A contact who is part of Young Presidents Organization (YPO) came back from an international gathering several years ago to relay what was on the minds of seemingly all the non-American presidents: how to crack the U.S. market. With good reason. The U.S. is the richest country in the world, by far. A successful entry into the U.S. is the path to blockbuster success for the corporations skillful enough to make it here.
Please think about what this means for us as Americans. We win in countless ways. While economic pundits on the Left and Right increasingly act as though trade is war, the reality is that trade is the quickest way for the individuals who comprise what we call an economy to improve themselves. When others produce for us, this frees us to migrate toward the work that most elevates our unique skills and intelligence. In other words, one reason the U.S. is the world’s richest country has to do with the fact that we Americans are showered with the world’s plenty on the way to constantly increasing individual specialization. And the dividends don’t stop there.
Imports don’t just economically improve the nations productive enough to receive them. Those same imports serve as a barrier to invasion arguably more powerful than military might. Think about it. War is bad for business. Very bad. Crippling. At which point it’s much less likely for a country that’s a huge market for the world’s producers to be invaded. Really, who would actively kill off their best customers?
Which brings us to a recent opinion piece by Robert Bryce in the Wall Street Journal. Like many conservatives, Bryce is more and more fearful of China. That he is calls into question the thinking he conveyed in the aforementioned piece. In his defense, Bryce rightly decries the Biden administration’s aims to subsidize electric-vehicle purchases and charging stations. In a perfect world government wouldn’t try to influence commercial outcomes. The quibble here is that in Bryce’s case, he doth protest a little too much.
No doubt the feds should stay out of the automobile market, but Bryce doesn’t stop there. One reason he doesn’t want electric vehicles subsidized is rooted in his belief that with gasoline-powered cars, the U.S. could be “using its own energy reserves” to power more traditional automobiles. Sure, but he leaves out how in the 1980s and 1990s, the U.S. energy industry largely didn’t exist. Did Ronald Reagan “hate” oil or fossil fuels. Not at all. On the other hand, Reagan in the 1980s and Bill Clinton in the 1990s presided over two Administrations that didn’t believe the American people should suffer the work-taxing burden that is a weak dollar.
Crucial about Reagan and Clinton’s support for a strong dollar was what it meant for the price of oil: it plummeted in the ‘80s and remained very low in the 1990s. As of 1998 amid a booming global economy, the price of a barrel was $10. When the dollar is sound, oil is nominally cheap. The U.S. energy industry in the closing decades of the 20th century was dormant, but Americans didn’t care. Why would they? The economy was booming. Good money boosts economic activity precisely because it’s good for investment. Never forget that when investors put money to work, they’re pursuing future returns in dollars. A falling dollar is a tax on the investment without which there is no economic growth.
It’s all a reminder that while electric vehicles are subsidized, the oil industry stateside is arguably subsidized more through a weak dollar. It’s generally not economic to extract oil stateside at prices below $50/barrel. In other words, for U.S. energy to make economic sense, the American people must suffer a weak dollar. This is hardly a deal.
Except that according to Bryce, it’s about more than consuming U.S. energy reserves. He writes that “rushing to replace gasoline-powered cars with electric vehicles would hand the keys to the American transportation sector to China, given Beijing’s near-monopoly on rare-earth elements” necessary to build electric vehicles. And his point is what?
If it’s true that the Chinese could cease selling the rare-earths to U.S. producers, it’s a moot point. Just as we Americans consumed every bit as much “Arab oil” during the 1973 embargo (and after) as we did before, so would we continue to import Chinese rare-earths even if they ceased selling them directly to us. There’s no accounting for the final destination of any good. We’d buy from those the Chinese sell to.
If Bryce's point is that China Rare Earth Group will stop selling altogether, that’s fine too. Highly unlikely, but certainly fine. We know this because as Bryce has long pointed out, the well for oil is bottomless. If the Chinese choose to just sit on wealth necessary for electric vehicle production, market economies are the living definition of flexible.
After which it’s easy to see that the most likely scenario is that the Chinese continue to sell what’s valued by producers around the world, including U.S. electric vehicle producers. If so, good. Bryce oddly laments that “the U.S. is positioning itself to be dependent largely on China for rare earths,” and that it’s doing so “at the same time that the U.S. and China are increasingly at odds.” His fears are overdone.
Imports improve their recipients. Always. See above. The country that takes in the most of the world’s plenty is by definition the most specialized, most economically productive nation. This matters assuming Bryce is correct that China represents a threat of the military variety. The bigger our economy, the better situated we will be if another nation, including China, aims to invade us.
Except that invasion by China will become more and more unlikely the more that we’re a huge market for their goods. See above yet again. War is bad for business, which is why the best U.S. foreign policy of all is economic growth that expands U.S. markets for the world’s producers, including China’s.
