Irreversible

Chinese netizens, over the past week, released a flurry of videos showing factories producing European luxury goods. Few realize it, but about 80 percent of the priciest luxury items on the market are produced – in the main – in Chinese factories.

The fact that much of the mass production on these items happen in China has, heretofore, been a closely guarded trade secret. The final products are tagged as “Made in Italy” or “Made in France” and priced up to a hundred times their actual cost of production.

A week before this, Chinese memes showed the likenesses of Donald Trump and Elon Musk, along with many other obese workers, assembling running shoes and smart phones in presumably American workshops. By one estimate, an iPhone entirely made in the US will cost $30,000 – a price point only oligarchs can afford.

The smart phones we carry in our pockets are really supercomputers that are accessibly priced because of the magic of globalization – apart from the marvels of microchips. The intricate supply and production chains that makes technology cheaper and broadly accessible defines the hyper-communicative culture that is the hallmark of this century.

The price accessibility of most products we use daily is testament to the power of market forces. Those market forces have produced an intricate – and delicate – web of supply chains and production processes where things are done where they could be done most efficiently.

This intricate web builds on open trade access and the free movement of capital. China anticipated this global economy decades ago and prepared for it, assembling a highly trained workforce and a massive logistics system. Because of this, China emerged as the world’s factory.

Much value is created downstream. A Stanley mug costs $1 to make in China and is eventually retailed at $50. The $49 is distributed post-production through value chains that include product designers, wholesalers and retailers. Great wealth is produced not only for China but for all engaged in the marketing and distribution networks down the line to the final consumer. The final numbers on the trade balance sheet tell us very little about this.

To make this possible, China invested trillions of yuan in majestic road and rail systems, modern port facilities and one of the best educational systems in the world. China’s final trade advantage lies in its economy’s ability to put together factories and create wealth in the most efficient way.

Donald Trump’s assault on the global trading system through tariff impositions damages not only the channels of trade. It is ultimately an assault on the very edifice of modern production systems.

Trump’s trade war is based on a simple – and simplistic – assumption: if tariff walls are erected, American manufacturing will be reborn. American cities will hum with the sound of machines producing machines. Instead of skyscrapers, more smokestacks will litter the landscape. The American proletariat will rise.

That is not how the world works today, unfortunately for the aspiring American tyrant. The world today works on trillions of independent market decisions made each day on the basis of value and price configurations. “Globalization” is the shorthand – probably inaccurate – description of a system based on value-optimization founded on independent business processes.

Can Trump single-handedly overturn a system of wealth creation that was assembled over decades by the most enlightened business and consumer decision-making?

Maybe. But only at great cost that makes the medicine more harmful than the disease. The cost will be crushing business failures, financial crises and a global depression even worse than what we saw a century ago.

Trump wants to replace the intricate – and often unpredictable – networks of free business decisions with a command economy shaped by government decrees. He wants to rebuild America’s manufacturing base by force. By necessity, this sort of modern command economy can only happen through comprehensive suppression of dissent – as we now see in the manner Trump has conducted his culture wars against America’s most prestigious universities.

The US president wants to impress his political base: the mass of largely white, undereducated Americans in the heartland who have receding opportunities in the new order of things. They are deeply disillusioned and wallow in despair. They are ready to buy into the simplistic vision Trump peddles: that by some stroke of the pen, factories offering steady jobs will mushroom all over the place.

This is not how the world works today. Business decisions spur economic activity. Nation-states can only compete with each other to attract investments. No one can bully the market – or other nation-states – to get their way.

Coercive policy levers cannot reshape the market. Trump’s use of tariffs to force the world to abandon efficiency as the criterion for making investment and consumer decisions will be like pushing a rock up a hill. Economic rationality will continue to pull the rock down.

Trump incites nationalist hysteria to build political support for his assault on the global economy. That will not suffice to negate market sensibility. What we conveniently call “globalization” is an irreversible phenomenon.

Humanity has ingested the venom of practicality. Therefore, the world will never reenter the paradise of “national” economies firmly under the thumb of delusory leaders.

Trump is completely captive to a long-dead economic orthodoxy. He cannot think beyond its obsolete terms. He will bully his way through and, in the process, inflict misery for all.