Editors’ Note: We disagree that Liberation Day was a “debacle of historic proportions”. The market was vulnerable due to thinning performance, reliance on only about seven stocks to keep it afloat, was overvalued, and the product of an economy running on monetary steroids. Yes, the announcement of tariffs could have been handled better, but the market quickly erased the losses. This is not exactly of “historic proportions.” Nevertheless, the author makes some solid and interesting points worthy of your time.

The Trump administration’s rollout of its tariff strategy on “Liberation Day,” April 2, was a debacle of historic proportions, causing the greatest stock market crash since the COVID-19 pandemic and the threat of an even more frightening flight from the dollar as a safe asset. Nevertheless, from the wreckage, some useful policies might be salvaged. After all, the central initiative of President Franklin D. Roosevelt’s New Deal in his first term, the National Recovery Administration, collapsed in chaos and confusion even before the Supreme Court ruled it unconstitutional in 1935. But elements of the NRA’s grand scheme were re-created by the Social Security Act of 1935 and the minimum wage established in 1938 by the Fair Labor Standards Act. In the same way, some of the components of the Clinton administration’s failed effort at comprehensive health-care reform, the proposed Health Security Act of 1993 (“Hillarycare”), were repurposed and included in the more modest and successful Affordable Care Act of 2010 (“Obamacare”).

In sifting through the rubble of Liberation Day, in search of useful policies, we can distinguish among tariff policies that are good (sector-specific tariffs and country-specific tariffs), bad (“reciprocal tariffs” which are not really reciprocal), and ugly (the global or universal tariff).

Let’s begin with sector-specific tariffs. With the exception of libertarian ideologues, thoughtful Americans, right, left, and center, recognize the need for protection and some promotion for manufacturing supply chains critical to national defense and independence. In 1791, in his Report on Manufactures for Congress, America’s first Treasury secretary, Alexander Hamilton, stressed the need for promoting American manufacturing industries that would allow the United States to be “independent of foreign nations for military and other essential supplies.” The emergence of China as a superpower rival on all fronts—military, industrial, commercial, and diplomatic—makes the need for a high degree of American industrial independence as urgent in the 21st century as it was in earlier eras.

At the same time, the definition of defense-critical manufacturing cannot be limited narrowly to what is misleadingly called “the defense industrial base”—corporate defense contractors that make weapons and specialized goods only for the U.S. military and the militaries of U.S. allies and clients. The success of the Union in the Civil War, and of the United States in the world wars, came about because it was possible to convert and expand preexisting civilian industrial production for military purposes. The decision of U.S. leaders after the Cold War to allow much of America’s civilian manufacturing base to erode, in the hope that a small set of specialized defense industry contractors would be sufficient to maintain America’s great power status, in hindsight was one of the greatest strategic blunders in world history.

The Chinese Communist Party state has adopted a strategy of “military-civil fusion” (MCF). According to the U.S. State Department:

As the name suggests, a key part of MCF is the elimination of barriers between China’s civilian research and commercial sectors, and its military and defense industrial sectors. The CCP is implementing this strategy, not just through its own research and development efforts, but also by acquiring and diverting the world’s cutting-edge technologies—including through theft—in order to achieve military dominance . . . Key technologies being targeted under MCF include quantum computing, big data, semiconductors, 5G, advanced nuclear technology, aerospace technology, and AI. The PRC specifically seeks to exploit the inherent “dual-use” nature of many of these technologies, which have both military and civilian applications.

The true scale of the military spending of China, a secretive autocracy, is disputed. What is not disputed is that in the last generation, with help from unpatriotic American investors and unpatriotic American corporations such as Apple, authoritarian China has used state-led industrial and trade policies to become the world’s dominant manufacturing power.

In 2023, China’s share of value-added production in manufacturing was 29 percent of the world total—more than the United States, Japan, Germany, and India combined. China’s lead in global gross manufacturing production in 2020 was even greater: 35 percent, more than the combined total of the United States, Japan, Germany, India, South Korea, Italy, France, and the United Kingdom. Today China produces a third of global automobile manufacturing, half of the world’s steel, and 80 percent of the global civilian drone market. China is second only to Japan in manufacturing robots and is the world’s leader in factory robot installations. While China controls half of global commercial shipbuilding, America’s share of the global shipbuilding market has dwindled to 0.1 percent. What this means is that while the United States may lead China in the number of overseas bases and military spending, China would find it much easier than the self-weakened, partly deindustrialized United States to convert its superior civilian manufacturing base to military production.

Most Republicans and Democrats alike now share the goal of reducing America’s dependence on China for at least some critical manufactured goods and supply chains, like the semiconductors subsidized under the CHIPS and Science Act. One option for partial decoupling from China involves “friendshoring,” the sourcing of key manufactured goods and inputs from U.S. allies or other friendly nations.

The problem with the friendshoring strategy is that most of America’s “friends” are on the other side of the Atlantic or Pacific oceans. Even worse, Japan, South Korea, Taiwan, Vietnam, and India are next to China and thus are subject to blockade or intimidation in a serious Sino-American conflict.

The United States continues to extend one-way military guarantees to countries like Japan and South Korea whose largest trading partner is China. Among America’s so-called NATO allies, Germany found its largest single trading partner in China, until the United States surpassed China as a market for German exports in 2024. America’s East Asian and European allies are too deeply integrated into the Chinese economy for an American-led bloc that limits Chinese imports to be politically realistic…..

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Continue reading this article at Tablet Magazine.