What is a “supply chain”? It’s not a tangible chain, and as such it’s not visible. In reality, a supply chain is a wildly sophisticated intellectual accomplishment.
Considering the “supply chains” that connected the world’s producers so brilliantly in February of 2020, they were the consequence of decades of trial and error among cooperating producers the world over. The immense global plenty that defined February of 2020 was the result of trillions of commercial relationships entered into by billions of workers.
Work divided is the path to costs that logically plummet as workers producing in incredibly specialized fashion produce large, small, and microscopic parts of a global whole. Translated for those who need it, the Boeing 747 is the creation of six million intricate parts produced around the world. Not only could the 747 not be created if Seattle were an autarkic island of economic activity, if it could the cost of the world’s most famous jumbo jet would be measured in tens of billions (at least) of dollars.
This basic truth came to mind while reading American Enterprise Institute senior fellow Adam White’s recent piece in the Wall Street Journal titled “A Domestic Agenda for the China Committee.” White presumes to guide the Chair of the House China Committee (Rep. Michael Gallagher) on how to compete with China, which shows why he misses the point (as does Gallagher) right out of the gate.
Figure that if China were trying to “compete” with us, then it would enclose the country on the way to only allowing production and exchange between the Chinese people. Such a scenario would impoverish the Chinese people, as would it impoverish the American people in a relative sense. See above. Work divided is the path to wondrous specialization that powers amazing productivity. That the Chinese people are producing for us, alongside us, and in order to buy from us (the sole purpose of production) signals people who improve us every day that they get up and go to work. Missed by White is that trade isn’t war, quite the opposite if we’re being realistic. Trade lifts all those productive enough to engage in it, and the country with the most liberal trade rules is lifted the most.
Unfortunately, White’s analysis doesn’t improve after his calls to “promote competition.” How could it in consideration of the questionable principles that inform his argument?
Of course, in White’s defense he’s advising via op-ed a politician in Gallagher who similarly sees trade through a war lens. White cites an opinion piece by Gallagher and House Speaker Kevin McCarthy which, with an eye on winning what they deem a “Cold War" with China, calls for “tough policies to strengthen our economy, rebuild our supply chains….” This speaks to the problem. “Tough policies” aren’t required to instigate growth, but freedom is. No thought required here. Look around the world. Where freedom to produce grows (and this includes China), prosperity ensues. In other words, no policy from Gallagher and McCarthy is necessary if the goal is U.S. prosperity.
As for “rebuild our supply chains,” talk about a tough policy, albeit a tough one for the U.S. economy. Really, what could the political class do? Let’s not forget that “supply chains” cannot be built as much as they’re a staggeringly sophisticated consequence of capitalistic endeavor; supply relationships the brilliant result of endless (and frequently costly) experimentation among the greatest business minds in the world. Yet McCarthy and Gallagher want to “rebuild” what the political class broke in 2020? How? White certainly doesn’t answer the question. How could he? Have any of the three ever run a business?
White then tacks to industrial policy. Even though the future of commerce is always and everywhere opaque for those in the proverbial arena, White contends that “the U.S. must challenge China’s dominance in producing the refined rare-earth minerals that go into both chips and green energy.” Ok, a couple of things. For one, White’s presumption about what minerals will animate future production is something that just about any arena-dweller would love to know. Again, the future is opaque. Which raises questions about “the U.S.” pursuing policies regarding the future of commerce. Does the government know what producers don’t? After which, if the Chinese are extracting rare-earths then there’s no need for “policy” to get those rare-earths stateside. Unless the Chinese are hoarding them, those minerals will reach their highest use stateside as though they’d been produced here. There’s no accounting for the final destination of any good. But could the Chinese hoard them? Yes, they could. But what a risky maneuver given the ever shifting landscape of business. What’s valuable today isn’t always tomorrow. Since it isn’t, what maintains a market value will logically be sold while it does. We no more need a “rare earths” policy than we do one for smartphones. Market actors will figure all of this out.
The problem is that White doesn’t seem to trust the markets. He oddly ties China’s present and future economic strength to the country “subsidizing its tech companies and taking advantage of them to gain an economic and geopolitical edge.” No, business doesn't prosper through state planning and subsidies. Figure that in Silicon Valley just about every technology company funded fails, and fails quickly. The latter isn’t because VCs can easily see into the future, but precisely because they can’t. Yet White imagines that the Chinese, presumably for being Chinese, are different. Except that they’re not. If China or the CCP is actively subsidizing what it imagines the future to be, logic dictates that its economy will suffer mightily this obnoxious conceit.
Much worse, China’s alleged subsidization of the businesses of tomorrow will harm the U.S. It’s through wealth creation that the people who comprise country economies lift themselves, along with the wealth producers they voluntarily trade with sans government planning. This truth needs more airing in the meetings of the “China Committee,” along with the offices of the scholars aiming to advise them. That is so because what Adam White fears about China is what should lift his spirits, and what lifts his spirits is what should have him downcast.