Greg Autry is an Assistant Professor of Clinical Entrepreneurship at the Marshall School of Business, University of Southern California. He serves as senior economist with the Coalition for a Prosperous America. You can find him on Facebook.
[Reposted from the Huffington Post | Greg Autry | May 11, 2015]
The White House claims that Obama's Trans-Pacific Partnership would help counter China's growing economic and military threat. Many Republicans, including nominal pro-defense patriots, are curiously supportive of the President in this case. Ironically bipartisan trade policy created our China problem in the first place and this latest love fest demonstrates a shocking lack of appreciation for a primary source of American military strength, productive capacity.
America has stubbornly pursued trade agreements without any regard to strategic industrial policy. Regardless of the party in the White House we've maintained a truly gullible approach to the rough-and-tumble of real-world global commerce. That has earned us little besides a half-century of growing net losses. The countries beating us worst are the ones with actual industrial strategies: Germany, Japan, South Korea and China. Today we are now bleeding 4 percent of GDP annually. To cover those we've sold our assets and accumulated a debt unknown in human history.
During this period, our competitors have maintained a laser like focus on capturing U.S. manufacturing jobs and while the free trade pundits are quick to dismiss manufacturing as irrelevant, the resulting erosion of America's industrial base has serious strategic implications. Maintaining military production in a "service economy" is simply farcical.
Sophisticated systems require healthy and diversified supply chains. The efficient production of specialized, low volume products, like military aircraft, depends on supporting industries that provide a sustained demand for subcomponents, services and factors of production. A nation efficiently producing jets and submarines must also have domestic demand for steel, aluminum, carbon fiber, precision machined parts, hydraulics and electronics. Production of these materials at a sustainable level depends on markets in things like aircraft, autos, boats and consumer electronics.
Meanwhile, our growing public debt and entitlement obligations foretell ever-shrinking defense budgets. Military production must become more efficient and consequently more integrated with the commercial supply chain in order to capture economies of scale. That this supply chain is increasingly out of American control should seriously concern supposedly conservative members of Congress.
Significant wars are settled by productive capacity. Japan's Harvard educated strategist, Isoroku Yamamoto, sulked after his brilliant victory at Pearl Harbor because he was keenly aware of what America's productive capacity would do to his Japan in the long run. The Admiral reported that, "I can run wild for six months ... after that, I have no expectation of success." China was of no concern to Yamamoto, because that nation's agrarian and service economy lacked manufacturing. Japanese troops indeed "ran wild" in China, raping and plundering that nation for years.
While Hawkish members of Congress love America's technological edge, it offers no panacea. Nazi Germany enjoyed an immense technological advantage with jets, rockets, cruise missiles and better gear of all sorts. American manufacturing crushed them as the comments of a German lieutenant suggest, "I was on this hill as a battery commander with six 88-millimeter antitank guns, and the Americans kept sending tanks down the road ... Every time they sent a tank, we knocked it out. Finally, we ran out of ammunition, but the Americans didn't run out of tanks."
For a modern analogy, consider our F-22. The Raptor is the world's finest aircraft and China's knockoffs are blatantly inferior. In a Sino-American conflict each of America's 187 Raptors would down several Chengdu J-20 Stealth Fighters. Yet we may face the dilemma of what to do when we see 3,000 Chinese jets heading over the Yellow Sea, Straits of Taiwan or the Sea of Japan. It's a powerful thing to be the workshop to the world.
After rescuing East Asia from Japan, America spent seven decades keeping that region safe for prosperity. Ironically, we are now challenged by Chinese military growth funded by our trade deficit with China and its state-owned enterprises. Beijing's massive investment in regional and strategic weapons, combined with increasingly bellicose behavior has frightened its neighbors and promoted Obama's "Asia Pivot." It would be funny if it wasn't so frightening to understand that the administration is borrowing money from China to defend our future TPP partners from ... China.
Some naively assert that a supply chain diversified to friendly nations is secure. When China moves, the fate of Asia's TPP members and their neighbors will be swiftly settled. Beijing is planning to deny America naval and merchant marine access to Malaysia, Singapore the Philippines and even Japan. They've made serious preparations to invade Vietnam and Taiwan. Beijing's shorter lines of support and productive capacity will make it impossible to extract them. Regardless, Chinese shippers increasingly dominate the Pacific Trade and they are often operating from Chinese controlled ports abroad.
It's important to remember the biggest backers of the TPP are the same multinational corporations and bankers that got rich transferring the American technology, jobs and capital that built the Chinese threat. When supporting China's effort to join the World Trade Organization a decade ago, they argued that trade would strengthen U.S. manufacturers and liberalize China's communist dictatorship. Now they propose that we contain our new, best "frenemy" with trade. Fool me once shame on you...