Apr 21, 2025

Andy Kessler on U.S. trade with Asia: "we think, they sweat"

Mr. Trump’s America-first policy, as hallucinated by trade adviser Peter Navarro, is this: Make in America.  Invest in America.  Everything done by Americans.  A self-sufficient, stand-alone country.

It’s more of a political agenda than an economic one—more about protectionism and isolationism.  Trade?  Globalization?  Increased living standards?  How quaint.

Look, I’m all for America on top, but America first isn’t how you get there.  America first is a vertical model: Do everything.  But vertical always fails.  Vertical IBM made chips, wrote software, assembled computers and wrapped plastic around them.  Vertical AT&T provided phones, wires and both local and long-distance calls.

Fortunately, vertical gave way to horizontal: industries organized into layers of expertise, sorted by value added.  Intel and Microsoft owned layers in a horizontal stack that made up personal computers, leveling IBM mainframes.  The internet became a horizontal stack of routers, servers and applications, upending AT&T’s network.  Even the artificial-intelligence revolution is horizontal—Silicon Valley’s OpenAI uses Nvidia chips made by Taiwan’s TSMC using Dutch ASML’s equipment...

Globalism and trade also became a horizontal model, with the U.S. sitting on top of what I call a horizontal empire, sorted by value added.  Apple designs iPhones in California but assembles them lower down the stack in China—now shifting toward Vietnam and India—where living standards also increased.

Sadly, this horizontal model causes freak-outs over U.S. trade deficits.  But who cares?  Forget actual trade numbers.  Focus on the margin of the products flowing cross-border.  Apple has 34% operating margins.  Foxconn, which assembles trade-deficit-boosting iPhones, has operating margins of 3%.  Which would you prefer?

TVs, cars, clothes, toys and lumber that we import are all low-margin and usually labor-intensive businesses.  We export high-margin software, financial services, drugs and AI applications, all intelligence-intensive businesses.  I like to say, “we think, they sweat.”  Meanwhile, Commerce Secretary Howard Lutnick says, “Human beings screwing in little screws to make iPhones, that kind of thing is going to come to America.”  You first, Howard.

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So why would you ever want to go back to a vertical, isolationist model for the U.S., leading to higher-rate mortgages and expensive cars?  A margin surplus means we let low-margin jobs move overseas and become a high-margin nation.  Living standards rose across the globe.  Smartphones and autos everywhere.  Why go back?




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