatively low-tech are almost free. But keeping a depreciated fab line going is still pretty serious high-tech, even for a line, say, 10 years old. And you can't really build a 10-year old technology fab line new. Thus the whole game is flaky. So far, it's not imploding on us. So far.

Also, "semiconductors" are made in two steps: the fab lines themselves and the packaging process. Those semiconductor packaging plants are pretty high tech themselves, but since corporations hate paying salaries, they tend to be in low-wage countries. China and the Phillippines come to mind, but my knowledge of where those plants are is out of date.

Anyway, I get nervous when people say simplistic things about semiconductors. Said simplistic things might not be actually wrong, but...

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So, given that it's all about EV and batteries... Cold War 2: Electric Boogaloo?

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In the first Cold War, we wisely realized that when allies like South Korea and Japan and France got rich, it made the U.S. and the world more secure.

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Great post, but not nearly deep enough consideration of India—it will be the biggest, and also politically not as committed to democracy as we thought.

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If you start from the premise that China is a military threat to overwhelm the world's developed democracies, in part because it's "so much bigger" than the US, then the rest of your discussion rests on quicksand.

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