ALAN TONELSON: China poses, we think, a major threat to the American economy in particular to what we would consider to be its productive heart, the manufacturing base.
There's been a very important failure of presidential leadership here and there is a distinct possibility that it will cost him a second term.
ED HARRISON: I'm Ed Harrison here for Real Vision. I'm talking to Alan Tonelson, who is the founder of the blog, Realitycheck, and he's also a frequent guest on CNBC. Alan, great to have you here.
ALAN TONELSON: Well, thank you so much for inviting me.
ED HARRISON: Now, we're going to be talking actually about the idea of America First as an economic policy position. You're a public policy analyst, and you've been involved in trade policy for well on 20 years, more than 20 years. The whole concept of looking at America's interest first in terms of public policy before we think of America as a global champion, that's been around for some time, that predates Trump.
ALAN TONELSON: Oh, sure. In fact, as those viewers who know their American history recognize the term America First actually predates World War II and was a big part of the great national debate as to whether to get involved in that great, great global conflict. It really didn't reemerge as such until Trump revived it, until President Trump revived it, but before that, you're absolutely right. For about 20 years starting in the early 1980s, I would say a small admittedly group of economic analysts began to question the trade policy orthodoxy that had prevailed really since the Franklin Roosevelt years when the United States embarked on what became the multidecade pre-Trump trade path.
The term most commonly attached to their little school of thought was economic nationalism. The big difference between the positions that they were pushing and the status quo was their opposition to the idea that America's fate was so closely tied in and dependent on the fate of the broader global economy as such, that the United States needed to regularly subordinate its own short term interest for the sake of keeping the global economy in a sense of and running and, more specifically, even for the sake of maintaining the set of global institutions and rules that developed largely at America's behest, we should note, after the end of World War II to bring some order to that global economy and in particular, to make sure that the tragic mistakes of the Great Depression were not repeated.
ED HARRISON: Then when you think about America First, we've talked about this before, you're not necessarily looking at Trump as the obviously not as the progenitor or the emblem of how it should necessarily be enacted, so for you, when you think America First, what are you thinking about? What's the purpose?
ALAN TONELSON: The purpose of America First, and I think it's important to note that it's got both a foreign policy slash national security and an economic dimension. In fact, they're closely intertwined, but the whole idea is to figure out a way that the United States can achieve its essential International goals, which I think we would all agree would amount to adequate levels of national security, to adequate levels of prosperity, to adequate levels of political freedom, of national independence as we preserve the social and cultural institutions that we we've chosen.
What the economic nationalists who are now called America Firsters have tried to accomplish is to figure out a way to achieve those goals in ways that are much less risky militarily, that are much cheaper militarily, and that we believe any way or much likelier to create the broad based and sustainable national prosperity that is frankly alluded the United States certainly since the late 1990s.
ED HARRISON: Let's break this down first in terms that you talked about, because you're a trade policy expert and I want to go there first. Mentally, when I'm thinking about it, I'm thinking about it in three different spheres. I'm thinking about trade policy. I'm thinking about foreign affairs, and I'm thinking about domestic policy. We'll probably end up talking about the first two since that's your wheelhouse. To the degree, we'll talk about domestic policy at the end. On trade policy, what is it specifically that was happening before that America Firsters were against and what is it that you and people like you want to happen going forward?
ALAN TONELSON: Well, once again, we saw a regular practice of subordinating US interests and actually sacrificing some very significant parts of the American economy for two goals that we consider to be pretty dubious. One was the goal of keeping the world economy running in a satisfactory way, by keeping the United States wide open to the rest of the world's exports. Second, was making sure that we could win and keep friends, largely against the Soviet Union during those cold war days, by granting economic favors.
What the economic nationalists come America Firsters would argue is that that was an arguably acceptable and sensible strategy during the early post-World War II decades when the United States was so economically predominant, when it really didn't have to think actively about preserving its role and its status in the world economy, and when it could look at its economy as almost a medium of exchange that it could sacrifice in order to achieve these larger institutional goals and these larger foreign policy goals.
We would argue that at some point in the 1970s, 1980s, that period came to an end. The sacrifices that were made, really began to cut very deeply into the country's wealth, into the country's strength. Among the arguments we made was that even advocates of the status quo should be worried about this because after all, even they would surely agree that an approach of regularly extending these favors and concessions couldn't last, could not outlive the country's actual capacity to extend them. You couldn't grant favors past the point where you had favors to grant in the first place.
ED HARRISON: Let me ask you because as you were saying that, the first thing that popped into my mind was the Soviet Union, how much of that was driven not just by the fact that America was preeminent in the post-World War II era, but also that the Soviet Union existed as a so-called menace to American interests abroad?
ALAN TONELSON: There's no question that geopolitics and national security drove a great deal of US trade strategy, and actually, strikingly enough, this was a point that was made early in the Clinton administration by President Clinton himself, by his trade representatives, Mickey Kantor, as they as they tried to step up pressure on Japan, in particular, to accept a more equitable trade relationship and they explicitly said the days when the United States would sacrifice portions of its economy to keep friends like Japan in the anti-Soviet camp. Those days are over, the Japanese have to realize that and we, the Clinton administration, even though the phrase wasn't used, are going to go for a more America First focus strategy where we're going to concentrate on capturing more of those short term gains of expanded trade.
ED HARRISON: Okay, so now, let's move forward to the present day. If you look at what you're saying in a present day context, obviously we're talking first and foremost about China. The general view of America Firsters is that of all the countries that are profiting from the existing status quo, China's the one that we have the most fraught relationship with regard to America First. What's your strategy on how to deal with China and to a degree, how has Trump done in terms of managing that specific relationship?
ALAN TONELSON: Well first, if you don't mind, I think one fundamental assumption behind this America First economic nationalist approach to trade has to be laid out. That is that the United States has completely unique and matchless leverage when it deals with its various trade competitors, trade partners, whatever you would like to call them, by dint of its equally matchless capacity for economic self-sufficiency in virtually any sector of the economy you can think of, manufacturing technology, agriculture, energy, and--
ED HARRISON: Recently energy.
ALAN TONELSON: Recently energy, and as a result of some pretty focused federal policies that of by the way brought us the tremendous advantage of being able to look at the frightfully chaotic Middle East with a much more relaxed attitude, which is a major gain for us.
ED HARRISON: We'll get to that.
ALAN TONELSON: Exactly. The feeling is that, in fact, continuing to expand trade and investment flows with the rest of the world is really not so terribly important to the United States as it is to most other countries who lack its advantages and that therefore, when we do engage in trade diplomacy, we have this enormous edge that we should capitalize on. We should recognize, and this actually gets us toward thinking about a domestic policy, we should focus more on building up the strengths we already have and possibly adding new ones, then increasing our exposure to the rest of the world and possibly vulnerabilities to the rest of that world.
We have that capability. Can we go 100% self-sufficient? No, but certainly, that should be we, America Firster economic nationalists, would argue a much more important goal of US foreign economic policy than it had been pre-Trump.
ED HARRISON: Okay. China?
ALAN TONELSON: Okay, China poses, we think, a major threat to the American economy in particular to what we would consider to be its productive heart, the manufacturing base. We would insist that without a world class manufacturing sector, whose excellence is broad based, not only 5G and telecommunications equipment, steel and machine tools and chemicals and pharmaceuticals and aerospace and ball bearings and all sorts of high value industries need to be a prominent part of the American economy, need to be highly competitive, and as we--
ED HARRISON: Let me just interrupt you there. Why is that? Why is it not-- the existing status quo is basically that we live in a global world and according to economic doctrine, if these guys can do it better and cheaper then we're going to trade to get what they can do better and cheaper, and we're going to do what we do better and cheaper. If the Chinese can do that, let them do that. That's the theory.
ALAN TONELSON: The first objection that we would argue as is that much and possibly most of China's progress, especially in these high value manufacturing industries, we're not-- most of us, I should say, are not terribly concerned that we've lost clothing and shoes and baseball bats because those are labor intensive industries that these days, things might change, but these days certainly don't make the contribution to broader prosperity than manufacturing does and when we say this, we're keeping in mind some very distinctive strengths that manufacturing boasts.
First of all, it has long been-- although it's lost its lead lately, a major, a leader in US productivity growth. I think most mainstream economists would agree that robust productivity growth is a key to long term sustainable national prosperity. It also has a very impressive jobs multiplier. When you're talking about the employment effects of manufacturing's rising or falling fortunes, you're talking about effects that break into lots of other sectors of the economy, transportation, logistics, and also technology development because manufacturing today still generates nearly 70% of all of the funds that the American private sector spends on research and development.
For those who would like the United States to become a high tech economy, that's going to be really difficult to do without a world class manufacturing sector. That's why we would argue that the importance of maintaining manufacturing has been grossly underestimated to the country's detriment. That's again, one-- that's one grievance. We would articulate against US-China policy. By the way, as President Trump has frequently stated, we would blame the American political system as least as much as we would blame China for this present situation.
There's also a big national security problem here because China has emerged as a major challenger to the US role, which presidents from both parties for decades have insisted must entail a dominance of East Asian security. We need to be the national security kingpin of the East Asia Pacific region. China is clearly very dissatisfied with that. China is now steadily gaining the capability to mount very effective challenges and what's especially frustrating, I know to Trump administration officials and to a growing number of so-called policy experts who maybe were not so terribly aware of this beforehand, some very careless US policies toward technology transfer have been major contributors to China's growing military strength.
There is now, in fact, a very impressive and growing consensus in Washington that the flow of US technology to China needs to be much more closely watched. In particular, because so much defense technology is so closely related to technologies that are widely used in the civilian sectors, the so-called the dual use phenomenon. It presents major challenges. It's hard to do in large part because there has emerged this web of mutual technology dependence between the two countries, but we would argue that a high degree of technology dependence on China, major strategic challenger, it's not such a great idea and that if those dependencies can be reduced, that's good. We should try to do this, even if some short term costs are involved.
ED HARRISON: Well, we're going to get to that because that is very interesting, my next question to you was about how Trump was going about this. Let's just say that Trump is trying to enact that mentality in terms of our relationship with China, and so doing, he's engaged in tariffs, some people would call that protectionism. There are short term losses as a result of that, almost to the point actually where many economists are very concerned that the United States is tipping into a recessionary like malaise going into the 2020 election, something that could potentially make Trump a one-term president.
ALAN TONELSON: If that happens, certainly, that would put a real damper on his political future. Although I have to tell you, I'm not really impressed with the country's growth performance pre-Trump either. I think the nature of the slowdown, whatever slowdown we have experienced, I think it's been really greatly exaggerated.
ED HARRISON: Even to the degree that it has been exaggerated, he's going to get the blame, especially because he's out front with these policies. My question to you is, then how do you implement what these short term losses that you're talking about in a democracy in which you have votes every two to four years, two for the Congress and four for the president? That's a liability for thinking from a strategic long term perspective, if you believe what you're saying.
ALAN TONELSON: Well, let me tell you, I always hesitate at offering political advice to someone who has won a US presidential election, where I haven't. I advanced these ideas with the greatest humility. I do think there's been something of a failure of presidential leadership here in the sense that not only has there not been anything like a consistent call for some degree of national sacrifice. He and his top lieutenants have started to mention, "Well, yes. We're going to have some short term pain, but it'll be worth it for the long term," but you're hearing that more from Larry Kudlow, from Peter Navarro. You're not hearing it so much from the President himself.
Of course, he famously boasted early on, trade wars are good and easy to win. I would argue that they certainly can achieve vital goods, but easy to win was a big mistake. I'm struck by the fact that someone with his evident communication skills, even at the rallies that he staged, which I think have been extremely effective in mobilizing and maintaining support, this notion of all for one and one for all and there's this greater common good out there that we need to achieve and that if we have to endure a little bit of pain, it's well worth it because we're all patriotic Americans.
This has not been a theme that's appeared in these rallies at all, at least as far as I can tell. Again, so I think that is a failure of presidential leadership. Because anytime you are trying to execute a major course change in policy, you're obviously going to generate some disruptions, some inefficiencies and some costs. It's inevitable. In fact, he is widely described as a disrupter. I'm not sure he's actually embraced that title, but he doesn't shy away from it. You have to accept that fact, you have to accept all of those consequences. A good politician tries to turn that sow's ear into a silk purse, and I haven't seen that. I would absolutely say there's been a very important failure of presidential leadership here. There is a distinct possibility that it will cost him a second term.
ED HARRISON: Well, how about this? The concept, maybe he's not even someone who is a true America Firster, meaning that President Trump is much more concerned about the short term than he is about the long term. That is, is that the reason that he's talking about both sides in his