U.S. Manufacturing Health: Does the U.S. Need an Industrial Policy?

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Hubwonk 1/30 /2024

[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi.

[00:00:09] Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. In the upcoming 2024 presidential campaign, one of the pivotal issues taking center stage is international trade. Unlike the past, where the Clinton administration embraced the North American Free Trade Agreement in 1994, or the Bush administration’s welcoming of China into the World Trade Organization in 1991, the policy rhetoric from both parties in this election year appears distinctly unfriendly towards fostering international trade.

[00:00:37] Framed by concerns that countries like China are devouring our manufacturing base, critics of free trade argue that it has weakened America’s production capabilities, leading to a trade deficit that threatens the prosperity of future generations. The proposed solution? An industrial policy wielding taxes and tariffs that proudly puts America first, aiming to revive domestic production and bolster American employment. But if, as the saying goes, making things matters, what is the current state of American production compared to our past and our global peers? Is the U.S. passively embracing free trade policies at the expense of its workers and future prosperity?

[00:01:15] And would the interventions espoused by America-first trade skeptics, well intentioned as they may be, serve the actual economic interests of America and its workers? My guest today is author and Vice President of General Economics and Trade at the Cato Institute, Scott Lincicome. Mr. Lincicome writes on international and domestic economic issues, including international trade, subsidies and industrial policy, manufacturing global supply chains, and economic dynamism for Cato and The Dispatch.

[00:01:44] He’ll present an overview on U. S. manufacturing past and present, and the role trade plays in the productivity and wealth of the American worker and consumer. When I return, I’ll be joined by author and Cato Institute Vice President, Scott Lincicome.

[00:02:18] Okay, we’re back. This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by Cato Institute’s Vice President of General Economics and Trade, Scott Lincicome. Welcome to Hubwonk, Scott. Thanks for having me. Scott, I enjoy reading your work at Cato, particularly when it challenges our dominant media narrative, particularly about the U.S. economy and jobs. I framed in our intro that our conversation is going to be about the notion of U.S. manufacturing. We’re in a presidential year — a lot is going to be said about what we should be doing to preserve American workers, American jobs, American manufacturing. So I want to explore some of the work you’ve done in this area.

[00:02:55] You’re an expert. you’re looking at the American economy every day. So let’s start at the very highest level. As one who studies this, relative now to our past and to our global peers, what does the face of American manufacturing look like right now? Yeah,

[00:03:10] Scott Lincicome: it is certainly different from what it was in, say, the 1950s or the 1970s, heck, even the 1990s, in terms of what the sector looks like and what the jobs there are. But different is not necessarily bad. And I think in the case of American manufacturing, the vast majority of what has happened in the sector over the last 30 plus years is good. The fact is that if you look at like, just topline data, the United States is still the second-largest manufacturing nation in terms of output or value added on the planet.

[00:03:48] The only country that makes more stuff than we do is China, but they do that with a billion more people. So, that gets into the second really important point about American manufacturing. We are by far the most productive manufacturing workforce in the world, and what that means is that for every worker in manufacturing, they produce more stuff than any other worker on the planet and by leaps and bounds — more than Germany or South Korea or Taiwan and way more than China.

[00:04:25] So, you have a big sector and you have a sector that is still quite productive. Now, in recent years, the U.S. manufacturing sector has struggled a bit with productivity. But again, when we look at longer-term trends, 30 years or so, it is still one that shows a lot of strength.

[00:04:46] The next thing, though, is that when you dig into the numbers, you see that the United States manufacturing sector has certainly changed, certainly since again, the 1980s, ‘70s, or especially the ‘50s. We make a lot less of the stuff that, quite frankly, a very rich country like the United States should not be making — tee-shirts and furniture, low-value, low-wage, products that aren’t technologically advanced, and the rest. On the other hand, we still make a lot, and in fact, increasing quantities, of the stuff that you would expect the United States to make — aerospace, and satellites, and transportation equipment, and defense-related goods, and the rest.

[00:05:31] So, we’re still very much a producer nation, we’re just making different stuff. And it’s that different stuff, that churn, that I think people see with their eyes because they see the closed factory in South Carolina that used to be a textile factory, or they see that furniture factory in North Carolina and they think, aha, manufacturing must be dying! They loo —  they go to their grocery store and they see some cheap plastic kitchen tool made in China or Indonesia or wherever and they go, ‘Oh, we don’t make anything anymore’ No, we still make a ton of stuff. It’s just that we don’t make stuff that’s going to be at Target for the most part.

[00:06:11] Joe Selvaggi: So, good. You’ve given us a lot to unpack there. One of the most impressive — I’m referring to a recent piece you wrote for Cato called On Making Things, in which you produce a bar graph talking about the relative size of our production base. You note that China’s larger in production, but of course with one and a half billion or 1.4 billion people, that’s easier overall. But we’re as large as the next three countries or four countries combined. And that lineup of the next four countries combined rattle off, who, I’ll mention one of them. Germany is on that list. I think — we think our cars are made in Germany, our suits and shoes are made in Italy, our watches are made in Switzerland. How is it possible that the U. S. is larger than the next four combined?

[00:06:59] Scott Lincicome: Yeah,  and so Germany, Japan, South Korea, and I believe India, is next. You could almost add Mexico, which is the next one down, but that would slightly exceed total U.S. manufacturing output. So, we are, again, we’re huge. Now, but this I think, gets to another error in the manufacturing decline narrative, and that is that because the United States economy is so huge, even that tons of output I just mentioned, is a relatively small share of the total economy, a relatively small part of GDP.

[00:07:36] Now, manufacturing declinists will see that and go, ‘Aha! manufacturing declined!’ But that really doesn’t mean much of anything, and for two big reasons. One is, look, the United States is predominantly a services economy. We’ve been a services economy for decades and decades. And countries, as they develop, whether it’s the United States or Germany or China or wherever, they tend to go through this kind of inverted U pattern, where you move from agriculture, you peak in manufacturing, and then you start going down in terms of share of the economic output.

[00:08:13] Totally normal, happens everywhere. And so the fact that U.S. manufacturing is not a huge share of our overall economy really doesn’t mean much of anything. Again, we’re making tons of stuff. We have thriving sectors and the rest but the other big point that I would mention there is that a lot of those services I just mentioned actually go to support American manufacturing.

[00:08:36] So more often than not today, manufacturers are incorporating services, whether it’s engineering or IT pre-production or post-production in terms of servicing, you know, these connected devices or updating them and the rest. So, there are a ton of services that we don’t count as manufacturing jobs — because they’re not in the manufacturing facility, they’re not in the factory — that are actually very much supportive of and related to American manufacturing and global manufacturing. So we ignore all of that too.

[00:09:16] Joe Selvaggi:  I also want to acknowledge, baked into our conversation about the glories of manufacturing job is that they are somehow superior. We’re imagining that we’re all Uber drivers or hairdressers while someone else is making our cars or something like this. Is it true that a manufacturing job is in some way superior to the equivalent support of a service job, right? Would we be pursuing  one over the other?

[00:09:35] Scott Lincicome: Not to get all lawyerly on you, but it depends, right? Certainly there are some manufacturing jobs, in, say, semiconductor manufacturing or aerospace, where the jobs are very well paid, but those jobs are highly technical. This is not some guy on an assembly line punching a clock like you see in a Bruce Springsteen video from the ‘80s, right? These are very what we call gray-collar jobs. They require a lot of training, a lot of education, a lot of skill. On the other hand, there are a lot of manufacturing jobs out there, including still in the United States — for example in food processing, we still make a ton of food — that are not very well paid.

[00:10:18] They pay 17 bucks an hour, maybe? The New York Times just the other day had a piece about some apparel factories in the Carolinas that were closing due to import competition. And they revealed — 30 paragraphs into the story — that the starting pay at these manufacturing facilities in the United States was $11 an hour. And that they could top out at $17 an hour. Now, when you look at the actual wage, the kind of hourly wage in a lot of services, and I don’t mean just lawyers and IT professionals — I mean, there’s a lot of blue-collar services and transportation and logistics and warehousing, you know, kind of those Amazon-related jobs — they pay much more than $11 an hour, and, Amazon’s starting wage is $17 or $18 bucks an hour just to start. There are a lot of good-paying services jobs out there, a lot of blue-collar services jobs. Construction is another big area. And so the idea that just manufacturing jobs are good and services jobs are bad really misses all of that nuance. And again, that doesn’t even get into the fact that a lot of those services jobs are supporting manufacturing in certain ways..

[00:11:28] Joe Selvaggi: Can I also though, then say some of the arguments for the value of manufacturing, even if they might pay less, is manufacturing — good manufacturing — begets more good manufacturing. That is, we have some institutional knowledge that leaves when we export that tee-shirt factory from the Carolinas. We learn, we forget to learn how to build tee-shirts and services aside, we need to make things in order to service things. So what do you say to the argument that the foundation of everything is making stuff?

[00:11:57] Scott Lincicome: Yeah. I, there’s just not a lot of data to support that. Once you establish that the United States has an industrial base, because certainly if there were a situation where the United States had really a very small and declining manufacturing base that could not provide steel for the military or something like that, you could have a different conversation about that. And that’s important. But since we have established that kind of baseline capacity, the rest of it really just isn’t supported. I mean, in terms of things like research and development and innovation, we are still home to the most innovative companies in the world, whether it is related to straight-up services or whether it is companies that are tied to a manufactured good, like an iPhone, for example.

[00:12:48] I mean, Apple spends more on R&D every year than a lot of small countries, right? At the same time, you still have — because you have that kind of baseline industrial capacity — you have a lot of that technical skill still there. But, and this is a big but, the problem that I think manufacturing really does have in the United States, is simply getting workers and having American workers be interested in going into manufacturing.

[00:13:19] You know, we hear the manufacturing decline story is really on the demand side, right? We demand, in other words, we need tariffs, we need subsidies to induce more demand for manufacturing workers. But the reality is, manufacturing job openings in the United States are, even after recent declines, way above their historical averages, hundreds of thousands of manufacturing job openings.

[00:13:44] American manufacturers are constantly complaining about their inability to find workers, even in these kind of higher-paying industrial sectors. The Department of Defense, when it writes up its industrial-based strategies, talks about how the kind of lack of available workers and lack of interest among young people in manufacturing is a far bigger problem than that demand-side stuff. So, we have a supply-side issue. Now, there is a solution to that, but it’s one that the nationalist side really didn’t want to talk about. That’s immigration, right? There, if we did have an expanded increase in legal immigration, you could fill some of those jobs. You could have more supply, labor supply.

[00:14:30] You could have more output. But again, that’s not in the kind of nationalist narrative, right? It’s always about, ‘Oh, we’re getting killed by imports. We’re getting killed by foreign subsidies and we need tariffs and the rest, to induce demand for those workers.’ But that’s just not really in the data.

[00:14:48] Joe Selvaggi: You’ve brought up the topic and I wanted to get into it later, but let’s jump into it now. I think the old, the sort of the, you called it nationalistic. I’ll call it the China is eating our lunch contingency. And the narrative goes like this: We live in this free market libertarian utopia, driven by ideologues, perhaps by folks like you and me.

[00:15:07] Scott Lincicome: Yeah, I run Washington.

[00:15:08] Joe Selvaggi: Yeah, that’s right. Corporate shills. and everybody elseis much smarter than we are. And what they mean is they’re either subsidizing or, their own domestic production and putting tariffs on our imports. Ergo, All our jobs are going to them, and we need to respond in kind. Let’s break that down. Do we live in a free-market world where we don’t impose tariffs on other products? Or, you know where I’m going with this. What is our sort of trade state now?

[00:15:35] Scott Lincicome: Yeah, if only! If only we lived in a free market paradise, right? No, the reality is that the United States is a mixed economy as it always has been. We still have a bunch of protectionism on the books, whether it is things like the Jones Act, which requires American ships to bring goods between ports or steel tariffs. We have hundreds upon hundreds of these things called trade remedy duties on imports of all sorts of products, especially steel products, but all sorts of manufactured goods. And then we have high baseline tariffs on things like textiles and footwear and sugar quotas and the rest. So, there’s still a ton of protectionism. We also still have — even before for the trillions of dollars in subsidies that have been approved over the last couple years, Bidenomics industrial policy — [00:16:25] Even before that, we had a lot of subsidies for manufacturing. We had a lot of efforts to bring back manufacturing jobs via subsidies and other things. So that’s, I think, the first big myth, that we live in some sort of a fundamentalist paradise. Again, it’s just a mixed economy. The kind of things can ebb and flow.

[00:16:45] Average tariff rates can go down, but there’s still a ton of other types of protectionism and subsidies baked into the U. S. economy. And certainly I’d like to see us get rid of those. But I, again, I don’t actually run Washington. But the other, I think, the two other big flaws in that narrative are, one, it totally ignores how globally integrated American manufacturers are, and, this is not Team America versus Team Japan or Team China or whatever. The reality is that about half of everything we import in terms of goods is stuff — capital goods, equipment, raw materials, energy — that American manufacturers use to make other stuff. So, automobiles, classic example. You import some auto parts or some steel or aluminum or whatever to make an automobile in the United States.

[00:17:43] Second, though, is that those importers are also huge exporters. In fact, the biggest importers of that stuff are also our biggest exporters of that stuff. I know Boeing is going through a rough time right now, but they’re the classic example. They do import a good amount of equipment and materials and stuff, but they use that to make planes that they then sell abroad.

[00:18:06] They’re a huge exporter of those products. So that’s a huge myth. This idea that just it’s American vertically integrated or whatever. So what that means is that if you put tariffs on products, you’re going to hurt American manufacturers. When we put steel tariffs on steel during the Trump era that Biden administration kept, studies show that they actually hurt manufacturing output. It hurt profits. It hurt jobs, because so many American manufacturers use imported steel that suddenly got more expensive, right? And the steel companies didn’t suddenly make up for that loss, right? So, it’s not as simple as, we’ll protect our team and attack their team. It just doesn’t work like that.

[00:18:50] But the other, let me just get to the other big myth quickly. And that is that if you actually look at the countries that have embraced more protectionism and embraced more industrial policy, they suffer from a lot of problems too. China, the classic example, this kind of narrative that existed in the 2010s and even into the early pandemic days of China being this unstoppable economic juggernaut that used state capitalism, protectionism, industrial policy to produce this just incredible manufacturing powerhouse that was going to crush the global economy. Well now you look at China and you see the economy is struggling, via all sorts of resource misallocation in the property sector and the manufacturing sector. In fact, the United States economy actually increased its lead in terms of GDP versus China last year. That the Chinese manufacturing sector has achieved some of what I would call its successes, at least in the near term, something like electric vehicles being the common example, but they’ve suffered a lot of big losses too.

[00:19:58] And the studies that actually look at Chinese industrial policy and look at the sectors shows a lot more problems in those sectors — lower productivity, corruption, and, like I said, resource misallocation, bloated sectors that aren’t producing anything of value than the winds. So, that model can sometimes produce a sector that is doing okay, that again, at least in the short term. But it produces a lot of bigger problems, too. Problems that the diverse, thriving, dynamic U.S. economy just simply doesn’t fact outside of, I should note, some of our most protected and coddled industries. You know, shipbuilding is in terrible shape. It’s also one of the most protected sectors in the U. S. economy. and it’s really those places that need more exposure to free market competition and the rest, so that they can get back on the right track.

[00:20:54] Joe Selvaggi: I think the baby, we won’t go into this, but the baby food issue during COVID was a classic example of a protected industry that once harmed, by not diversifying, we’re out of baby food.Yeah, go ahead.

[00:21:02] Scott Lincicome: I was going to say, I think baby formula also gets to another myth, and that is that we somehow boost our economic security and our economic resiliency by bringing all of our manufacturing back, by protecting these industries. And baby formula was a great example. When a single factory in Michigan went down, it collapsed the U. S. market for a year. It was one of the deepest and most prolonged crises of the pandemic, and it was all because we had these massive tariff and non-tariff walls around the economy, and you only had a couple producers here, and it, and the whole system was so brittle that it fell apart.

[00:21:38] Joe Selvaggi: Indeed, and I have lively conversations with my friends who do believe in protectionism, and I say, okay, it’s easy to understand if we put a tariff on Barbie dolls, that if the person who buys the Barbie doll pays the tariff, meaning I don’t understand why it is that tariffs somehow seem to be imposed on a foreign product. If you buy that foreign product with the tariff, you pay the tariff. But Barbie dolls are easy to understand. I pay a higher price for a Barbie doll. But if it’s steel, that’s input for all kinds of products. So American consumers pay the tariff that’s being imposed. So it’s a classic public choice theory, which is, you know, concentrated benefits, maybe a steel worker somewhere in Pennsylvania, but all of us pay more for everything.

[00:22:16] Scott Lincicome: Yeah, and the studies that look at this stuff show that we as consumers — and by consumers I don’t just mean you and me — I mean companies that are consuming these products, too, we paid about $900,000 for every job even possibly created by those steel tariffs. Same goes for tires when President Obama put tariffs on tires. So yes, you can save some jobs, you can create some jobs, but the cost of doing so is immense. And I would add that it’s not just an economic cost. Of course, that’s important. Of course, that $900,000 per job is terrible. But the thing that protectionism and industrial policy also does is create a really bad set of political incentives. The fact is that when you look at government-subsidized projects, whether it’s at the state level or the federal level, even when they fail, they tend to stick around for years, if not decades, because, of course, politicians have a vested interest in keeping those projects humming. There’s an empty Tesla factory in upstate New York that’s just sitting around, hanging on, still supported by the state of New York, because again, those politicians really want to see it succeed, when in a free market that thing would have gone away. But you also see increased lobbying. So, as you have more protectionism, we saw a really substantial increase in lobbying and lobbying spending on trade-related activities, because everybody has to — they either want their own protectionism or they want exclusions from the protectionism — so you get a lot more cronyism and potential for corruption and graft that just simply won’t exist in a freer market system.

[00:23:59] And now, look, you’re still going to have lobbying, but it’s just the kind of extent of it increases when you have more government involvement in these areas, and that just leads to more of the bad policy, you have, folks again demanding their own tariffs. They say, ‘Oh, if that’s national security, then I’m national security. We need all this stuff.’ And then you just, we all end up even worse off than just that straight economic cost of that single action.

[00:24:26] Joe Selvaggi: Okay. I think people intuitively understand, industrial policy is effectively — if it’s not free market, it’s the opposite. It’s less competition means products are less high quality and more expensive. I think people intuitively understand it. Nevertheless, industrial policy seems to feel good. Let me point to one area that I think it really feels good to people, which is the idea that sure, cheaper, better products, a global economy means it. All boats rise, but not really, because as we say, diffuse benefits, concentrated harm, perhaps, if you’re the worker that gets displaced, then it really matters. You don’t worry so much about the $900[000] that was used. It’s your job that was saved. What about the idea that all this prosperity is winding up concentrated in prosperous areas of the country, like where you are in D.C. or where I am in Boston or Silicon Valley. We’re all benefiting from a global market of free trade and the poor guy in West Virginia is getting the shaft. Couldn’t we do better and in a sense protect those areas that need protecting and  the laptop class, well, let them face a global competition. What do you say to something like that?

[00:25:31] Scott Lincicome:  Yeah, so there’s a few, there’s a few problems with that argument. The first is that, protected jobs — so, pick the policy you hate the most in government, whatever it is, and you can see that the policy, the jobs that do exist, really aren’t there because of the market. They’re there because of the government support. So, if you have, say, ethanol, for example, ethanol has all these problems. Yes, there are ethanol jobs related to that, but those jobs really, in a freer market, would not exist in the first place. But beyond that, there are other big problems with the argument. The second is that we all benefit from — even those guys in West Virginia you mentioned — benefit from the competition and disruption that free markets produce.

[00:26:25] As I always say, it’s the price of admission for a prosperous society. You know, if you were, and it doesn’t have to be trade related, it could be two different gas stations on a street corner, right? When you start saying, ‘No, we’re only going to have one gas station, we’re only going to do this,’ well, that lack of disruption, that lack of competition, is bad for everybody. It’s bad for not just the laptop class. It’s bad for everybody in terms of less, not just prosperity, but lower living standards and the rest. You also at the same time though, you simply mean that you’re going to be making people pay more for whatever is protected, right? You know, protectionism raises prices. That’s what it’s supposed to do. That’s the whole point. And when you raise prices, who hurts the most when you raise food prices or appliance prices or whatever? That’s the poor and the middle class, right? Because they have less disposable income to spend on that stuff.

[00:27:24] But it also means that they have, when you pay more, you can’t then use the money you save on other things, and that means that there are other jobs in the community that will never exist, but, or they’ll be hurt by it. That kind of additional protectionism, those higher prices. and then finally, you actually have to look at the data here on what happens when you liberalize sectors.

[00:27:49] And the fact is that yes, certain mill towns in certain places have been hurt, but far more of them have adjusted and moved on and they’ve been better off for doing so. One of my favorite examples is Greenville, South Carolina, which used to be a textile town. Of course, there was a lot of increased trade liberalization in textiles decades ago. And Greenville didn’t just say, ‘Oh, that’s it, we’re folding up shop.’ They’ve now become a center for multinational manufacturing. There’s a big BMW facility there. They are big in services as well. It’s voted one of the best places to live in the country now. So they adjusted. And that’s where policy really should focus. Policy should be focusing less on preventing that beneficial disruption from happening, and more on helping workers adjust to whatever comes along. And there are so many barriers in the U.S. economy, whether it’s occupational licensing or housing regulations or whatever, that things that make it hard for people to move on, to adjust to whatever comes their way. That’s where policy should be focusing. Not on, again, preventing disruption from happening, from freezing the U. S. economy in amber in 1979. We’d all be much, much worse off if we did that kind of thing. the common thing, we’re getting

[00:29:07] Joe Selvaggi: Well a common theme — we’re getting close to the end of our time — but I want to squeeze in a few extra questions if you’ll, humor me here. If there’s a theme from this podcast, we do believe in free markets and the wisdom of free markets,free markets don’t address everything because they’re not, there’s you and I making millions of choices every day. What about those sectors that we really strategically do need? You know, defense or something like this?  Well, it’s if the market just decides, and we don’t really decide we want to make aircraft carriers anymore, and China can make them cheaper or somebody else can make jet planes or tanks. Somebody needs to be steering the ship in the right direction such that we don’t ultimately outsource those things we need for strategic defense. What do you say to that? Where the market essentially is silent?

[00:29:45] Scott Lincicome: Yeah, no, I think even hardcore free marketers, Milton Friedman or whoever, admit that there is a legitimate exception for national security, right, to protectionism and free trade, free markets and stuff. That you’re not going to see many libertarians like me getting mad that the Department of Defense is subsidizing the construction of tanks or whatever in the United States. But, and this is the big but: You have to acknowledge first that the national security exception is routinely abused, that you start with, well, we need to make tanks and fighter jets in America. And the next thing you know you have senators literally claiming that sugar is a national security issue. That’s a senator from Florida. The other day, garlic — imported garlic — was a national security issue. And that’s so you need to keep your kind of skepticism antennae up, right? Because, yes, we can have legitimate exceptions to national security. But, or to, excuse me, legitimate national security exceptions to protectionism and industrial policy, but they should be very narrow, very targeted, and we should be keeping a very close eye on all that stuff. Because the minute you open that Pandora’s box, you start looking at more commercial-related items, you end up with all these crazy things. I mean, we put tariffs on steel rebar, which is one of the — you know, used in construction.

[00:31:15] It’s one of the lowest grade steel products from close allies like Canada. That is not — and we did it on national security grounds. That’s nonsense, right? Especially when the Department of Defense wrote the Trump administration and said, ‘We’re fine. We only need about 3 percent of total U. S. steel production. We are, it is not a huge concern. you can deal with a few related specific products. You can deal with China or specific bad actors, but we don’t need these global tariffs.’ And what’d we get? We got the global tariffs, right? So prone for abuse. But the other, I think, really critical point in all of this is that it ignores that we already have laws on the books that allow for just that type of targeting.

[00:32:01] The Defense Production Act has been abused in recent years, but the main point of the Defense Production Act is legitimate. It allows the Department of Defense to look at its defense supply chain and say, ‘Aha, there’s a widget. That we really need to make laser guided missiles or whatever. And this company is struggling to remain viable, so we’re just going to give them subsidies. We’re going to give them contracts to ensure that they produce the widget we need for our weapons systems.’ Totally fine, right? That’s not what industrial policy advocates want at all. What they want is broad subsidization of commercial products. They want protection of commercial industries that have very little connection to national defense. Solar panels are not a national defense issue. We have all these tariffs on solar panels and the rest, and that’s totally ignored. And then finally, they ignore that we have a lot of close allies, the closest treaty allies you can get — Canada, Japan, elsewhere — that are really,  really good at making certain things — and we should be leveraging that capacity, that knowledge as well. And we have — whether broad free trade agreements or defense-related agreements — that can do that too. You don’t have to make every single thing in the United States if you have, again, these close allies, these secure supplies, the ability to stockpile things as well. You can do all of that. You can do it well. It doesn’t require autarky.

[00:33:34] Joe Selvaggi: So, we’ve talked about, again, and this is the last question. I’ll say, you talked about the exceptions, so I’m going to ask the question I ask most of my guests, king for a day kind of thing. As a free marketer, you stipulated there are some exceptions when we realize about national security, but other than that, would your perfect world that we talked about — we don’t live there yet — would it be, on the back of an index card, our policy is ‘All trade shall be free,’ and you submit that, or are there ways that deliberate, intentional policy might benefit the American economy and the American worker?

[00:34:04] Scott Lincicome: So, I think, yes, there is a place for unilateral liberalization of U.S. trade barriers on a very wide scale. And that starts with consumer goods. There is zero reason why we should be having 40 percent tariffs on children’s shoes. There is no reason why we need all those sugar quotas and the rest. So, there is a laundry list of stuff that currently has tariffs and trade remedies and other things that should be zeroed out instantly. That also goes for the vast majority of industrial inputs. Again, acknowledging that American manufacturers import these things to make other things, most manufacturing inputs should be completely liberalized trade, and those products should be liberalized, too. And then there should be exceptions for defense-related goods or processes for determining where, you know, there are potential security, real defense risks. But that goes from a world of where the presumption is in favor of free markets and free trade and the exceptions are very narrow, and that’s of course not what we have in lots of areas. You know, again, I mentioned the Jones Act being a classic example, but there’s tons of things like that. And then finally, where we do have laws in place that, say, allow for duties to be imposed when, there is a lot of subsidization of product abroad — we have a CVD law that does that — but where we have those laws in place that allow for a kind of a safety valve or a check on true free trade, we really need to make sure that there are big — well, that it’s narrowly applied and has checks on the most kind of egregious cases, what we call public interest tests and other things.

[00:35:57] Right now, U.S. trade law is on autopilot. If you ask the government for protection, a 98 percent chance you’re going to get that protection. And, even in the middle of a supply chain crisis or a pandemic or whatever, the government cannot prevent those duties from being imposed. And so, we need laws that are better able to acknowledge when exceptions need to be made so that we can allow for the kind of the free flowing of goods during the pandemic. I mean, duringi the pandemic, 3e were having a housing crisis and we had tariffs on lumber. We were having a port crisis and we put tariffs on container, shipping containers. You can go down the list and that’s just because protectionist law in the United States is on autopilot, and there are no such exceptions for those types of situations.

[00:36:47] Joe Selvaggi: So, I’m sure we’ve poked a lot of people’s preconceived notions about trade and they want to learn more. Where can our listeners read more of your work? And you’ve, you opened a center, I think you have your own like little AV room over there at Cato. I’ve seen some presentations there where — like your TED talk stage. Where can our listeners read more or view more of your work over there?

[00:37:13] Scott Lincicome: Sure. Cato.org, CATO.org, is the easiest place to find us. We’ve launched this big project on globalization in the last year, so if you just Google Cato globalization, it would all come up. And we have dozens of essays on everything you could ever imagine, including on manufacturing, but on all sorts of other things that are quick and dirty reads on these issues. And then, I, look, I’ll have to plug, I have a weekly newsletter over at The Dispatch, and you can subscribe there to get once-a-week musings from me on all sorts of things as well.

[00:37:46] Joe Selvaggi: Yes, we endorse The Dispatch as well. Very good stuff. And, again, ultimately, where our listeners will think we’re some shills for corporate America. It’s ultimately the American consumer, which we all are all consumers, that it benefits from everything we’ve said it. That no one can dispute that. So, I really appreciate you coming on and helping us all better understand the world that we live in. Thank you.

[00:38:05] Scott Lincicome: My pleasure. Thanks for having me.

[00:38:09] Joe Selvaggi: This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute. It would be easier for you and better for us if you subscribe to Hubwonk on your iTunes podcatcher. It would make it easier for others to find Hubwonk if you offer a five-star rating or a favorable review, we’re always grateful if you share Hubwonk with friends. If you have ideas for me or suggestions about future episode topics, you’re welcome to email me at Hubwonk@pioneerinstitute.org. Please join me next week for a new episode of Hubwonk.

Host Joe Selvaggi interviews Scott Lincicome from the Cato Institute. They discuss the U.S. manufacturing industry, international trade, and industrial policy. They dispel the myth of manufacturing decline, highlighting sector evolution and productivity. The conversation moves to industrial policy, emphasizing the need for targeted protection and cautioning against broad subsidization due to potential inefficiencies. Benefits of free markets and globalization for consumers are underscored, with a brief touch on immigration as a solution to labor shortages and a debate on protectionism and tariffs.


Scott Lincicome is the vice president of general economics and Cato’s Herbert A. Stiefel Center for Trade Policy Studies. He writes on international and domestic economic issues, including international trade; subsidies and industrial policy; manufacturing and global supply chains; and economic dynamism.

Lincicome also is a senior visiting lecturer at Duke University Law School, where he has taught a course on international trade law, and he previously taught international trade policy as a visiting lecturer at Duke. Prior to joining Cato, Lincicome spent two decades practicing international trade law at White & Case LLP, where he litigated national and multilateral trade disputes and advised multinational corporations on how to optimize their transactions and business practices consistent with global trade rules and national regulations.

From 1998 to 2001, Lincicome was a trade policy research assistant at Cato; he became an adjunct scholar in 2013. During that time, Lincicome authored or coauthored several policy papers, as well as numerous op??eds on trade and economic issues. He is routinely featured on TV, radio, and print media.

Lincicome has a BA in political science from the University of Virginia and a JD from the university’s School of Law.