Watching Sausage Being Made: The Creation of a U.S. National Economic Strategy
“It is not easy to give a precise treatment of trade based on scale economies. The difficulties relate to the market structure under which such trade will occur. Perfect competition is in general incompatible with economies of scale, so some form of imperfect competition will prevail. For descriptive purposes, one must then choose among the numerous alternative ways in which imperfect competition cam be modelled; and the conclusions one arrives at will in general depend on the particular specification chosen. To arrive at a general theory of trade with imperfect competition is therefore impossible; the most one can hope for is a catalogue of special models. The same goes for welfare assessments. Because of imperfect competition, the gains from trade may not materialize; conceivably there could even be a loss from trade due to an increase in certain distortions. Again, whether trade will be beneficial depends on the market structure under which trade occurs.”
Chapter 9: Scale Economies and Imperfect Competition
Theory of International Trade
By A.K. Dixit and V. Norman, 1980
For those watching the changes in Washington, D.C., there appears no order to them. One day the Presidential Administration addresses one item, such as Chinese trade. And the next, it addresses another seemingly unrelated item, such as NATO spending. Then it heads off in a third direction, creating a Quantum Computing initiative. Then the next day it returns to trade in autos, badgering Japan and Germany. Then the following day there is a focus on vocational education. This is followed by an Executive Order to establish the President’s Advisory Commission on Asian Americans and Pacific Islanders. One might almost think there existed no overarching strategy behind these seemingly random actions. It might remind one of Watching Sausage Made. In the process, it looks like a mess. But somehow, when the product comes out the other end of the manufacturing line, it is a complete, finished product, ready to eat.
However, hidden behind these seemingly haphazard actions in Washington, there appears to be an emerging strategy that binds them all together. This unspoken strategy appears under the rubric of preparing the United States for the world of tomorrow. One might almost call it a National Economic Strategy, a strategy to grow the US economy at a faster rate and to position the country for a Great Power rivalry with China. The policies can be broken down into two parts. The first deals with the United States economy directly and key industries of the future:
National Electric Vehicle Supply Chain Initiative
National Focus on Advanced Manufacturing, AI, and Robotics
National Focus on STEM Education
National Focus on Vocational Education
And the second deals with those related to national security:
National Quantum Computing Initiative
National Hypersonics Initiative
Satellite Launch R&D Funding
National Focus on Balance of Trade
National Security Strategy for Space
These initiatives, when viewed as a whole, create an integrated strategy to position the U.S. economy to participate in the key industries of the future. They enable globally competitive companies producing leading edge products and protect these industries from actions to undermine them. This represents a sea change in policy after 20 years of allowing critical industries to move large portions of their supply chains abroad. In addition, these policies focus on creating the labor force of the future that will need different skills than the labor force of today. Unlike Europe, the United States does not formally train the workforce with vocational skills. Given the need for labor to fill many jobs for which a traditional college education will not provide the job skills, the government must now involve itself with reshaping the educational system. And lastly, they will seek to ensure certain industries locate in the United States physically in order to undergird the country’s industrial base and defense capabilities. These will likely include technology focused industries as well as critical manufacturing industries such as parts manufactured using 3D Additive Manufacturing and the special powder metals and purified chemicals needed as well as Robotics and Industrial Automation for the factory of the future.
As the above analysis makes clear, while appearing haphazard, these policies represent an integrated whole focused on driving economic growth for the United States over the next two decades. They simultaneously provide key manufacturing capabilities to undergird the U.S. industrial base and support U.S. defense capabilities. While large corporations over the past 20 years have focused on locating plants across the world and optimizing their well being, this change in government policy orientation coupled with an emerging Great Power rivalry will change the rules of the game, forcing companies to optimize U.S. economic well being over their own. While government policy making will continue to appear haphazard and look like chaos, much like an impressionist painting from Monet, a step back from the canvas provides a different perspective. It shows the whole picture. With the U.S. Government as artist and the rest of the world Watching Sausage Being Made, the finalized picture has begun to come into focus. And while numerous brush strokes remain to complete the canvas, the artist clearly outlined the overall landscape as The Creation of a U.S. National Economic Strategy. (Publicly available data from Office of the U.S. President, U.S. Department of Defense, U.S National Intelligence Council, U.S. Trade Representative, U.S. Congress, and company reports coupled with Green Drake Advisors analysis.)
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