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In 2011, then-President Barack Obama attended an intimate dinner in Silicon Valley. At one point, he turned to the man on his left. What would it take, Obama asked Steve Jobs, for Apple to manufacture its iPhones in the United States instead of China? Jobs was unequivocal: “Those jobs aren’t coming back.” Jobs’s prognostication has become almost an article of faith among policymakers and corporate leaders throughout the United States. Yet China’s recent weaponization of supply chains and information networks exposes the grave dangers of the American deindustrialization that Jobs accepted as inevitable.
Since March alone, China has threatened to withhold medical equipment from the United States and Europe during the coronavirus pandemic; launched the biggest cyberattack against Australia in the country’s history; hacked U.S. firms to acquire secrets related to the coronavirus vaccine; and engaged in massive disinformation campaigns on a global scale. China even hacked the Vatican. These incidents reflect the power China wields through its control of supply chains and information hardware. They show the peril of ceding control of vast swaths of the world’s manufacturing to a regime that builds at home, and exports abroad, a model of governance that is fundamentally in conflict with American values and democracies everywhere. And they pale in comparison to what China will have the capacity to do as its confrontation with the United States sharpens.
In this new cold war, a deindustrialized United States is a disarmed United States—a country that is precariously vulnerable to coercion, espionage, and foreign interference. Preserving American preeminence will require reconstituting a national manufacturing arrangement that is both safe and reliable—particularly in critical high-tech sectors. If the United States is to secure its supply chains and information networks against Chinese attacks, it needs to reindustrialize. The question today is not whether America’s manufacturing jobs can return, but whether America can afford not to bring them back.
The United States’ industrial overdependence on China poses two profound national security threats. The first is about access to the supply of critical goods.
The second risk of U.S. industrial dependence on China is about the integrity of powerful dual-use commercial technology products: civilian goods such as information platforms, social network technology, facial recognition systems, cellphones, and computers that also have powerful military or intelligence implications.
The United States’ slow drift toward deindustrialization is not a threat to Democrats or a threat to Republicans—it’s a threat to the United States. Addressing it will require an American solution that transcends party lines. It will require an extensive collaborative effort between the government and private sector to take inventory of the products salient to national security—determining which high-tech and vital goods must be produced domestically, which can safely be sourced from allies and friendly democracies, and which can still be imported from the global market, including from authoritarian states like China. Carrying out this strategy and operationalizing it will take time and substantial resources.
Reconstituting America’s domestic production capacity will be contingent on procuring a reliable, abundant supply of key natural resources at a low cost, building up a large talent pool of skilled industrial workers, and making substantial investments in fostering hotbeds of innovation.
Full disclosure: I have a small position in MCSMX.For starters, the goal of reopening factories won’t be economically sustainable if the United States can’t ensure cost-effective access to natural resources and raw materials those factories need to produce finished, manufactured products. China has made acquiring premium access to resources such as zinc, cobalt, and titanium a national priority. By making investments and loans worth hundreds of billions of dollars across the developing world—particularly in Africa—it has established a model of trading technology and infrastructure for resources. In one such case, China struck a deal with a Congolese mining consortium, Sicomines, to secure access to critical minerals for electronics like copper and cobalt in exchange for investing in essential infrastructure projects like hospitals and highways.
To compete, the United States and its allies will need to play a shrewd game of macroeconomic chess, offering their own funding for infrastructure and development, but without the predatory debt-trap qualities that often accompany Chinese funding. Many African countries have interlocked their economic futures with China because they see little alternative—if Chinese loans once came with few strings attached, they now often require adherence to a variety of CCP norms. Last month, the Senate Foreign Relations Committee offered one idea: an International Digital Infrastructure Corporation that would offer these countries the financial incentive and support to buy and install American-made hardware. Providing that alternative—assistance and financing that authentically empower recipient governments and benefit the local population—could shift the economic orientations of nations that would prefer to be less entwined with an expansionist authoritarian power. It could also serve as a powerful tool to supply U.S. and allied manufacturers with critical raw materials needed for the production of strategic hardware.
© 2015 Mutual Fund Observer. All rights reserved.
© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
Comments
Thought provoking - meshes with the report from The Manhattan Institute concerning rare earth metals and renewable energy. A couple of thoughts -
1) I think the TPP was designed to help in this area (ie: a combined response to China’s take no prisoners tactics).
2) The author is recommending an industrial policy - hasn’t this country shown that our version of capitalism is superior to central planning? (I’m thinking Japan in the ‘80s, more than the USSR) I’d like to hear the counter argument, maybe from Russ Roberts on EconTalk.
3) Note that he doesn’t say the US needs to relax permitting requirements so as to mine the necessary resources here.
4) US manufacturing jobs have declined since the ‘80s (?) but as a % of GDP, manufacturing in this country has held its own.