ML-Implode News - Will Import Substitution "Work"?

For the past month there has been a steady stream of business leaders from some of the most successful U.S.-based multinational companies visiting the White House. Even though many have more employees and customers outside the U.S. than inside, few admit it. There has been nary a word about global markets, international supply chains or the value of all employees including those in Mexico, China, Brazil, India and Africa. Nor has there been thoughtful discussion about the difference between short-term narrow interests versus long-term enlightened ones.
After a lecture about President Trump's "Build It Here, Sell It Here, Buy It Here" doctrine, business leaders seem either to avoid eye contact or nod in agreement by highlighting previously announced U.S. hiring plans. Some go further by volunteering to abandon workers at one of their low-cost foreign factories...

While not preferable, executives know they can still make money in such a protectionist environment, at least for a while. To make it work, one needs to secure big subsidies, keep investments at a minimum, and above all get the government to reduce or--better yet--eliminate competition. That's because the key to import substitution for business is higher prices. Much higher prices! Mr. Trump clearly knows this because he wants whopping 35% to 45% import duties. The fear is that if consumers aren't willing to pay the premium that protectionism provides, the whole system collapses. People fix up used cars instead of buying new ones. The same goes for other durable goods.

While some Americans say they are willing to pay more for the benefits of protectionism--more jobs sewing clothes and assembling machinery and electronics--their enthusiasm may wane when the negatives on the export side of the ledger kick in. First to be hit would be American farmers and ranchers, who often export a third of their harvest and herds. Then it cascades down. Smaller crops mean fewer tractors, which mean less steel and so on. Then the folks who make big-ticket export items like jets and bulldozers are targeted for retaliation.

Our $.02 on this subject is that, while we agree with Trump's objective of more goods being made in the U.S., that cannot be done in the absence of real, long-term, domestic investment in business and industry. And shoveling more precious cash into the maw of military spending is exactly NOT the way to do that (indeed, according to some very good research, the U.S. lacked an entire "second industrialization" in the modern era precisely because the capital needed was shifted to the military sector). Of course, as we never tire of saying, the other big issue is that we need monetary reform, so that the savings-and-business-investment system functions like it should once again.

Relevant:

Will Import Substitution "Work"?