We All Pay For Protectionism

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At CES, I didn’t get the chance to attend as many panels and discussions as I had hoped. When I made it, I was often pulled away partway through by another commitment. However, I had the chance to attend “Competing in a Trade-Disrupted World,” moderated by Ed Brzytwa, Vice President of International Trade for CTA, which produces CES. The panel included diverse perspectives, including Dan Anthony, who runs the website WePayTheTariffs.com, and Susan Liss, CEO of Suvie, who explained her challenges as a SMB. As clean technology has been hardest hit due to a combination of politically connected legacy interests, trade was already on my mind. Listening to the conversations, reading the stories and seeing the diverse inputs into the technology ecosystem, I gained a new appreciation for how it is not just one sector or the consumer paying the price for protectionism. We all pay.

People Pay In Different Ways

Consumers paying the price should be obvious. Increasing taxes and blocking competition distorts markets. In most cases, the hours of work wasted to earn money to overpay for products are more than the net hours of work preserved at uncompetitive companies. If we blocked TVs when Zenith went bankrupt to prop them up in the 90s, we might still be looking at months of pay for a product that underperforms what people can now buy with a few hours of pay.

But small businesses also pay in many ways. Retailers faced with increased costs on goods, often beyond what their customers are willing or able to spend, clearly pay price for protectionism. Sales go down while margins squeeze, making viability a challenge.

Entrepreneurial innovators and manufacturers also suffer. We simply do not have the industrial capability to do everything on our own, and small companies do not have the capital to reinvent the wheel. When I spoke to several US-based entrepeneurs about it, they mentioned that they can use a Chinese company to produce a prototype part and have it in weeks, instead of months. They mentioned that they could have the product manufactured and in market faster than they could build the prototype in the US. Even if they could build it here, competitors would be generations ahead of them by the time it hits the market. And then, when it gets to market, the cost is often too high, especially if they are cut off from imported components and materials.

China has massive industrial supply chains and a well-developed technology ecosystem. They also add the equivalent of the US engineering workforce to their workforce roughly every year. Many of these engineers are focused on the essential but less exciting parts of the project, like DFM and injection mold tooling, rather than focusing on creating the next attention-grabbing breakthrough. They have the talent to do much of the “99% perspiration” that turns the “1% inspiration” into a viable product. That is undoubtedly one of their greatest advantages. Other countries seeking to compete with China need to offer their own advantages. We simply do not have the population or education system needed to match global capabilities internally. Those global capabilities can be utilized to help our companies, if we let it happen. When we stand in the way of it happening, we pay the price.

In addition, if you have ever taken apart an electronic product, you will see things like capacitors from Japan, memory chips from Arizona, processors from Taiwan, batteries from China, displays from Korea… no one country makes everything, regardless of where final assembly and packaging takes place. The South Hall at CES especially was filled with these types of manufacturers and suppliers. No one country is going to be good at everything, and the more options that are available, the better cost/performance of the product. Isolating any country weakens the entire technology ecosystem. The overall collaboration is less productive. Cutting off the supply of individual components, software, or technologies makes creating innovative products more difficult. This is especially the case for startups and small businesses that can’t pay for custom-made chips or to build their own factories. They can’t afford to order a spool of custom-alloyed stainless steel. They have to use largely off-the-shelf parts and materials, and we just made that shelf smaller and more expensive.

Even large companies with the capital to build factories to supply their operations have to pay the price. Some may look at the tens of billions of dollars that Detroit is writing off on scaled back EV plans and think it is just about EVs. But much of those write-downs and penalties are for supply commitments and capacity being built that they do not need now. Commitments that they largely would not have needed if they had access to global supply chains. That added cost, and now cancellation cost, sets EV adoption back. With access to global supply chains, EV adoption could have accelerated, and localization of the heavy, highly automated battery production would happen with the market scale that comes from increased adoption. Now, with that market scale postponed and isolation from global markets, US EV adoption is set back further.

We also pay the price for isolation from their consumers. In the US, the average new car buyer is in their 50s, over two decades older than the average new car buyer in China. While China may be aging and shrinking overall, their wealth is much younger and growing faster, largely driven by technology. The gap is expanded due to our education system, the debt loads our education system puts on young people, and our elevated prices. Young people in tech-focused careers who grew up with smartphones have different perspectives and expectations on technology than their parents. The early adopter market is much larger. The adoption curve is different. As such, some Chinese companies are moving to smartphone-like technology iteration, accelerating progress. In many ways, the consumer is just as important to technology adoption as the producer.

Even Legacy Pays Eventually

In the end, legacy industry also pays the price. Like the overprotective parent coddling a whiney child, our government has enabled underperformers. Initially, it may look like they are being protected from competition. But they also are not growing, evolving, gaining perspective, or making connections. As that kid becomes an adult still living with their parents, surrounded by participation trophies in a state of persistent dependency, were they really being helped?

As I mentioned to Tom and Riz on Ludicrous Feed, US legacy automakers have already lost on EVs in an “us versus them” adversarial contest. But there is hope in collaboration. Many people still have love for the brands. However, the longer we isolate our country from global competition and global collaboration, the farther behind we will fall. And the less relevant the US part of the collaboration will become.

Eventually, the walls politicians put up around their people and industry will come down. When they do, the artificially propped up and isolated industries tend to fall with them. Trabant no longer makes cars. Its fellow Soviet Bloc Dacia and Skoda brands still exist through the involvement of Western automakers, but they now have little to do with their closed market predecessors.

Innovation Is A Team Sport

There are no completely new ideas. All ideas build on other ideas. No single country has a monopoly. It makes no sense to go back to prehistoric understandings of the world in order to rediscover fire and reinvent the wheel over and over again. The larger the pool of ideas people get exposed to, the better the ideas they can come up with.

Some will say that others are just copying, but that is a cop-out. Otto, Diesel, Volta, Faraday, Newton… were not American. But it would be dishonest to say that a modern automobile is just copying them. People also said Harry A. Miller was just copying European engines when his company developed what would become the most successful racing engine in American history. But that misconstrues the progress of ideas building on other ideas and the hard work needed to realize the potential of those ideas.

It is easy to put one person on a pedestal as the key to innovation in the technology sector. It makes a good story. But the reality is that it takes a wide range of people with different capabilities and talents to make a technology succeed. The larger the potential talent and supply pool, the better.

I live a few blocks from the Jackie Robinson Parkway, named in honor of the Brooklyn Dodgers player who broke through segregation in baseball. Segregating teams by skin color didn’t make baseball better. Segregating technology teams by lines on a map doesn’t make those teams better either.

Ultimately, we all have something to contribute. The more people we can bring together with diverse talents and perspectives, the more progress we can create. While the US is paying the largest price, our potential partners are also not benefiting from the contributions of our innovators. Global consumers are not getting the improved outcomes from larger collaborations. Our former allies around the world are re-aligning to participate in new and evolving clean technology ecosystems. Hopefully we rejoin them before the price we pay for isolation becomes too high.