Donald Trump has offered varying justifications for tariffs, depending on his audience and what's expedient at any moment. When the president chooses to mount an economic case for levies, it usually comes with the contention that trading partners are ripping off Americans. Factories need to come home — to the extent they ever left — and duties will do the trick. He professes to not care much about the crockery broken in the process, and has dubbed Wednesday “Liberation Day” in honour of his protectionist broadsides. Yet the global system he sees as a prison was anything but.
Barely mentioned is that for decades, American companies were buoyed by making products abroad. The practice brought benefits for the domestic economy, helped put a lid on inflation, and delivered influence for Washington. US partners prospered and, as their living standards climbed, they in turn bought goods and services from firms headquartered stateside. It would be too easy to call this arrangement a win-win; unions complained about outsourcing and wealth wasn’t always spread evenly in host nations. There was, however, a circle of self-interest. It worked for a long time, and still can, if Trump's team recognizes the pluses that accrued and not just the drawbacks.
What is clear is that corporations pursued manufacturing in far-flung destinations as a deliberate strategy. The approach had its roots in the postwar world of US industrial dominance, but it was turbocharged in the 1990s. This often meant that to land big deals, it was best to offer the home patch something. A classic method was to make components in the jurisdiction you sought business from. This helped local employment and provided the technological sweeteners that governments were keen on. Who, if anyone, was being ripped off? If there was advantage being taken, there was a lot to go around. The US trade deficit with Southeast Asia has widened over the years, but opportunities were also plentiful.
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The nearby Malaysian state of Penang offers an example of how a slightly earlier version of this approach took root. In the early 1970s, US computer chipmakers were looking for places to invest that were not only cheaper, but offered little prospect of labor strife. For nations like Malaysia and neighboring Singapore, wooing firms also offered the tantalizing prospect of industrial development. At a time when diplomatic experts at august think tanks bemoaned the loss of influence that accompanied withdrawal from Vietnam, semiconductors kept ties with the US pivotal. “Rather than dominoes falling to Communism, America's allies were even more deeply integrated with the US," Chris Miller wrote in his book Chip War: The Fight for the World's Most Critical Technology.
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Attracting foreign capital was a core economic objective of Singaporean officials. For Philip Yeo, the former head of the Economic Development Board, this mission meant more than just travelling a lot and working the corridors of corporate behemoths. He saw his role as akin to a concierge. Singapore would provide the infrastructure, an educated workforce — and tax incentives. The benefits to the city-state were real: Jobs, money spent in the local economy, a healthy property market and income. Yeo pressured the principal of the Singapore American School to find a place for the child of the Western Digital Corp executive appointed to run its local operation. The kids of Levi Strauss & Co's top person were distraught at the quarantine endured by the family dog, and Yeo took it upon himself to find a solution. “Even a dog became my problem," he recounted in an interview for a biography, Neither Civil Nor Servant, by Peh Shing Huei. “We needed the investment, so it’s okay. I would do anything to get the deal over the line.”
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Were Americans being exploited, as Trump insists? Hardly. Would it have been better if Airbus triumphed at the expense of Boeing, or would shareholders prefer less-friendly locations than Singapore, a country that enjoys close economic and strategic ties with the US. Of course, not. These are just a couple of examples of where the connective tissues of trade and capital, for all their imperfection, brought tangible advantages.
If Trump sets in train responses that diminish the effectiveness of this model, there will be many losers. It's doubtful anyone will truly earn the right to be called a victor. - Bloomberg Opinion
