The Heritage Foundation’s newly released 2020 Index of Economic Freedom confirms yet again the economic and social benefits of policies that preserve and promote economic freedom. Economic freedom has grown over the last year in most of the world (although there was a slight decline in the United States), but will no doubt be hurt by emergency health measures that include social distancing, job suspensions, and mobility restrictions. These measures may be unavoidable in the current crisis. Is there a way to prevent governments, in the name of crisis response, from adding to the problem by undertaking spending or regulatory measures that might do lasting harm to our economic prospects in the future? Please join us as we discuss this question and key findings from the 2020 Index of Economic Freedom.
Ambassador Terry Miller, Director, Center for International Trade and Economics and Mark A. Kolokotrones Fellow in Economic Freedom, The Heritage Foundation
Nicolas Loris, Deputy Director of the Thomas A. Roe Institute for Economic Policy Studies and Herbert and Joyce Morgan Fellow, The Heritage Foundation
Moderator: Bryan Riley, Director, Free Trade Initiative, National Taxpayers Union
This call is open to the public - please dial 888-752-3232 to access the call.
Dean Reuter: Welcome to Teleforum, a podcast of The Federalist Society’s practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group teleforum calls, become a Federalist Society member today at fedsoc.org.
Micah Wallen: Welcome to The Federalist Society’s teleforum conference call. This afternoon’s topic is titled “The Importance of Economic Freedom During and After the Coronavirus Pandemic.” My name is Micah Wallen, and I’m the Assistant Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the experts on today’s call. And today, we are fortunate to have with us our moderator, Bryan Riley, who’s the Director of the Free Trade Initiative at the National Taxpayers Union.
We also have Nicolas Loris, who’s the Deputy Director of the Thomas A. Roe Institute for Economic Policy Studies and Herbert and Joyce Morgan Fellow at The Heritage Foundation. And we also have Ambassador Terry Miller, who’s the Director for the Center for International Trade and Economics and Mark A. Kolokotrones Fellow in Economic Freedom at The Heritage Foundation. After our speakers give their opening remarks, we will then open up the floor for an audience Q&A. Thank you all for sharing with us today, and, Bryan, the floor is yours.
Bryan Riley: Well, thank you. I’m really excited to have the opportunity to moderate this. It’s a very timely event. Actually, I’m thrilled to be here with Nick and Ambassador Miller. Terry Miller—it’s been about ten years ago—hired me and gave me a job and the opportunity to come to D.C. and work on issues like this. And I also had a chance to work with Nick mainly on energy issues, other areas. So what we’re going to do is I’m going to turn it over to Ambassador Miller and then to Nick Loris for a few minutes. Then we’ll have a little chat and open it up to questions. So Terry, why don’t I let you take it from there.
Terry Miller: Thank you, Bryan, and thank you, Michael, for that introduction and for setting up this call for us. These are obviously stressful times for all of us, stressful personally and also for the society as a whole. And we have major sectors of our economy that have been completely shut down by the government. And that’s probably an appropriate response to try to contain or at least slow the spread of coronavirus, at least as we understand it today.
We all hope that the health impact of these measures will be powerful, successful. There’s no denying the negative economic impact, however. Goldman Sachs estimated that U.S. GDP could decline by one-third in the second quarter. That’s really hard for me to wrap my head around. A third of our national income wiped away.
Well, business that can -- and that’s not everybody. But those that can are finding innovative ways to continue operations. This webinar even is one example. And government, understanding the damage that its health measures are doing economically—and I do think the government understands that. I certainly think the President understands that—is undertaking measures to try to help. But some of that involves massive spending, monetary easing or expansion. And some of it involves suspensions of existing government taxes, tariffs, and regulations.
Today, I want to look at some of these measures from the point of view of economic freedom. I’m going to spend a few minutes starting out explaining why we think the preservation or promotion of economic freedom is the best framework through which to judge the effectiveness or even the advisability of these government measures. At The Heritage Foundation, we’ve been evaluating economic freedom in a formal way through the Index of Economic Freedom now for 26 years.
The latest edition of the Index was just published on March 17th. The Index paints a picture of the world that was, that is the world before the coronavirus health crisis. But I think it’s important that we understand the nature of that world as it actually was outside of the highly politicized and economically illiterate posturing of politicians, the media, or special interests.
At the end of 2019, the world was more prosperous than at any time in history. That prosperity was more broadly shared, both in the U.S. and around the world, than ever before. Over the life of our Index—that’s two and a half decades or so—world GDP has more than doubled. And the global poverty rate has declined by two-thirds, from 34 percent to just about 10 percent. That’s millions of people around the world who now are able to care for themselves and their families with dignity and health.
Standards of healthcare, education, food security, all the things that the UN development program summarizes in its human development report, those have improved markedly. Our environment is cleaner and healthier. People are living longer than ever. We document all of this in the Index. The data really is unambiguous.
The reason for this amazing progress is clear. Triumph, I guess, is the right word in its essential elements of the globalized free market capitalist system. Policies to promote the efficient functioning and extension of that system are what we measure and promote in the Index of Economic Freedom. And as of this year, the Index is at it’s highest level ever.
When I talk about these facts to audiences these days, you can literally see jaws drop. It’s probably a good thing we’re only on the telephone here or I’d be seeing jaws drop right now. We’re all immersed in a sea of statistical information and data that, even when it’s accurate in its particulars, can be and is used -- it’s manipulated to present a highly distorted and often distorted in a negative way view of the world.
Major news reports and academic studies all talk about inequality. They promote apocalyptic views of environmental degradation or collapse. They assault our emotions with heart wrenching stories of people in trouble. None of that’s wrong, per se. But it is completely without context.
Many people—and this is really a tragedy in my view—believe that our system is terribly broken. They clamor for action, and our government, as a democracy should, rushes to respond. And therein lies some danger. The current health crisis, of course, is real. But all the caveats I mentioned before about statistics and reliance on anecdotal information are visible and painfully present.
In the clamor for action in an environment in which a big portion of our population is already primed for responses—and maybe not the most rational responses—by misinformation, politicized rhetoric, and when some are going so far as to question the fundamental principles of our founding and the marvelous system of individual freedom that has produced what is really unprecedent prosperity for so many, well, in that type of an environment, I’m afraid we risk loosing it all. And today, we want to talk about the value—indeed, the necessity—of making sure that our response to the coronavirus, that when we do respond to that, when the government responds, we preserve and even enhance the elements of freedom, particularly economic freedom that have made us wealthy and healthy.
My colleague, Nick Loris, is going to get into some particulars, but I would just note to start us off that there are two basic types of government responses to the current crisis. And both are already taking place. The first is to enact policies where the government does more: more spending, more coordination, more centralized direction of resources. The other is where the government actually does less: less regulation, less control of the financial system, less interference in workplace regulation or licensing, less interference in supply chains or individual purchasing decisions through tariffs or any other restrictions on trade.
The first type of response where government does more will ultimately, and even in some cases immediately, have a negative impact on our economic freedom. And if those policies persist for even a few months beyond what’s absolutely essential for the health purposes, well, we’re going to do substantial damage to future economic growth. The other direction, liberalizing Americans’ individual freedom to act, can help now, but it will also pay dividends in the future. I’m going to stop there and turn this over to Nick, and I look forward to the questions as we move forward. Thank you.
Nicolas Loris: Well, thank you, Terry, and thank you to The Federalist Society for inviting me to participate on this teleforum. I had the honor and privilege of introducing a complementary product to the Index of Economic Freedom this year, which it hasn’t been published yet. But it’s a special report that The Heritage Foundation is going to release that specifically looks at how the U.S. can improve its score.
And I think it’s timely in that, as the dust settles on some of the immediate responses to the coronavirus pandemic, there are going to be calls for all sorts of policy responses. And we’ve already seen those policy responses attempt to be jammed into the first three bills that had very little to do with actually responding to the immediate economic and health crisis. And that’s only going to continue.
So I see this special report as really serving two purposes now. One is a kind of evergreen report on how the U.S. can improve it’s score but also as a guide for policymakers in the coming year to enact measures that will do a lot more good than harm, policies that will streamline costly financial environmental and labor regulations, enact good tax policy to ensure that we have some of these long lasting economic reforms that will serve to make the country more prosperous, that will allow human flourishing to improve but also provide a guide to increase the U.S. economic score, which is ultimately kind of where this special report was born.
And so within the specific special report, the Heritage Foundation has four rankings: the rule of law, government size, regulatory efficiency, and open markets. And in each of those four categories, there are three subcategories: property rights, judicial effectiveness, government integrity, fiscal health and government spending, tax burden, business freedom, labor freedom, monetary freedom, financial freedom, investment freedom, and trade freedom. And all of these, I believe, are critical to the long-term policy response to the coronavirus pandemic because they will provide that foundation for getting the economy going up and running again both, I think, in the near term but also in the intermediate and long run.
And you’ve kind of seen a little bit of that anecdotally right now with some of the regulations that have been suspended or temporarily waived at the federal and state level to allow businesses to act more efficiently to respond to the pandemic. I think there is a pessimist in me that sees problems with policy responses that had little to do with the pandemic and have called for increasing the size of government and enacting policies that will last years, if not decades, beyond the pandemic in terms of policies like targeted tax credits for renewable energy sources or regulations on the airline industry to cut their greenhouse gas emissions up to the year 2050 and be carbon neutral by the year 2025.
But then there’s the optimist in me that shows that, you know, with the FDA issuing emergency authorizations for tests to relaxing some regulations that have little to minimal health impacts or environmental or regulatory impacts but understanding that they could -- relaxing those regulations could greatly help solve the pandemic might demonstrate that these regulations aren’t necessary at all.
So I think that this is going to be a really interesting battle in the weeks and months ahead as policymakers attempt to deal with the public health and economic effects of the pandemic but also really looking at some of those fundamental reforms as to how to get the economy up and running again. And I think, right now, The Heritage Foundation, with these pro-growth policy reforms that we’ve laid out in this forthcoming special report, will put us on a good pathway toward, again, not only improving the U.S. score but actually allowing the economy to grow again. It’s something where, in my experience at The Heritage Foundation—and Ambassador Miller can probably speak much more to this—every time we release our Index of Economic Freedom, there’s so much interest from embassies, from foreign countries, from foreign press because they want to know where they’re ranked, how they’re ranked, and why they’re ranked.
They want to be able to compare that score to their neighboring countries and other countries in their region. And the genesis for this report was really how can we get members of Congress to have that same sort of urgency and same sort of sentiment for how the U.S. scores on its index of economic freedom. And so for some of the measures, we have a lot of room for growth. Other areas, like property rights and judicial effectiveness, we’re doing quite well.
But obviously, if you think about some of the implications for our fiscal health and government spending, not so great. If you look at trade freedom and investment freedom as a result of tariffs and Buy America provisions, not so great and room for improvement. And again, I think the benefit is, you know, in the Venn diagram of what’s good for the U.S. economic score and what’s good for the long-term health of the economy in responding to the coronavirus pandemic, there’s a lot of overlap.
So the next few weeks and months is where we’ll be focused on trying to get these policy reforms and ideas in front of members of Congress to ensure that as members are talking about infrastructure and more government spending and stimulus that we allow what’s already been enacted to work and give it some time. And then, if we are focused on long-term economic solutions, they’re the right ones, not the ones that are going to result in more spending and regulation and cronyism, which has been so pervasive in these big Christmas tree-style bills that we’ve seen.
So with that, I will just wrap up in saying that our report hasn’t been released yet. It was supposed to be released a couple weeks ago. The Index is out, but the special report on what the U.S. can do to improve it’s score is not out yet. We are waiting for kind of what phase four of coronavirus looks like and what policymakers are looking to do. But we are going to essentially attach the release to any type of bill that is looking at longer term economic policy reforms.
Bryan Riley: Well, thank you, both. And Nick, I was especially appreciative of your optimistic take on things because, focusing on trade policy as I do, it’s kind of hard to find much to be optimistic right now. And that’s the first question I had for you, Ambassador Miller and Nick, is you described the index as a snapshot of kind of where we were right before all the current situation hit with coronavirus and the responses. And it seems that one of the responses has been, from countries around the world, an increase in trade barriers in terms of an unwillingness to allow -- they want to try and keep their goods from being exported to other countries.
In the United States, we have calls for Buy America restrictions on medical goods, on pharmaceutical products. How concerned do you think we should be about this response to the crisis, which seems to be not one of how can we all work together but how can we keep what’s ours? That seems concerning to me.
Terry Miller: Yeah, Bryan. This is Terry. I think that it’s something that we need to be hugely concerned about. Economic freedom was already stressed in the United States before this started, primarily by the protectionist policies that had been put in place over the last couple of years by the administration. And that’s created a rebound effect, I guess you could say, in much of the rest of the world or a response.
It’s so perverse right now because much of the rest of the world was moving quite rapidly in a direction of trade liberalization. And we’ve seen the development by the private sector of these wonderfully efficient global supply chains. And in a rather shortsighted way, in my view, the United States has started to throw up obstacles to that, probably out of fears that don’t really show up in the data.
We don’t have any information that’s credible that shows that the United States is at risk of loosing access to any kind of essential supplies around the world. We’ve even seen here attempts to invoke the national defense excuse, that somehow we need to shut off trade in order to preserve our military might. Well, the military leaders I work with say exactly the opposite, that they need access to materials, raw materials, and finished products from all over the world enable to ensure -- to enable to ensure an adequate defense here in the United States. So I just think it’s extremely perverse.
Another aspect of this is just at the point where economic freedom -- the free market system is triumphing around the world, so many countries have approached us for assistance in moving their policies in a free market direction. And that’s the moment where in the United States we have this intense political dialogue about whether we should institute socialism here. And that just seems to me to be the perverse, irrational, and extremely dangerous at this point.
Bryan Riley: Well, I was certainly encouraged—I don’t know if it was a week ago or two weeks ago—when President Trump said he was getting pressure to use the Defense Production Act to get the government more involved in the economy. And his initial response was, “We don’t want to be like Venezuela,” and to be very cautious. But he’s gone from there to naming names of some companies that he doesn’t think and that his advisors don’t think have performed up to snuff. It seems like we are going down that road, perhaps.
But I want to change the topic in the short time we have. I think Heritage, of course, is the country’s leading conservative think tank, and that encompasses a lot of different things: economic freedom, strong defense, family values, for example. And most of the opposition, in my lifetime, to economic freedom has tended to come from the Bernie Sanders left wing part of the ideological spectrum.
I think what you’re doing is so important because, in my opinion—I’d be curious what you both think—it seems that there’s an increasing view among some conservatives that economic freedom either isn’t that important, or some people think it’s actually maybe bad for us. They’re happy to have the government take control to promote whatever measures they feel would be in our interests. Nick, let me throw that to you for starters, since I think it sounds like your upcoming report maybe addresses some of these concerns.
Nicolas Loris: Yeah. There’s two immediate concerns. One is kind of the shift in conservative policy thought that has been encapsulated by Trumpian economics, which is more nationalist and protectionist in nature, that it’s okay to trade off some economic freedom for some enhanced domestic manufacturing because it will help employ certain sectors of the economy. And this will be good.
And I think it misrepresents why we care so deeply about economic freedom at The Heritage Foundation. We don’t care about economic freedom simply because it leads to higher levels of economic growth and GDP in and of itself. That’s not the end goal. The end goal is to make humans freer from an individualist standpoint but also from a human flourishing standpoint.
And that gets to all of the statistics that Ambassador Miller mentioned in the beginning of this teleforum -- is that you are just making people dramatically better as you enhance their freedom. So there’s no measure where we say, “Oh, we’re going to get to, you know, a score of 85 out of 100, and we’ll be good there. And then we can trade off the other 15 points because we want to enact some measures that we think are going to make humans better off through government interventionist policies, whether that’s through subsidies for manufacturing or tariffs to protect certain businesses.”
The whole point of trying to get to the highest score of economic freedom is because we know that it has a markedly improved effect on making people’s lives better off. And it becomes a very slippery slope where the same folks on the left who are talking about interventionist policies are echoing similar policies from the right now but for different reasons. So the means are the same. They talk about subsidies and they talk about specific regulation and protectionist policies.
And my big fear in regard to this most current pandemic is that you have a lot of economic nationalists saying that Trump was right on China and that because the coronavirus emerged in China and began spreading around the world it only gives more fuel for the fire to enact protectionist policies that, in the near term and in the long term, are going to do much more harm than good.
So it does provide a challenging obstacle in trying to convince folks who you kind of thought were pro-freedom or more maybe pro-nationalist or pro-America but not in the most productive sense of the definition. And so there’s a lot of education, I think, that needs to be done on explaining why economic freedom is critical to human flourishing, not just simply looking at jobs, numbers, and GDP reports.
Bryan Riley: Terry, did you have anything you wanted to add?
Terry Miller: I would just add this all makes me think of the problem that we’re having with the presentation of statistical data to the American public right now. Even in the coronavirus briefings, we see the doctors talking about various statistics, death rates or whatever. And it’s absolutely clear if you read what they’ve written or you listen carefully over a long period of time that they understand the caveats.
They understand that you’re changing denominators and numerators. And some we have accurate data for, some we don’t. But nonetheless, what gets presented to the American public in this case, and also in all cases of economic debate, is just a little, tiny picture of what’s going on. And that picture may not be accurate at all.
I’m so disturbed about the characterizations of the American economy as being fundamentally broken, that the capitalist system is fundamentally broken. The people look at one or two sectors that are in trouble and are smaller group of people that are being left behind in some way, and they use that to demonize the entire system without any sense of context as to what the alternatives are and what the results of systems like socialism have been when they’ve been tried in other places around the world. And for those of you that may not know, I’ll just tell you the results of those systems are horrible, whereas the results of our system are pretty darn good.
And I just hate to see in a crisis like this -- people talk about not wasting a crisis. But if they mean not wasting a crisis in order to fundamentally overhaul the free market system, we’re in for a very dangerous ride ahead.
Bryan Riley: All right. Well, thank you, both. I think now we’re at the point where we can open it up to other callers on the line for questions.
Micha Wallen: We’ll now go to our first question.
Caller 1: Oh, hi. How are you? Good. So I have one question, which is this. In light of the coronavirus right now, obviously, I’ve read a whole bunch of economic theory. I totally agree with free markets and free trade. But my own concern is what do you do when you have a country like China where the cost of -- like their standard of living is much lower than ours. So they can obviously produce everything -- most of the things we can at a much cheaper price.
And then when you get an emergency like this, they’ll turn around and say, “You know what? We are not going to send you the stuff that you need right now. We’re going to take that ship that has 3 million masks on it and turn it around for our own use.” So how do you prepare yourself for something like that if you don’t have your own manufacturing base?
Terry Miller: Well, can I take a stab at that?
Bryan Riley: Sure.
Terry Miller: First of all, it’s not China that has said it’s going to turn it’s ships around and not sell to us. That’s what the United States has said to some of the other countries, even some that are our friends and allies. As far as the question, I understand the idea that somehow China, because they have lower costs, can undercut the prices of some American manufacturers. But that the way the economy grows.
That’s the way we achieve progress, by moving things that we previously did in the United States overseas. That frees up our people and our resources to do higher value, more productive kinds of activities. That’s why our incomes have increased so much over the years.
So my first response is, if China’s offering to sell us goods at low prices, by all -- the rational response for us is to take the maximum advantage of that. That means you have millions of Chinese people working to provide goods and services for Americans. And I don’t think we should do anything to get in the way of that process. We should just take advantage of those goods and services.
This would be a more serious problem if people in the United States weren’t finding productive ways to work ourselves. But before this crisis hit, we had unemployment at record low levels in the United States. That means there weren’t a lot of people who somehow could not find work because their jobs had moved overseas to China or some other country. And frankly, those jobs are never coming back here.
If we shut out China, those low productive jobs, low productivity jobs aren’t going to move back to the United States. They’re going to move to Vietnam or Malaysia or some other place in the developing world where people aren’t as productive as Americans are. I think we need to be more confident about our own skills, the skills of our workforce and the American people to adapt in a positive way to these globalized changes in the world economy.
Nicolas Loris: Yeah. I would just quickly add that I think it’s been the kneejerk reaction to the fear of the reliance on the global supply chain than the actual problems of the global supply chain itself. I think if a lot of these countries wouldn’t have had the kneejerk reaction to ban exports, we would have allowed these efficiencies to continue. But it wasn’t just the United States who said we’re not going to ship out products.
It was -- the German government did the same. There were responses in places like Japan and India and Tanzania who all had these kneejerk reactions to all of a sudden just stop how they would supply and move goods, including face masks and other critical goods that are helpful for the pandemic, creating shortages in places you might not see them. So the disruption of the global supply chains as a result of the fear of the pandemic has really only exacerbated the problem and not helped it.
Micah Wallen: All right. We’ll now move to our next caller.
Ned Jacobs: Yes, good day. This is Ned Jacobs calling from St. Croix in the U.S. Virgin Islands. One of my concerns about having no barriers to any kind of trade between nations is the concern that it is important for us to maintain the nation-state system. And that with no trade barriers whatsoever what happens is that a lot of nations do not produce their own basic materials or items that they need to live, whether it is food or whether it is housing or whether it is basic transportation and that sort of thing.
And what happens is that the nation-state becomes weaker. Sovereignty becomes weaker. We move towards consolidation and eventually a one-world government. The people who are pushing for the breakdown of the nation-state system and the consolidation of world government are people who tend to be opposed to the kind of personal liberty that both The Heritage group and also The Federalist Society tend to promote.
And so therefore, my question is whether individual nation-states should be encouraged to develop and maintain basic production of those things that they need so that the nation-states do not become just a cog in a global system. This is part of the argument that Pat Buchanan keeps making. He claims that, early on, the United States was a producer nation and that it would make a lot of what it needed, whether it was food or manufactured goods, etc., and that going away from the nation-state system where you have that basic ability of a country to stand up on its own without just being a cog in the overall system -- if we lose that, that we’re going to be moving towards one world government and the diminishment of individual liberty.
Terry Miller: Yeah. Perhaps I could start again on this. I think one thing that’s just important as a backdrop is to remember that, when we were in that more self-sufficient state that Pat Buchanan talks about, we were a much poorer country than we are now, and individual Americans were much less prosperous. We had a lot more poverty in our country. We’re just a much more productive society.
One of the geniuses of the American Founders was that in creating this continent-wide nation that they produced with the Constitution, eventually, it, in its essence, was a free trade area. We didn’t try to pretend that each state—you know, Virginia or Texas or whomever—should be independent and completely self-sufficient. We saw -- the Founders saw that by cooperating and allowing goods to flow freely among the states, all of the citizens of all of the various states would be better off than they were before. And I think that same dynamic holds true for the world as a whole.
So this is one of those issues that, in theory, you can make the case that there’s a danger -- a potential danger. But what we have seen in practice is that that danger never materializes. When people of various countries are allowed to trade freely among one another, with one another, they become interdependent in a very positive way. And one of the things that goes away in a circumstance like that is the need for societies to react violently through war or other coercive measures to try to get the goods and services that they need to maintain their people.
When somebody’s willing to sell you something voluntarily, you don’t have any need to go to war for -- to obtain it, as for example the Japanese did in World War II. So the genius of the free market system, whether it’s at the local level, at a community, or at the national level across all of our states or even at the international level, is that it gets people interacting peacefully and not coercively against each other.
Nicolas Loris: Yeah. I just want to stress what Ambassador Miller said about interdependency. I think that’s key because the reality is that trade and innovation are similar in that they allow people to do a lot more with a lot less. And it breeds efficiencies all over the world. And when you have opportunities through competitive and open marketplaces, that allows companies in other countries to expand their business and create this interdependency of that customer base that is very hard to shut off. If they’re exchanging goods voluntarily, there’s not a very strong incentive for them to simply cutoff production because it would not benefit them.
So I think the fact that we have become so much more productive—and through globalization we’ve allowed other countries and other companies to specialize in products that we don’t have a comparative advantage in anymore—has allowed consumers to save a lot of money, to spend that money on other goods and services and create a global economy where this interdependency makes it very, very difficult to extract one’s self from the economy for any type of productive gain.
Terry Miller: And I would just say that this voluntary interaction on the economic front need not have an impact on our sovereignty as a people. That’s a political question, and it relates to the nature of our society, perhaps our fundamental respect for human rights and the way we treat each other as citizens and our mutual obligations to each other as citizens. That’s what makes us a nation-state, I think not what we produce or how we trade with others to increase our physical well-being.
Micah Wallen: All right. We’ll now move to our next caller.
Caller 3: Hello. What are your thoughts about the interfering in the competitive markets -- the international competitive markets for the purpose of addressing abusive behavior by the Chinese in regard to intellectual property theft, other controls they impose on U.S. companies seeking to do business in China, things of that nature? One of Trump’s policies seems to be, free markets aside, the use of tariffs as a weapon to get the Chinese to change their pirate-like behavior.
Terry Miller: Well, I think this is a more complex issue than it’s often portrayed. Something like the theft of intellectual property is absolutely inexcusable. And we ought to take whatever measures that are available in the system to stop that. And if that means cutting ourselves off from the particular avenue of commerce through which that theft is taking place, then maybe we need to do that.
But the broader question of, for example, the transfer of technology from American companies in general that are operating in China, I think it’s important to remember that our countries are -- our companies are operating voluntarily in China. And whatever arrangements they have worked out with the government or government-run firms in China regarding the transfer of their own technology to operations in China they’ve done because they’re making a profit doing that. They’re doing it voluntarily. If it’s theft, that’s a completely different question. But if this is being done in commercial relations, then maybe that’s not something that our government has a compelling interest in interfering with.
Just a last comment on tariffs, tariffs are a terribly targeted weapon in that they tend to hurt ourselves. Tariffs -- we pay the tariffs that we put on products. The Chinese government doesn’t pay them. Chinese firms don’t pay them. The American people pay them. So I really would hope that we could focus on using other methods of persuasion or influence when we’re trying to change the behavior of the Chinese government or any government.
Nicolas Loris: Yeah. And I think there’s other mechanisms to do that that are far more effective than tariffs, which I don’t think have proven to be all that effective except for making products in the United States more expensive. If you look at an organization like the World Trade Organization, there may be problems with it. But in terms of resolving trade disputes, you know, the U.S. has a very good record against China and other trading partners at the WTO. So seeking resolutions through the WTO is one mechanism that has worked far more effectively than imposing unilateral tariffs.
And my concern with responding to actions from China with regards -- using tariffs is then it kind of creates this slippery slope of other industries who may be facing economic difficulties because of an increased global competitive market, finding ways to convince the administration to justify the use of tariffs to protect their industry. And we’ve seen that within this administration, a consideration and implementation of tariffs or even subsidies based on the notion of national security. And even though there are a number of products where the national security justification for these tariffs was almost nonexistent or completely nonexistent, they were still able to enact and secure those tariffs.
So opening up the door in the use of this mechanism of tariffs creates this increased incentive to use this unilateral process and creates more lobbyists coming into Washington, D.C., to argue that their specific company and their specific industry deserves the same type of treatment. And then you have the government managing more trade than allowing trade to happen. And the more you have the government managing trade the less you actually have free and fair trade.
Terry Miller: Yeah. And given the likely audience for this call, given that we’re being sponsored here by The Federalist Society, I think it’s extremely unlikely that anybody in the audience is someone that would favor an increase in taxes of any kind on the people of the United States. And yet that’s what these tariffs are. They’re identical in all of their negative impacts on economic activity to any other tax put in place by our government. And it seems to me that’s something that all freedom loving people might want to resist.
Micah Wallen: All right. We’ll now move to our next question.
Chandler Bridges: This is Chandler Bridges in Atlanta. I sense a great optimism on the part of our speakers today of -- in the humanity of the global leaders. And looking back at history and the slaughters that have taken place, the millions and millions of people that are killed by governments all over the world in history and in even recent times, Stalin and what’s probably happened in China and still going on, how do we protect ourselves militarily from an invasion and conquest? And how do you balance the free trade and all of that with the protecting of the sovereignty of the country militarily?
Terry Miller: Well, let me just start by saying that I have no confidence whatsoever in the humanity of leaders of governments anywhere.
Chandler Bridges: Good.
Terry Miller: Somewhat more confidence in our own than I do in others. But in general, the record of governments is not all that create in their impact on people, either those they serve or certainly people in other countries. So I have no confidence there whatsoever.
The genius of the free market system is that it takes power away from governments and spreads it out, disperses it among the people, disperses it among the population. So that’s the reason I’m such a huge fan of the free market system, whether internally inside our own country or to the extent that we can extend it elsewhere in the world. What we’re doing is weakening governments’ control over our lives. And that makes it less likely, I think, that they can commit these abuses.
But on the second half of the question, I would say, all that notwithstanding, the answer to preserving our security is to have the strongest military in the world, a military that’s strong enough to deter anyone from thinking even in the slightest way that they can come over an invade the United States or even have a negative impact on the lives of people here in the United States or our citizens overseas. One of the things that The Heritage Foundation -- we’re certainly in favor of the free market and free trade, but we’re also in favor of a strong defense second to none.
Chandler Bridges: Good. Thank you.
Micah Wallen: All right. We’ll now move to our next caller.
Aaron Matheny (sp): Hey, good afternoon. My name is Aaron Matheny, and I’m a Federalist Society member. Definitely enjoying the conversation today. I’d kind of like to go back a little bit to some of the things that have been spoken about and particularly about the global trade, globalization. And I’m not sure which gentleman it was that was talking about how that’s benefited the U.S. employment and jobs and things like that.
And the thing that I’ve seen over my lifetime, which is about half a century, is I remember a time when we had really great jobs in this country. This isn’t the 1780s. This isn’t the period between the Confederation and the Constitution when everybody was absolute agrarian. But I remember back in the ‘70s and even a little bit in the early ‘80s when we still were making steel. We had good, solid manufacturing jobs in this country.
And the thing that I’ve seen, whether it’s been on K Street or it’s been in the Hindukush or somewhere in between in the jungles of Southeast Asia, is that those jobs, these factories, Keiser Aluminum Factory, all these manufacturing places, DuPont, all this stuff –2 we made and produced all these products for the world. And we had good jobs. They built these really great communities. People had very predictable lives, retirements. There was social and economic stability throughout kind of small-town America.
And I understand things change and stuff like that. But when those jobs went, I watched family members, I watched friends, I’ve seen a lot of people over the years back during that time, particularly in the late ‘70s, not only lose everything, but I watched all those communities go into despair. And people always talk about how that’s better for them, but it’s not.
People who worked these factories in these skilled jobs for 20, 30, 40 years, they don’t turn around tomorrow and they’re down there on 15th and Vermont or something like that being a lobbyist all of a sudden. It doesn’t work that way. And I understand globalization as far as how nothing beats capitalism. You can’t out produce it, and the world has gotten richer as a whole.
But there’s always a sacrifice in there that sometimes people don’t talk about. And while countries, like you said, voluntarily went to China and went to Vietnam—they outsourced. They offshored. They went to Mexico, or they went Canada or wherever to set up shop—they went mostly because of the regulatory state kind of pushed a lot of it that way. And so there’s -- I don’t think it’s as simplistic as we like to frame it to be.
And now here we are today with this COVID stuff going on. And I read a story today about a manufacturing outfit in Tarrant County, outside of Dallas. And they’re not working overtime. They’re a surgical mask maker. And the executive talked about how the last time this happened and how they kind of got screwed, if you will, by hospitals and contracts and people breaking promises and agreements because China could make them for two cents versus ten cents and things like that.
So in regards to globalization and those jobs, what’s standard -- our dollar has gotten less. So while some things have gotten better for some people and things look prettier, there’s a whole side of this country that has really gotten left in the dirt and stomped down with globalization. And I’d be interested to hear your response to that.
Terry Miller: Yeah. Thank you very much for that question. I think you raised a lot of very real points in a very articulate way. And I don’t have a full response to all of that because there’s just a lot of truth in the concern that you’ve expressed. But I do have a few things I want to say.
The first regarding manufacturing in general, manufacturing capacity in the United States is at an all-time high, or at least it was before this crisis hit. That doesn’t mean manufacturing employment was but manufacturing production in the United States had not gone down. There was not a crisis in manufacturing in the United States. It’s just that our factories had become much more productive and the nature of our factory workers’ jobs had changed. And they’re better compensated as a result.
I’m a little older than you are, the questioner. And I want to tell just a brief anecdote. When I was a child—and this was in the 1950s—my grandfather worked in a manufacturing plant, a glassmaking plant, in Palestine, Texas. And I would visit him, and he would take me out to that plant. And it was, you know, for an eight- or nine-year-old kid, it was paradise. It was noisy. It was dirty. There was a lot of fires going on, explosions -- controlled explosions of one kind or another, an awful lot of activity.
It wasn’t necessarily the safest environment for the workers. And frankly, the last thing in the world that my grandfather ever wanted was for me to follow him into that type of job. He very much hoped that I would move into some other kind of job. He called it, well, move into the white collar. But he’d have been equally happy if I’d moved -- you know, become a plumber, an electrician or something I think. He wouldn’t have had a problem.
But those manufacturing jobs that we tend to romanticize looking backwards weren’t always all that wonderful for the workers that actually had those jobs. And I think we need to recognize, yes, and there are many communities in the United States that have suffered. But you also see communities when you’re driving down the highway -- I’ve had this experience where I’ll go by a factory that’s shuttered, closed, and starting to rust. And then a few blocks down the highway, I see a brand new, elaborate medical complex, a hospital. And perhaps all those factory workers, or some of them at least that used to work in that factory that’s now closed, have moved into the medical profession or some other more productive use of their talents.
Now, obviously, that’s not always the case. And we do have government programs and certainly other private programs to help people that just can’t make that transition. But I think we have to recognize that that’s a transition that we much allow to take place. Otherwise, we get stagnation in our economy. And that means our children will be, at best, no better off than we are and at worst much worse off than we are.
Nicolas Loris: Yeah. I would just add that in my main focus of research I work on energy and environment policy. And you’ve seen a dramatic increase, obviously, in oil and gas production and all the manufacturing jobs associated with domestic oil and gas production. And factories that used to make steel have been repurposed to make chemicals because natural gas is such an important feedstock for a lot of chemical and plastic companies. So there has been some sort of a transition, as Ambassador Miller had mentioned.
I think part of the problem—and I think it’s a very real concern that a lot of Americans have and that I certainly share—is that that’s not going to save everybody. And people are going to lose their jobs, and companies are going to move overseas. And I think part of the problem is that sometimes the only way to get them back is to keep people from buying products that they prefer to buy elsewhere. And that isn’t a sustainable solution because you’re just going to end up providing that company with a lifeline that isn’t going to last. So it’s only a temporary band aid solution for a company or for a job who many be on its last legs anyway.
But I think you also mentioned an important point in your question, and that was the regulations that have forced jobs to potential locate elsewhere. So I think one of the things we can do and something that’s compatible with what we’ve been talking about with regards to economic freedom is how can we make America a more competitive place to do business? What regulations do we have, whether it’s for starting a new business and a lot of the FCC regulations, monetary policy, financial policy, labor policy, environmental policy -- there’s a whole laundry list of regulations that are really devoid of any meaningful benefit that we could reduce or lessen to make America more competitive and create a more competitive environment with regard to tax policy.
And then I think the other missing link here is how can we radically—and I think it needs to be radical—reform our education policy? How do we fix that so the people who are working at a machine shop can transition to a job more efficiently? How can we create more technical schools and teach people how to code or teach people to be more flexible for the future of work because we don’t ultimately know what’s that going to look like.
So education policy, I think, is something where there hasn’t been a lot of innovation and there hasn’t been a lot of reform. And it’s really ripe for it because I think it can help a lot of younger people, but it also can help those people who may have lost their job as a result of a global competitive environment. And that ultimately will help that transition be a little more smoother.
I agree with you. I don’t think it’s painless. I think it can be very painful for some more than others. But there’s ways to prepare for the future of work and for the shifting of the U.S. economy better than trying to protect a certain business or industry through subsidies or tariffs or whatever government mechanism that might seem like the easiest thing to do.
Micah Wallen: All right. Well, we are past our time for today. So did anybody on the panel have anything else they’d like to share before I close us out?
Terry Miller: I would just like to thank The Federalist Society for organizing this panel and all the questioners for the really thought-provoking questions they asked. And I very much appreciate the dialogue we’ve had today.
Nicolas Loris: Likewise.
Micah Wallen: All right. Then, on behalf of The Federalist Society, I’d like to thank all of our experts for the benefit of their valuable time and expertise today. We welcome listener feedback by email at email@example.com. Thank you all for joining us. We are adjourned.
Dean Reuter: Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.