Alan Blinder, in a radio interview on NPR a few days ago, warned that competition from China and India would be like a tsunami on American shores. That competition threatens jobs, either because of a flood of imported goods, or from the backwash of jobs lost to offshore entities. The US response to a competitive tsunami, a tsunami I think is almost inevitable, will greatly influence future US standards of living and its position in the world. The US has two options.
First, the US can build a barrier to the tsunami. This means taking actions to protect what the US currently has. Protection might involve placing restrictions on US firms who move factories or jobs to overseas facilities. It might mean placing higher tariffs on goods from China until they revalue their currency to our liking, or enforce intellectual property rights for our products. It could mean refusing to lower subsidies and other supports to agricultural products. It could mean refusing to negotiate free trade areas or other liberalization initiatives until we get assurances that other countries will strengthen their environmental and labor standards. It could mean conceiving of lots of other “excuses” to justify temporary, or even permanent, protections for US industries and US jobs in those sectors.
These are all actions the US Congress has contemplated, or implemented, in recent months. Each action, regardless of the motivation, represents another brick or two in a wall that will protect the US from the competitive tsunami.
Building a wall has both positive and negative effects. The positive effects are obvious; thousands of workers in thousands of jobs will keep those jobs for a little while longer. For the typical US worker age 45, 50, 55 or older, the protection may get them to retirement. That’s a big plus, … for THEM. However, the negative effects are simultaneously more subtle, longer lasting, and will touch more people. First, each brick of the wall we put up, makes it more likely other countries will add bricks to their walls as well. As countries protect from each other, they slowly lose the ability to export abroad and to enjoy cheaper imported products for all its consumers. The wall also slows down the dynamism of the local economy. Adjustments to new industries and the creation of new products is no longer as important as before. Thus, over the long term total output will not grow as rapidly. These effects hurt people much later, never right then when the wall is built. This is one reason why building a wall is often so popular.
But there’s an alternative approach that’s both harder and healthier. The alternative is to let the tsunami roll in. Of course, to do this effectively requires some adjustments to mitigate the destructive effects. But we can never eliminate the destruction entirely … that’s why accepting the tsunami is hard. However, if we let the destruction occur then just like a real tsunami on a virgin shore, the rebirth of life will proceed rapidly. The vegetation will return, perhaps hardier than before, and the whole ecosystem can change in light of new conditions.
So it can go for an economy. As the tsunami rolls in and jobs are lost, it opens up a whole new world of opportunities and possibilites. If a nation can arise from that destruction without its spirit being broken, then it can channel its energies into completely new creations. Brand new products, services and sectors can arise out of no where. And with these new industries come renewed vitality for the economy overall.
To make accepting the tsunami possible though, we need more people to recognize the kind of trade off we face. Short term salvation is possible by building a wall but we give up longer term vitality and opportunities by doing so. If we want to create as many opportunities as possible for the next generation then we need to suffer the short term destructive costs of the tsunami.
Where will the US go? I’m afraid the current trend is to build a wall. The chances it will build a high one are larger if the economy suffers a small recession sometime soon. If the US continues to grow reasonably well though, then it’s more likely the it will put up only a partial wall. However, because of politics, I don’t see much chance the US will choose to accept the tsunami. To me, the more resistant the US becomes to this change, the weaker it will be in the future, both economically and otherwise.