Trading It All Away

Henry Clay is especially appropriate for a lecture series focused on the long-term interests of our country. During his time in public life, he was known for taking the long view on the best interests of a then-infant republic. He had a very specific vision for American economic policy. To summarize: First, he didn’t want American prosperity to depend on any other country; and second, he wanted ours to be a diverse industrial economy.

That vision, and the work of those who followed him, steered the course of history. Economic independence helped to preserve the union in the early years of our republic. And, less than 100 years later, industrial capacity and diversity became the war machine that tipped the scales of World War II. Now we stand here a century and a half later, and America once again finds itself at a historic pivot point—not just for America, but for the world.

The post-Cold War world is fading from view, and we are being rapidly pulled towards a new era in human history. But in this era, our nation is not being steered by statesmen like Henry Clay. In January, I tweeted, “Biden’s cabinet picks went to Ivy League schools, have strong resumes, attend all the right conferences. And they will be polite & orderly caretakers of America’s decline.” The condemnation was swift and loud.

The permanent bureaucracy that runs our government, the people who run our largest corporations, many of the think tanks that generate our ideas, and the media that cover our politics are all devout worshippers of a late 20^th century ideology. This ideology was formed in the elite universities that inculcated in them the economic and political theology of a time much different from the one we are now entering. They are the authors, practitioners, and defenders of a post-Cold War bipartisan consensus that has dominated policymaking for the last three decades. We must either abandon this consensus or be forever defined as the generation that managed the steady decline of a once great nation.

The course of history is generally determined not by individual and dramatic decisions, but by the cumulative effect of incremental choices that people, nations, and governments make over time. But there are some singular moments whose impact are felt for generations. One of those moments occurred this week 20 years ago.

At least half of the items in any room across America are probably labeled “Made in China.” Why? It stems from that decision 20 years ago to allow Communist China to join the World Trade Organization (WTO)—a decision that now shapes how our most powerful corporations behave, what is available for us to buy here in America, and ultimately, the future of our country.

Five years after China became a full member of the WTO, our trade deficit with them had nearly tripled. Before China’s ascension, the U.S. was the largest trading partner of 152 countries in the world. Today, we are the largest trading partner for only 57, while China is the largest trading partner of 128. This decision was a pivotal moment in world history—and 20 years later, it is increasingly acknowledged to be a critical mistake.

Why was it a mistake? Because it was rooted in the flawed assumption that global economic integration was more important than anything else: more important than dignified work for Americans, our ability to make things, and even our national security. This assumption was perfectly summarized by President Clinton when he said, “By joining the WTO, China is not simply agreeing to import more of our products, it is agreeing to import one of democracy’s most cherished values—economic freedom.”

The fact that I do not need to spend any time convincing anyone that this is not how things turned out is a testament to how wrong they were. The damage that decision has inflicted on our families, communities, and country is almost incalculable. Instead of exporting “economic freedom,” we exported our industrial strength, and the result has been an economic, social, and geopolitical disaster.

Tens of thousands of American factories disappeared, and an estimated 2.5 million American manufacturing jobs were lost. This loss has contributed to historic declines in men’s labor force participation, wages, and even marriage. We’ve seen an opioid addiction crisis whose geographic hotspots happen to be the very regions most impacted by the loss of factories and jobs. This loss has led many Americans to believe that the American Dream is no longer in reach. This is the dream my immigrant parents and millions like them achieved here in this country: not a dream of becoming rich, but a dream to have a stable and dignified job that allows you to get married, start a family, own a home in a safe neighborhood, retire with dignity, and leave your children better off than yourself.

And this terrible mistake didn’t only hurt America; it empowered the Chinese Communist Party. They now use their new and growing economic strength and influence to turn American companies into their lobbyists, their spokespersons, and their advocates in Washington. They use it to tell our companies what to do with their businesses, coerce Hollywood studios and American sports leagues to self-censor, and intimidate international organizations to serve China’s interests at the world’s expense.

In Washington there is a greater and growing awareness of this reality. Many are actually very serious about doing something about it, while others just play along because they know it polls well.

But let there be no doubt: there are still very influential and powerful voices who cling to the failed consensus that brought us to this point, hoping the growing awareness of this danger we face is just a short-term movement, a populist fad that will soon fade. For the sake of our country and the world, I hope we prove them wrong. Because if they are proven right, and the attention to this problem is transitory, it will mean that most of us who are alive today will live to see the day when a genocidal communist regime ascends to become the most influential and powerful country in the world, while the greatest beacon of liberty in human history is relegated to a status of a once-great power in decline.

I think it is impossible to forge a different path forward without first understanding how the failed consensus that produced this current predicament developed. If we address the assumptions that led to this mistake, hopefully we’ll abandon them and, in the process, adopt the right assumptions.

The first flawed assumption was the belief that Americans are primarily consumers—that our primary economic identity isn’t as a worker, a parent, the head of household, or a member of a community, but as a shopper. If you believe that we derive our identity and happiness from the things we buy, and not from work, children, and family, then it becomes easy to justify opening up to China in exchange for cheaper prices. But we all know that what gives life meaning and purpose isn’t how many things we can buy or own—it’s the time we spend and things we do with our family and in our communities. That requires the stability that comes from good jobs.

To view Americans solely as consumers ignores the dignity that comes with work, and it ignores how corrosive it is to the individual and ultimately to a community when good jobs are no longer available. It leaves you with an unemployment rate, for example, that drops consistently below 5%, not because more people are working, but because more people have given up looking for dignified work and dropped out of the labor force.

It leaves you at the mercy of any disruption in the supply chains. When shortages make it harder to find what we want to buy and inflation makes everything more expensive, you still don’t have the jobs, the dignity, and the industrial capacity—and now you don’t even have the cheaper prices. That’s the predicament we unfortunately find ourselves in right now. Eventually, if cheaper prices at the store are the result of sending the job you once had to a cheaper worker in another country, you’re inevitably going to face widespread anger and despair.

And still, many don’t get it, ignore it, or hope we overlook it. When the Chamber of Commerce and the Business Roundtable petition the Biden Administration to lift Trump’s tariffs on China, or when 91 senators vote to cut tariffs on Chinese goods, it shows you just how deeply embedded this flawed thinking still is in our country.

The second assumption that underpinned the flawed bipartisan consensus was that the stock market and corporate profits are the same thing as real economic growth and innovation. For 20 years now, presidents from both parties have pointed to the stock market as a scoreboard indicating whether we are winning or losing economically. A thriving stock market is not a bad thing, nor is it unimportant. But our economy is a lot more than just the stock market. And most of the time, whether the market closes up or down has zero correlation with how the economy is working for our country, for our families, and for our communities.

Over the past two decades, the stock market has gone up 120% when adjusted for inflation, but “middle income” Americans have seen only seen marginal growth of about 6% over that same period. And lower income Americans have actually seen no growth at all.

The “Cost of Thriving Index” produced by Oren Cass found that in 1985, when my father was a banquet bartender in Coconut Grove, Florida, it took the median male worker 30 weeks of work to afford a year’s worth of the basics that it takes to raise a family. Today, that same index indicates it would take 53 weeks in a 52-week year to do the same thing.

When did this trend take off? It coincides almost perfectly with the collapse of American manufacturing after China entered the WTO. We lost 33% of our manufacturing jobs in just the first decade after that decision was made. It was a collapse so stunning that shortly after the year 2000, finance became a larger share of U.S. corporate profits than manufacturing.

Wall Street and Corporate America could now make the same products, or something new they invented, but at a lower cost, using cheaper workers working in a Chinese factory. The lower cost of manufacturing didn’t mean just cheaper consumer prices; it also meant larger corporate profits. Larger profits meant greater returns for shareholders, but it didn’t necessarily mean greater prosperity for working Americans.

There is nothing inherently wrong with greater profits for corporations and better returns for shareholders. But on their own, they are not a good way of measuring the strength of our economy and the well-being of our people. Lower prices alone can never make up for the fact that you lost the stability and dignity that comes from a well-paying job. Greater returns on investors’ stock portfolios can’t make up for the closure of a factory that left behind a hollowed-out community. And record corporate prices can’t make up for the insecurity that comes from being a nation that can’t make masks during a pandemic or produce the active ingredients in our most basic medicines.

Socialism is a failure. It’s a failure because it considers wealth to be immoral. It is possible to have a free market that generates wealth, while also benefiting working families and serving our national interest. But when you have an economy where wealth is being generated in a way that is divorced completely from the well-being of a people or the security of a country, it foments discontent and the resentment that Marxists always seek to exploit. It gives an opening to argue that capitalism is inherently unfair and repressive. And it creates an opportunity to argue that the time has come to abandon free enterprise and empower the government to “Build Back Better.”

When wealth is generated by sending our jobs and our manufacturing capacity to a country that seeks to rise at our expense, that views our relationship as a zero-sum game in which either it wins or we do, we are left vulnerable to whatever disruptions that country seeks to create and any coercion they seek to pursue.

The third assumption behind the flawed bipartisan consensus was that if our companies sent our factories and jobs to China, it would give America more influence over China and the world. It is a misguided belief that is rooted in the once popular theory that the end of the Cold War signaled the “end of history.” The theory was best expressed by Francis Fukuyama, who argued that after the fall of the Soviet Union, the whole world would become democratic. The economic ties of globalization would reduce conflict, and mass communication would bridge cultural divides.

It may sound silly today, but not long ago there was a catchy talking point that was popular in college economics courses, conferences, and soundbites. To paraphrase, it something like this: “No two nations with a McDonald’s have ever gone to war with each other.” Twenty years ago, the world’s most powerful companies were American. So, the belief was that this new world centered on global commerce would inevitably lead, not just to more McDonald’s, but to greater American influence as well.

But that’s not how it turned out. We soon learned that you could eat Big Macs and still view the country that invented them as a rival to be defeated. And we learned that when American companies are forced to choose between what’s good for America and bigger profits, they will usually pick bigger profits.

The Chinese Communist Party never wasted any time believing that the “end of history” had arrived. They saw and still see history as thousands years of greatness interrupted by a century of shame and humiliation at the hands of the West. They viewed it as their destiny to become the world’s preeminent power at America’s expense. For a time, they chose to “hide their capacity” and “bide their time.” But by 2008, they felt strong enough to no longer pretend.

Our economy is now controlled by people who have more allegiance to the global economic order than to their own nation. Our leading companies have no problem helping China build missiles that may one day kill American soldiers or give China access to American semi-conductors if it means they can make bigger profits for the next quarterly reports. Our major corporations say the United States has “human rights” problems while proudly sponsoring Olympic Games hosted by a government responsible for genocide and slavery.

Our culture is now influenced by studios that produce movies about how evil our history is but proactively self-censor anything that would offend the China’s Communist Party because they want their movies distributed there. Our culture is also influenced by prominent athletes like LeBron James, who has no problem claiming our police departments are overrun by killer cops, and Colin Kaepernick, who has no problem making a documentary about how systemically racist and evil our country is. And yet, they both make millions of dollars endorsing shoes made by the slave labor of Uyghur Muslims in China.

In his first speech in the Senate, Henry Clay warned that some “have been engaged, to overthrow the American System, and to substitute the foreign.” He suggested that while they were “long a resident of this country,” they have “no feelings, no attachments, no sympathies, no principles, in common with our people.” His words spoke to a different time and place, and yet they have taken on new relevance and meaning in our day.

As noted earlier, the people running our country today are acting as caretakers of our decline. These are not foreign agents. They are not supporters per se of the genocide being committed by a communist regime. And yet, even as I speak to you now, some of the most powerful people in government and business are working to make sure my Uyghur Forced Labor Prevention Act never becomes law. Because they believe that making sure American consumers have access to iPhones and sneakers is so important that not even stopping slave labor should be allowed to stand in the way. They believe they must maximize the profits of their shareholders at any cost, even if it means relying on factories filled with slaves.

Perhaps the most dangerous result of the decision to open up to China is that it left us with people at the highest levels of government and business who consistently advocate for policies that serve the interests of a foreign power and damage the interests of our country. The defenders of this status quo often hide behind capitalism to defend their actions and stances. But an economic relationship in which one side must follow the rules and the other doesn’t is not capitalism.

Real capitalism—American capitalism—wouldn’t allow China to steal our trade secrets and then produce cheaper imitations to put our companies out of business. It wouldn’t let Chinese companies do whatever they want in America, while American companies are either banned in China or forced to partner with a Chinese company (who steal their trade secrets and then put them out of business). This isn’t about capitalism—this isn’t capitalism. This is about corporations and big investors who are making billions by cooperating with China and simply do not care that it is coming at the expense of their country and their fellow citizens.

Lenin once predicted, “The capitalists will sell us the rope with which we will hang them.” For a least a decade now, everyday Americans have been telling us that the tradeoffs made two decades ago have not worked out well for them or our country. A fateful decision made on flawed assumptions accelerated the global rise of a communist regime at the expense of American workers, industrial capacity, and national security. And now, the commonsense wisdom of our people is finally beginning to find influence in our politics and government.

Forging a path towards a pro-American capitalism that protects our nation’s interests and serves the common good will not be easy. Some of the most powerful interests in our economy are deeply invested in the status quo, and many of the most powerful people in our government are too deeply committed to the road we are on now. But charting a new path is the only way forward. It will not be the work of one person or one party. To succeed, it must be the work of an entire generation and cross the entire political spectrum. It must become our new consensus. Only the free market can make this century a new American Century. But it must be a capitalism that serves the interests of our country, not the interests of the global economy. The market must serve our people, not the other way around.

What does that kind of future look like? It is a future where private industry, not government spending, creates good jobs for our people while also building the resiliency of our country. It is a future where taking risk can result in both wealth for those willing to take the risk of investment and innovation and prosperity for those willing to work and produce.

We live in a country and in a world that is much different than the one Henry Clay knew. And yet, ironically, a new American Century is in many ways not unlike the vision laid out by Henry Clay almost two hundred years ago: an America that does not depend on any other nation for its prosperity, and an America with the industrial capacity to tackle any challenges that comes our way.

Adapted from Senator Rubio’s remarks at the inaugural Henry Clay Lecture in Political Economy on December 8, 2021.