The Eastman Kodak Company, founded in 1888, has a rich history in photography. They once commanded a 90% share of camera film sales and 85% of cameras. In 1975, Kodak developed the world’s first digital camera – and promptly scrapped it to avoid harming their film sales, which is where they made the bulk of their profits. In a capitalist society, however, innovation will not be stymied. Rivals took up the fallen banner of digitization and film sales began to fall in the late 1990s and plunged in the early 2000s. Instead of facing up to their mistakes, they blamed the loss of sales on the September 11th attacks. On January 19, 2012, they were forced to reorganize under Chapter 11 bankruptcy protection. Since then, they have scraped by with printer and ink sales and some low-end film software. With all that in mind, it was quite a shock when they put out a press release about a government-subsidized loan for three-quarters of a billion dollars to start producing pharmaceuticals. How could such a thing happen?
To understand, we need to look at the inner workings of the Trump Administration. The most trusted economist on the team is one Peter Navarro, previously best known for his bizarre YouTube videos detailing elaborate Chinese conspiracies to destroy America. This is a man who believes in an antiquated mercantilist theory of trade; essentially, mercantilism is the belief that nations accumulating trade surpluses are ‘winning’ economically. Mercantilism went out of fashion in the early 1800s after David Ricardo came up with the theory of comparative advantage and was not even believed among mainstream economists long before that. Comparative advantage says simply that some populations are better equipped for certain tasks than others. Even if one nation can do everything better, they still benefit from specialization because they will be able to put their resources towards their highest-productivity task. For the US, that is technology, finance, and design.
For reasons known only to him, Navarro seized on the antiquated idea and didn’t let go. We now have tariffs on all manner of goods from steel to cheese. These measures were even taken against our friends as well as our rivals. The EU has been slapped with tariffs just as readily as China. Steel tariffs in particular were touted as a way to revive the uncompetitive steel producers here using old, inefficient equipment. Instead, the result was a loss of jobs among high-tech manufacturers that relied on imported steel to sell their products at competitive prices.
Rather than support citizens and let the American consumer dictate what sorts of products they buy, the Trump administration – and Navarro in particular – would like to recreate the past by throwing money at industries and companies already in the middle of their death rattles. The consequence is that the US is becoming less competitive in the industries we should actually care about.