American Paralysis
Going it alone in the world will require decades of planning, generous government investment, and, uh, leaders who don’t hate working people. Instead, we’re about to be frozen in place.
When trade with another country rapidly changes, economists call it a “trade shock.” This happened when China rapidly modernized to become our top trading partner, and it’s poised to happen again, now that the President is using tariffs to make Chinese goods unaffordable. We’re going to go from a nation that no longer Trump administration officials have been contradicting one another as to why this is necessary. Treasury Secretary Scott Bessent told NBC’s Meet the Press that through the tariffs Trump had “created maximum leverage for himself” in renegotiating trade deals with more than 50 nations. But Commerce Secretary Howard Lutnick told CBS’s Face the Nation that tariffs were intended to “reset global trade,” and make America a DIY nation. He painted what I think he intended as a hopeful fantasy, but which to me sounded like a rather bleak picture of sweatshop labor being our way of life in the future.
The army of millions and millions of people screwing in little, little screws to make iPhones, that kind of thing is going to come to America, it’s going to be automated, and the tradecraft of America is going to fix them, is going to work on them.
Chinese social media has been working up some pretty extraordinary AI videos of this idea, including a few that feature Trump, Musk, and JD Vance making sneakers under harsh sweatshop lights. Here’s one of them:
But let’s put aside whether we want to do these jobs for the moment. Let’s start with what the tariffs have done in other countries that played around with them. CNN’s Fareed Zakaria recalled in a recent report what his native India experienced when it installed tariffs ostensibly to protect its own industries: stagnation and poverty, but also endless corruption, as companies did whatever they could to win exemptions by cozying up to the government. Zakaria’s team dug up a fascinating 2023 paper (summarized by its authors here) that looked into tariff exemptions granted during the first Trump administration, and found a clear, corrupting pattern that Zakaria recognizes: “Having contributed to the (Republican) party in power increased the likelihood of obtaining exemptions—supporting the (Democrat) opposition had the opposite effect.”
Already, we’re seeing the exemptions begin: on Friday U.S. Customs and Border Protection announced that smartphones, laptops, routers, and semiconductors would be among 20 products now exempt from Chinese tariffs. This is, of course, an existential win for tech CEOs like Tim Cook, Sundar Pichai, Mark Zuckerberg, and others who depend on China for their manufacturing, their chips, and their hardware.
These CEOs have met with Trump individually since his election, and each contributed at least $1 million individually or as a company to Trump’s inauguration fund, not to mention they attended in person. But most importantly, many of them have done an excellent job of giving Trump the headlines he wants about investing in American operations.
Tim Cook and Apple announced in February that they’d spend $500 billion in the US, including on a new server factory in the Houston area, a figure Trump boasted about as recently as last week. Of course, the Wall Street Journal suggested that’s money already earmarked, not new expenditures. And in its press release Apple says the Houston investment is with “manufacturing partners,” which aligns with reporting that suggests this won’t be Apple’s factory, but one built by Chinese assembly giant Foxconn. Well played, Tim Cook.
But Apple couldn’t launch an American iPhone before Trump leaves office if it wanted to. However you feel about the legacy of global free trade, it is deeply baked into our way of life, and Apple’s in particular. Its products all carry the tagline “Designed by Apple in California. Made by people everywhere.” As Jason Koebler of 404 Media wrote last week…
The truth is that, assembled in the U.S. or not, the iPhone is a truly international device that is full of components manufactured all over the world and materials mined from dozens of different countries. Apple has what is among the most complex supply chains that has ever been designed in human history, and it is not going to be able to completely change that supply chain anytime soon.
Now that tariff exemptions on its products are in place, what possible incentive will Apple have to attempt to do things differently? And if you’re the head of another industry-leading company in some other American sector, what have you learned from all of this, other than that you should flatter, cajole, and possibly buy whatever exemptions you can from the White House?
What everyone in business has learned since Trump took office, of course, is to just wait, because all of this waffling makes a plan impossible. Companies do not decide their strategy on vibes. As anyone who has ever been in the halls of corporate decisionmaking can tell you, every choice is accompanied by deep and detailed forecasting. And as a recent report from Boston Consulting recently found, the deep uncertainty that this administration has foisted on companies has the majority of survey respondents reporting that their number one strategic priority is, you guessed it, cost reduction. Sit on the cash, lay off who you can, dabble with AI, sit tight. This isn’t how we transform ourselves into a self-sufficient innovation and manufacturing leader. This is how we stay still. It’s not the beginning of an American Renaissance. It’s the beginning of American Paralysis, and as we abandon our ambitions, alienate our trading partners and purge our universities, I think it’s about to settle in very deeply.
Could we come out the other side with some sort of improved domestic manufacturing industry? Maybe. But not within a single presidential term. Unfortunately, the research shows that the labor market takes an extremely long time to adjust to a trade shock. As China rose and began to trounce American manufacturers on price and quality (first through inhuman labor conditions, and later through innovation), American manufacturing lost more than 5 million jobs and more than 70,000 manufacturing plants between 1998 and 2021. That experience taught economists that the duration of unemployment and loss of earnings potential for someone displaced from a job is far longer and larger than it is for someone simply laid off, and in the larger sense the labor market still hasn’t adjusted to that period of time. Now, as the cartoonish tariffs on Chinese imports theoretically make it necessary for us to reinvent the American labor market again, we’re somehow supposed to whipsaw back the other way. American Paralysis indeed.
Postscript: Here’s What the Kids Need
As all of this is happening, AI makers are simultaneously being allowed to push automation into every corner of life and commerce, and companies are openly admitting that they plan to lay off thousands of people in the coming years as a result. There’s a huge amount of talk about needing to prepare American students for this new age of automated pattern recognition and simulated creativity. Even Secretary of Education Linda McMahon, formerly the CEO and president of World Wrestling Entertainment, boasted at a panel on Friday of first graders in some school district she couldn’t remember being taught using this new technology. The trouble is she kept referring to it as “A-1” rather than “A.I.” The nation’s top education official evidently hasn’t ever said the words “A.I.” in public before.
Silver lining: The steak sauce company immediately posted this to Instagram. As my uncle used to say, “I’m laughing to keep from crying.”
Other Worthy Stuff
At least 12 intersections in downtown Palo Alto, the epicenter of Silicon Valley, were hacked last week, such that the irritating “Wait!” voice you get when you push the crosswalk button was replaced with AI impersonations of Elon Musk and Mark Zuckerberg begging for friendship and inviting you to give up control of your life to AI. Fuck yeah.
Also, my TikTok feed is now full of Chinese manufacturers who claim to work for premium brands like Gucci, Nike and Lululemon offering to sell Americans their work directly. I guess if you’re going to pay more than 100 percent in tariffs, they figure you’ll be attracted to the idea of paying a tiny fraction of the retail price. It may be that these are just counterfeiters. And even if they’re not, it may be that thousands of Americans are about to be disappointed when they ask for single bags from companies that won’t make fewer than 100 at a time. But lots of them are also realizing that they’ve been overpaying all this time, and are angry at retailers for it. I think Peter Navarro, the architect of the Trump tariff plan, didn’t factor in that the preferred news and entertainment form for young American consumers about politics and global trade is, in fact, a Chinese product.