Liberation Day on I-95

The World turned Upside Down

Sanity Goddess and I have been on the highway for the past few days, leaving the winter Sanity Shack and traversing the East Coast on I-95. Normally, we listen to music…and we did some of that. But we also spent a lot of time listening to CNN on Sirius. That meant inflicting Donald J. Trump on SG for almost an hour—59 minutes more than her synapses would normally tolerate. But this was important! It was Liberation Day (and SG amused herself by noting whenever Trump jumped off the teleprompter and started riffing—it was always about him). Meanwhile, I counted cars.

There were very few “American” cars on that asphalt desert. I put that in quotes because it’s hard to know how many Toyotas and Hyundais and KIAs and Hondas whizzing along were Made in America. Actually, none of them were, entirely—nor were the occasional Chevys and Dodge Chargers. Most of them were made, in part, here and, in part, there. Pickup trucks were more than 50% American brands, almost all with some foreign parts, but where are the Buicks of yesteryear? And Ford sedans? Hen’s teeth. The Germans were fewer than expected…all of which is Donald John Trump’s point, with his tariff mania. Driving along, you could feel his argument. “American” cars were overwhelmed by imports. (I did note, however, that the big Winnebagos, towing autos north toward Spring were mostly towing American-brand vehicles.)

This raises a question. Whatever happened to the American auto industry? There is the basic fact that American cars begin to suck around 60 years ago—there were domestic flurries, like Lee Iacocca’s K-Cars and assorted minivans…And there are still more than a few Caddies about. But it’s been apparent for a half-century that American sedans were precarious tin cans that fall apart very quickly, so you can be lured into buying another. They are paragons of planned obsolescence. Twenty years ago, I first experienced the reliable joy of driving a Toyota Camry hybrid. I remain brand loyal. No reason to change. Especially since the American junkpiles pretty much cost the same. And guzzle more gas.

There are liberal and conservative explanations about why this implosion happened. Both sides are right. Conservatives are correct that union labor pushed its luck too far in negotiations. That’s why Datsuns and Toyotas—and Hyundais (back to them in a moment)—were so cheap. Another reason is that we didn’t tax or tariff them very much. I remember an ad the Rep. Dick Gephardt put on the air in Iowa at the beginning of the 1988 presidential campaign:

"They [American auto workers] work their hearts out every day trying to turn out a good product at a decent price. Then the Korean government slaps on nine separate taxes and tariffs. And when that government’s done, a $10,000 Chrysler K-car costs $48,000 in Korea. It’s not their fault we can’t sell our cars in a market like that—and I’m tired of hearing American workers blamed for it."

Gephardt then defended his trade policy:

"I’ve been criticized for my trade policy—for saying it’s time to open up markets and push down trade barriers like those Korean taxes and tariffs. The Gephardt amendment calls for six months of negotiation. And if that doesn’t work, and I’m President, and we have to walk away from that table, the Koreans will know two things: They’ll know that we’ll still honor our treaties to defend them—because that’s the kind of country we are. But they’ll also be left asking themselves: How many Americans are going to pay $48,000 for one of their Hyundais?".

Gephardt was running last among the seven Democrats at that point. In a matter of weeks after the ad appeared, he took the lead and won the Iowa precinct caucuses. He didn’t win many more primaries after that, which was an early sign that industrial labor unions didn’t carry the heft they used to have. But it was a great ad…and it reflected a diminishing Democratic orthodoxy. That orthodoxy has been maintained by politicians like Bernie Sanders and, more reasonably, by Sherrod Brown—but the liberal Dems were the party of tariffs. The Republicans stood vehemently where the Wall Street Journal still is: free markets and free people.

The basic conservative argument was: it was labor what killed Detroit. More sophisticated moderate Dems argued more obscurely, but very much accurately that Detroit died when the accountants replaced the engineers running the companies. Car guys like Iacocca and John DeLorean and maybe even Edsel Ford (Do you remember what the Edsel looked like? Wild.) were replaced by green eyeshade guys. With labor so costly, every corner possible had to be cut. American car doors rattled emptily when they shut; on my Toyota, the door thunked.

This was Exhibit A in the death of American manufacturing. It continues to this day: Boeing is in a world of hurt because the accountants supplanted the airplane guys. And it infected the entire society in the 40-year heyday of economic Neo-liberalism. The financial sector ruled. There were mergers and closures and hollowing out. The best minds went to Wall Street to create new, exotic financial products; they didn’t go engineering design centers to create brilliant new cars or airplanes. Manufacturing floated offshore.

After I made a cross-country road trip about 15 years ago, President Obama asked me what I’d learned. I told him that people really wanted to know what he thought about China. Why didn’t he give a speech about trade? The speech was never made. But the issue festered.

And so, as with so many Trump initiatives—the border, racial preferences—there was a public desire for a change in trade policy. The offshoring had become dangerous—as Joe Biden recognized when he signed the Chips Act, to bring the manufacture of those crucial silicon slivers back to America. Steel and other necessary components had been off-shored as well. We depended on China for some weapon systems. There was a broad recognition that free trade had gone too far; that balance had to be restored in the interests of national security.

As Dick Gephardt pointed out, we allowed developing countries to play unfair on a myriad of less essential items. There were reasons for that, a theory behind it: The economy would be more efficient if low-wage workers performed low-skill jobs, like making steel and shirts and sneakers. The theory worked: we wouldn’t have Walmarts without it. Lower prices meant more prosperity—or, at least, less pain—even for those families who lost manufacturing jobs and had to settle for less lucrative service industry work.

There was yet another unsuccessful aspect to the Neo-Liberal regime. The theory was that the world would be a more stable place if impoverished countries like China and Bangladesh and Malaysia and Vietnam grew more prosperous. People like me—and yes, I was wrong about this—believed that China would have to moderate its politics, perhaps even become a democracy, if it grew more prosperous and developed a middle class that demanded a justice system and individual rights. People like me were naive. In 1993, I interviewed the chief Chinese official regulating stock markets there. He was a smart guy, Harvard MBA. I asked him what his biggest problem was. He said, “The leadership class of this society believes that insider trading is a Confucian principle.” I should have taken the hint. Different cultures, different countries had different rules of the road. Free markets and free people turned out not to be universal principles.

A correction was needed. A scalpel not a chainsaw. Tariffs on chips and steel, yes. But also a recognition that American cars, for example, were an intertwined coproduction of the US, Mexico and Canada. Parts went back and forth across the borders. Assembly happened in all three countries. All three countries prospered, even if union auto workers suffered. Tariffs on those sort of products—in fact, on most products—were stupid. As someone pointed out on CNN, Michigan’s most significant trade deficit was with lower-wage, non-union states like Tennessee and South Carolina. The new system could not be revoked without vast consequences; it might not be able to be revoked at all.

So Trump, and chaos. So recession, most likely, long and deep perhaps. And an ulterior motive, too: to raise money to pay for the Trump tax cuts. Indeed, in the case of Vietnam Trump is setting 46% tariffs not because Vietnam has equivalent tariffs on American products—but because we have a trade deficit with Vietnam. We buy a lot of sneakers and clothes from there. These are not products we want to onshore, unless we want $350 Nikes—you can’t pay American workers pennies to sew shoes. Another ulterior motive: Trump himself is empowered. There will be exceptions to the rule. The exceptions will run through him. Corporations will bend the knee, just as law firms and universities have. Countries like Vietnam will, too. But the overall effect will be a mortal downer. That vacation you were planning? Forget it. That retirement you were hoping for? After the last few days, you may have 10% less in your 401K.

Will this be a disaster for Trump? It should be. You can’t mess with people’s lives like this. You can’t assume the foolishly myopic support from the business community will stick with the Trump Administration. But I’ve predicted disaster for Donald multiple times in the past…and it never quite arrives. After the Great Biden Meander, the public seems hungry for a leader who seems decisive and confident and strong. Strength is assumed to create order. But what happens when strength creates disorder and economic disaster? We are about to find out.

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