New Economic Order turns trade and policy maxims on their head

A New Economic Order is being constructed here in America, as dangerous to America’s future as the New World Order being constructed by China, Russia, Iran and North Korea. Permit me to paint with the broad brush of a house painter rather than with the more precise instrument preferred by the pointillistes.
Until recently, the world’s resources were allocated by markets, poorer countries with cheaper labour — think China — stocking the shelves of richer countries — think America — with consumer goods at prices that the consuming countries with higher-cost labour could not match. That system began to unravel when China decided the membership it had extracted from the World Trade Organisation was a licence to ignore its rules, and Donald Trump, a self-styled “tariff man”, rode unhappiness with the social costs of that arrangement into the White House. There were earlier steps to bring down the old economic order — Nixon’s abandonment of the gold standard, Reagan’s deal that limited US imports of vehicles — but builder Trump unleashed the final wrecking ball.
The policy goal of maximising the Wealth of Nations, what Adam Smith called “the annual produce of the land and labor of the society” (and we call GDP), has been replaced with one that maximises the Security of Nations. No longer can rival nations take the risk inherent in the freer trade bargain — we, America, send you, China, our efficiently produced agricultural products and you send us your efficiently produced computer chips. Should the current warm war turn hotter, we would do without modern gadgetry and military equipment, and China would be rationing food.
The result is a distortion of trade patterns. China has tightened its rules on the “safety” of imported food to encourage domestic production as it drives for “food security”, while America, eager for a secure supply of chips, is offering incentives to Taiwan to build the facilities for their manufacture here — “fabs” as they are called — and preventing American firms from selling their technology to China. Profit maximisation and efficient use of capital and other resources are so yesterday.
Domestic economic policy, too, is no longer what it once was. Reliance on more-or-less free markets to allocate resources and incomes has been replaced with the policy preferences of government elites. Subsidies are offered to rich buyers of electric vehicles. The military is charged with devoting some of its increasingly scarce funds to greening its bases and equipment. The secretary of commerce is made responsible for picking the winners of contests for taxpayer-supplied capital, and for seeing that winners devote funds to social causes on leftish wish lists.
This New Economic Order could not have come into being as quickly as it has were it not for the economic chaos created by a pandemic. The government reacted by stuffing the chequing accounts of Americans, triggering an anxiety-producing inflation. The monetary authorities used the pandemic to justify a zero-interest-rate policy that drove up the price of assets — homes, investment portfolios. The result was that those who had, got, and those who had not, found their inflation-eroded pay cheques insufficient to fill their shopping trolleys and petrol tanks.
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The American dream of home ownership has become a nightmare. More than one-in-two young adults, ages 18-24, are living with a parent, one-in-three when adults up to the age of 39 are included, the highest percentages since immediately after the Great Depression.
Meanwhile, the nation’s capitalists have ramped up their assault on capitalism, which depends ultimately on its acceptability by a vast majority of Americans. Failed executives slink off the stage with multi-million awards from compliant boards. The very rich use their untaxed capital gains as security for loans to fund their lavish lifestyles. Property developers pass untaxed gains to progeny ad infinitum. Consumers steam at the sneaky double whammy of shrinkflation. Announcements of new record profits often accompany news of layoffs.
Still, the house in which Americans live remains the best in the global neighbourhood. Capitalism continues to outrank our adversaries’ systems in the scope of individual freedoms, which in turn generates an astounding rate of innovation and material advance. People storming our borders are trying to get in, not out.
A similar migration is occurring within America. States with draconian regulatory and tax structures mimicking those of the New Economic Order are losing population. Since 2020, New York and California, which regulate how you may cook and what you may drive, and impose income tax rates of 10.9 and 13.3 per cent respectively, have seen 1.2 million residents leave for the more congenial climes of Florida and Texas (no income taxes), and other Republican-run states.
On the national level, the good news is that only one lawgiver’s edicts were graven in stone. More recent measures have no guarantee of life beyond 2024, an election that is already under discussion by forward-looking politicians, some of whom are trying to imagine a world in which Democrats reverse their leftward lurch, and the duo of JD Vance and Eric Trump have lost control of the post-Trump Republican Party. Bliss it would be to be alive in that world.
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Irwin Stelzer is a business adviser