Does President Trump realize that China is now GM’s largest market with 11 joint venture plants that produced and delivered in 2016 more than 3.8 million vehicles? That Caterpillar sales rose 25 percent in the Asia-Pacific region, thanks mostly to China, where shipments have doubled? That China is Apple’s second largest market, and Google and Facebook attracted one-fifth of global advertising spending last year, nearly double the figure of five years ago?
President Trump’s speech and doctrine on the U.S. national security strategy shortly before the holidays appears to have been written for a world where these facts do not exist, a world that doesn’t appreciate that Facebook now has more users in India than in any other country. Ignoring the facts on the ground, the president’s strategy sees the world as pre-1914, where the great powers competed against each other for market share and power.earc
But in this troublesome delusion the Trump doctrine ignored basic macroeconomics 101, David Ricardo, theory of comparative advantage written in 1817. Ricardo wrote about the ability of any given economic actor to produce goods and services at a lower opportunity cost, meaning more efficiently than others, and the advantages one gains from that.
The United States today is the global leader in technology because it creates it more efficiently. Unlike the construction of railroads or steel mills in the 19th century, where the keys to this efficiency were the ready availability of capital, inexpensive labor, the adaption of the assembly line manufacturing process, and the supply of raw materials, today the key ingredient is the free flow and ferment of ideas within a society. This ferment of ideas is a key that enables America to have a distinct competitive advantage.
The concept in the president’s doctrine that the United States is at a disadvantage because it is competing against state-controlled or semi-controlled industries in Russia and China is basically flawed. State-controlled economies on the whole directly conflict with the ability of software engineers to create an idea and translate it into an algorithm, or the entrepreneur who understands almost instinctively how to exploit the ideas generated by the engineer or the venture capitalist who judges financially which ideas will be attractive and which will not. Obviously that does not mean that these countries will not develop tech industries, just look at China. It means that the United States has an exceptional advantage.
The other fundamental problem with the Trump’s National Security Strategy is that America’s new highly competitive technology and artificial intelligence industries need globalization not national rivalries in order to grow. Jonathan Haskel and Stian Westlake describe this beautifully in their new book, “Capital Without Capitalism.” In it, they talk about how the new industries made up of intangible assets, such as software, manuals, and research and development, are now the leading areas of investment in the United States and not tangible or fixed assets such as steel mills or coal mines.
Haskel and Westlake illustrate how a company such as Starbucks, for example, has a total different global view from the traditional steel mill. It is impossible to physically move steel mills, but as the authors point out, “Once you’ve written the Starbucks operating manual in Chinese, an investment in organizational development, you can use it in each of the country’s 1,200-plus stores.” In fact, Starbucks opened a new store in China every 15 hours in 2017. The global coffee company is a minor example of how the concept of the scalability of knowledge and the move to an intangible asset economy has redefined economic activity in a manner not so dissimilar to the divide between pre-industrial and post-industrial revolution England.
Just look at Facebook’s software, which can be scaled more or less interminably, and compare it to Koch Industries and their investments in fix asset in carbon-based chemical, asphalt, and pulp and paper plants. If scalability is essential to growth in the area that America has a comparative advantage than globalization is a must. The scalable company is not fearful of domestic competition, and in their world, ideas are shared and what they want is unified fair global rules of trade. That is why the Trans Pacific Partnership (TPP) was so important for America’s tomorrow. Yet the Trump administration bragged about doing away with it in their national security strategy.
Google, Microsoft, Apple and Facebook had lobbied furiously for TPP. The proposed pact would have allowed these companies to more easily store user data across borders, enjoy stricter copyright protection while clamping down on digital pirating. It also included the world’s first set of international trade rules that would have barred governments from blocking how companies share data across national borders. This was extremely important because if data can be blocked and can’t be scaled or “balkanized,” then the growth of these investments becomes limited in a world of intangibles.
Globalization, technology and the integration of global manufacturing and supply lines have radically changed the values that are used to measure the underlying economic health and well-being of nations. A national security strategy that doesn’t recognize that is inherently detrimental to the long-term well being of the United States.
This essay first ran in the Hill on January 2, 2018
Edward Goldberg is a professor of international political economy at New York University’s Center for Global Affairs and author of “The Joint Ventured Nation: Why America Needs A New Foreign Policy.” His next book is “The Globalization Manifesto.” Follow him on Twitter @EdwardGoldberg.