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A SERIES of articles in the New York Times (NYT) seems to justify protectionism. One article lists the mind-boggling statistics of China’s trade balance on goods and services: adjusted for inflation, China’s trade surplus in 2024 far exceeded any country in the past century — its trade surplus last year was $990 billion.
It doesn’t stop there. The value of China’s manufacturing output is one-third of global production and exceeds the combined production of the US, Japan, Germany, South Korea, and Britain. ‘Made in China 2025’ entails import tariffs to encourage buying Chinese products, while domestic production is incentivised by lending to expand factory capacity, subsidised export financing, and targeted grants to complement the massive state investment in physical infrastructure, basic research, and specialised education.
As a result, Chinese factories are overproducing, and since the real estate crisis has dampened domestic demand, the surplus is exported. However, this is not limited to cheap consumer goods; the Chinese government has specifically targeted sectors that will dominate the 21st century.
Another article lists the goods and related investments. From a net auto importer in 2019, China became a net exporter of 2.2 million automobiles in 2022. In the process, China is now the largest producer of EVs in the world and also has a monopoly on producing solar panels. Furthermore, it has become a global leader in commercial drones, lithium-ion batteries, industrial and interactive robots, nuclear power plants, LCD monitors/ screens, smartphones, telecom equipment, semiconductors, and has become the global supplier of rare earth minerals. China’s state-owned aircraft manufacturer specialises in single-aisle passenger aircraft, which have the highest commercial value. As they have done with autos, China will likely outcompete Boeing and Airbus in the next few years.
To compete with China, the US will have to copy it.
On the flip side, you have the US, which has been deindustrialising since the 1970s. It started exporting blue-collar jobs when its trade surplus shifted to deficits in 1971, and is now dependent on imports for most consumer goods. The US auto sector, steel, consumer durables, and electronics have collapsed in our lifetime.
When one thinks of the typical MAGA supporter, his/ her mindset is deeply rooted in America’s deindustrialisation. Donald Trump’s nationalist agenda — ‘America First’ — is an attractive solution for their worsening plight. I will not be surprised if Trump uses his inauguration speech to promote import tariffs with a slogan like ‘Be American, Buy America’. In some ways, this is the same message as ‘Made in China 2025’.
However, import tariffs alone will not do the trick. Tariffs may protect some US industries and bring back some blue-collar jobs, but the US will not be able to retain or regain its global leadership as China already has the edge in the above-mentioned sectors. In yet another NYT article, a compelling argument was made that US government funding/ contracts to improve aircraft and missile design (after World War II) gave American companies global leadership in aircraft production and armaments — an edge they still maintain. The argument was that the funding required for basic research and experimentation, which has a small probability of commercial success, would not be undertaken by purely commercial enterprises.
This creates an interesting possibility for US tech giants specialising in AI, microprocessors, self-driving vehicles, quantum computing, and robotics. Elon Musk and other tech billionaires have already cosied up to Trump, sensing that the US can only compete with China if the US adopts the Chinese model of economic development. The free-market model suited the US after World War II when most of the world’s manufacturing infrastructure was destroyed; post-war planners thought unhindered trade and American investment would fortify US dominance.
However, the Asian miracles witnessed in South Korea, Southeast Asia, Singapore, Vietnam, and China can no longer be ignored.
Policies like import substitution, protective tariffs, subsidised export finance, government grants for R&D, performance-based subsidies, and development banks should no longer be frowned upon. If xenophobia and nationalism are cultural themes of the 21st century, the entire neoliberal model of economic development will have to be discarded.
The real issue is whether the Washington Consensus — the World Bank, the IMF, and the World Trade Organisation, which have championed neoliberal ideology for decades — will survive or be forced to adapt to a completely different world order.
The writer runs an advisory.
Published in Dawn, January 18th, 2025
