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American Politicians And Administrators Of All Stripes Are Sounding More And More Like Soviet Central Planners.

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It’s been said by those who know Fred Smith well that when the visionary FedEx founder is asked about the U.S. Post Office, he’s known to say that in a competitive market he could put the government-created monopoly out of business in a matter of months. Smith’s confidence shouldn’t surprise readers, conservative readers least of all.

That’s the case because at least in their rhetoric, conservatives preach the gospel of market discipline. The Post Office would be extraordinarily vulnerable to competition precisely because it’s never faced the kind of competition and investor pressure that conservatives at least rhetorically deem so essential to corporate progress. If funding will always be abundant, and if funding will actually rise the more that mistakes are made, why make the hard decisions that real businesses make every day?

Stating what should be obvious, and has long been obvious to conservatives, the Post Office is a low-quality provider of fourth-rate service, and it’s that way because always-there government funding has shielded it from the market realities that would have otherwise strengthened it over the years; that, or put it out of business. In short, copious government support has weakened the Post Office. No entrepreneur or business would ever consider emulating it since mimicry of what defines bad service in the minds of all too many would repel the very investors necessary for a business to open its doors in the first place.

Smith’s opinion of the Post Office has routinely come to mind amid the odd conservative crack-up over Chinese communications giant Huawei. Republicans and conservatives inside and outside the Trump administration were very disappointed recently when British Prime Minister Boris Johnson announced that Huawei, a corporation so valued by its customers that it operates in 177 countries around the world, would “allow” the company’s “equipment to be used in Britain’s 5G wireless network.”

GOP hand wringing is puzzling. Long the Party that’s striven to properly associate itself with keeping government out of the rollout of anything commerce or market related, when it comes to what’s expected to be “next generation” in communications, Republicans find themselves parroting the very wording that animates the rhetoric of their ideological foes on the left, and in the extreme, the rhetoric of central planners from the 20th century. Don’t Republicans remember how horridly and murderously central planning failed, and don’t they remember how very much their political hero (with good reason) in Ronald Reagan confidently predicted the failure of statist regimes precisely because politicians, not market-disciplined businesses, were calling the commercial shots?

Yet when it comes to 5G, it’s as though state planners have entered the bodies and minds of conservatives and Republicans. Out of one side of their mouth they talk of the enormous potential of 5G to “transform” how business is done for the much, much better, only for them to proclaim out of the mouth’s other side the genius of a public/private 5G partnership. As the Wall Street Journal’s Bob Davis and Drew FitzGerald recently reported, “the White House is working with U.S. technology companies to create advanced software for next-generation 5G telecommunications networks.” Yes, you read that right. Conservatives believe that which is anti-innovation, and that which is where innovation routinely goes to die, is necessary to build up that which is billed as a revolutionary driver of technological advancement. No less than the great free-market champion Larry Kudlow confirmed to Davis and FitzGerald that “The big picture concept is to have all of the U.S. 5G architecture and infrastructure done by American firms.” Say it ain’t so!

Thinking about this, readers would be wise to stop and marvel for a second or two. It wasn’t too many years ago that conservatives figuratively trampled on one another as they raced to TV cameras and computers to mock the Obama White House and Democrats for the Solyndra bust-up, and that was just solar. Back then the very notion of public/private anything was anathema to conservatives, yet now they’re championing it for 5G. The technological future is coming, and it will be planned by conservatives in government!

Fear not, it gets weirder. Indeed, their support for government investment grows by the day. Hudson Institute senior fellow Thomas Duestenberg is the latest (but surely not the last) conservative to call for government planning in the development of 5G, along with government finance. Duestenberg et al want tens of billions of taxpayer dollars to allegedly bolster the 21st century equivalent of putting a man on the moon first. Funny here is that conservatives were up in arms back in 2011 when it was revealed that Solyndra had been the “beneficiary” of $535 million in government loan guarantees…

Needless to say, the previous number is chump change to the overnight planners on the right. Duestenberg laments that Huawei allegedly has received $75 billion from the Chinese government (as though the feds don’t wastefully shower all manner of taxpayer dollars on U.S. firms – TARP comes to mind, so does ExIm…), so he’s cheering bipartisan legislation and funding from Congress meant to “encourage development of open-architecture systems to promote Western competition to Huawei and ZTE.” Stranger still is that Duestenberg’s op-ed was hosted prominently by the Wall Street Journal’s editorial page, long the Holy Grail of free market opinion. Needless to say, the Obama White House’s partnership with the solar industry amid lefty alarmism about global warming wasn’t cheered by conservatives in the way that they now cheer government investment in that which alarms them.

Which brings us to a basic question: just what are conservatives so afraid of? If Huawei is truly a tool of the state as they want to believe, and as they keep telling us, then it’s a safe bet that its efforts to lead the world toward an amazing 5G-enhanced future will fall very short. What’s innovative and has major market applications of the technological variety is never hatched by government. So let the Chinese government spend enormous sums weakening Huawei as it produces something that consumers will reject.

On the other hand, and with Huawei’s seminal role in rapidly advancing global communications top of mind, let’s consider the possibility that conservative scholars and politicians have well overstated the Huawei threat (haven’t they overstated other threats before?). As in, let’s consider the very real possibility that Huawei is actually a great company, and that it thrives despite state investment. If so, what’s there to be afraid of? Most of us don’t live in Cupertino, Mountain View or Seattle, but open markets make it seem as though Apple, Google and Amazon are right next door.

When markets are open, location of business doesn’t matter. If Huawei can bring 5G to market the quickest, brilliant. Just as the Chinese aren’t hurt by Apple selling 1/5th of its iPhones in China, and just as Los Angelenos aren’t hurt because Microsoft is in Seattle, New Yorkers won’t be harmed by technological advances that happen in Shenzhen.

The main thing is that conservatives need to act like conservatives again. State planning fails. Always. If Huawei is truly a creation of the state, then conservatives needn’t worry about it growing so rapidly in the U.S. such that it can “spy” on us, and do other scary things. If not, conservatives might reacquaint themselves with their support of the open markets that similarly always succeed when it comes to lifting everyone up.

John Tamny is editor of RealClearMarkets

The US Government Is Mugging Huawei Without Any Understanding Of The Simplest Principles Of Economics.

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Last December, American authorities asked Canadian officials to arrest Huawei CFO Meng Wanzhou. The Canadians complied, and that on its own should have readers a bit terrified. Now she will be extradited to the US for trial. At the time of arrest, Financial commentator Zachary Karabell observed that the arrest was “somewhat like the Chinese arresting the daughter of Steve Jobs if she had helped run Apple.”

So while officials in the Trump administration claim President Trump was unaware of the pending arrest when he had dinner recently with Chinese President Xi Jinping, let’s be serious. Of course Trump knew, or was soon to know. He would have had to know simply because the arrest itself was so outlandish, and so outside any reasonable norms.

And since the arrest was more than outre, it’s useful to state emphatically that Trump and the Administration he leads is playing with serious fire. Markets reflect this previous truth. Protectionism on its own is boneheaded, and runs counter to the interests of American workers and companies alike. Protectionism combined with the arrest of prominent business leaders in other countries is truly dangerous.

Channeling Karabell, imagine the arrest of a prominent U.S. business personage in China (think Apple’s Tim Cook, as an example), particularly given the present occupant of the White House. The Trump administration has crossed a serious line, and yes, the Trump administration should be blamed here. Something like this would never have happened without approval from the highest of the high.

Almost as bad as what the Trump administration plainly called for has been the reaction among Republicans who should know better. Normally reliable Nebraska Senator Ben Sasse told the New York Times that “Americans are grateful that our Canadian partners have arrested the chief financial officer of a giant Chinese telecom company for breaking U.S. sanctions against Iran.” So up in arms was Florida Senator Marco Rubio that he promised legislation meant to ban Chinese telecom companies in the U.S. More on Rubio’s desire to vandalize basic economics in a minute.

For now, it’s more than worthwhile to focus on Huawei’s alleged flouting of American law through its sale of telecom equipment (equipment that includes American-made components) to countries including Cuba, Iran, Sudan and Syria. This is what has some in the U.S. political class riled up, and it’s a loud reminder of just how microscopic is that same class’s understanding of economics.

To put is as plainly as possible, U.S. companies trade all the time with “Cuba, Iran, Sudan and Syria.” They just do so through intermediaries. To understand this simple truth, we need only return to the 1970s and the toothless Arab oil embargo “imposed” on the United States. History books tell us that Arab countries stopped selling us oil, but they did no such thing. “Arab oil” continued to flow into the United States; albeit via producers in countries not embargoed.

The above is how so-called U.S. trade controls should be understood. They’re utterly meaningless. So long as American companies are productive, and so long as there is demand from inside countries known to be enemies of the U.S., then U.S. companies will be trading with the enemy. They may not be breaking the law “directly,” but production itself is a signal of trade with everyone simply because there’s no accounting for the final destination of any good. In sports terms, while the San Antonio Spurs made a point to not trade all-world forward Kawhi Leonard to a Western Conference foe, they ultimately can’t block the Toronto Raptors from trading Leonard to one of their Western Conference rivals.

Looked at through the prism of Huawei, it’s presently the world’s #2 maker of smartphones, and is the global leader when it comes to telecom equipment. What this tells us is that persecution of the corporation for sales to enemies of the U.S. is for federal officials to make a distinction without a difference. Short of Huawei hoarding all of its production, its smartphones and telecom equipment will ultimately reach Iran et al for the prosaic reason that Huawei sells so much in the way of smartphones and telecom equipment. It can’t be repeated enough that there’s no accounting for the final destination of any good. Translating what is completely mindless, the federal government is ultimately persecuting Huawei for being successful.

Which brings us back to Rubio’s proposed legislation. On its own Washington’s blockage of Huawei is notable when we remember how U.S./China trade is framed stateside. Supposedly they block all of our companies from selling there, while we’re fully open to them. Not so with Huawei. One doesn’t find its phones at AT&T stores not because they’re not high quality, but because they’re illegal. The why behind the latter is really and truly suspect.

Huawei, a wildly highly successful telecom company can’t place its goods on U.S. shelves because it is viewed as a national security threat. The laughable argument offered up by members of the political class to defend the indefensible is that Huawei’s close ties to the Chinese government mean that American use of its phones and equipment imperil us because we could be spied upon. Oh dear….

The real threat here is U.S. telecoms that are close enough to our federal government such that they can convince federal officials to pursue always damaging protectionism. Luckily for U.S. smartphone makers (Apple sells 20% of its iPhones in China), the rules against our best and brightest in China aren’t so stringent.

But the main thing is that national security types are wrapping themselves in a false argument that the Chinese will spy on us through our phones. Ok, but what will they do? As President Trump’s endless Tweets about China remind us, we’re a huge market for Chinese companies. So, we’re supposed to believe the Chinese government will spy on us in order to war against the biggest market for companies close to that same Chinese government?

The whole Huawei story is a ridiculous one. And a protectionist one. And one rooted in flamboyant confusion about economics within the U.S. political class. But the worst thing about this story is how dangerous it is. When protectionism leads to arrests, it’s not unreasonable to assume that shooting could be next.

The above in mind, we’ve heard since Trump entered the White House that he’s surrounded himself with people who understand diplomacy and the importance of trade to world peace. It’s time for those people to stand up in the Administration, and to show a willingness to depart same unless sanity prevails. Because make no mistake about it, the arrest of Meng Wanzhou was truly insane. The pending trial more so.

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John Tamny

John Tamny is editor of RealClearMarkets. His forthcoming book on current ideological trends will be published by the American Institute for Economic Research in 2019.

 

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