The decline of US manufacturing since World War II, when America had an absolutely dominant position in the world, is quite striking. In 1950, the United States accounted for 60 percent of the manufacturing output in the world. Now it’s only 16 percent. Naturally America is concerned. But I think it’s too late to turn this around in any major way.

In direct response to your question, there are countries that have managed to reindustrialize. There are two types of deindustrialization. One is deindustrialization that happens because manufacturing productivity has grown, and manufacturing goods have become cheap in relative terms.

Twenty years ago, with the money that you can buy a small efficient smartphone with today, what kind of computer could you have bought? One that was very basic. Twenty years ago, you would have had to pay, I don’t know, $2,000 to buy a decent laptop computer. These days you can get quite good ones for $300. So we are actually producing and consuming more and more manufacturing outputs, even in the advanced countries. But manufactured goods have become so much cheaper because that sector has enjoyed very significant growth in productivity.

That’s what you could call positive deindustrialization. Countries like Sweden and Finland in the 1990s and 2000 have experienced a shrinkage in manufacturing as a share of GDP. But if you recalculate using the old prices, you find that the manufacturing output has increased quite a lot.

There are also negative types of industrialization, which is what countries like Britain first and then the United States have experienced. This is where manufacturing sector declines are due to lack of investment, because of an inability to cope with the foreign competition, and so on.

This distinction is important because there are countries that have seen their share of manufacturing output decline in current prices. If you calculate it on a constant price basis, it appears as if in the 1990s and 2000s the manufacturing sector expanded and shrank by about 5 to 10 percent in the Sweden and Finland. But it actually grew by 50 percent, if you recalculate it in the old prices.

You ask whether there is a precedent of the countries regaining their manufacturing sector. And actually Sweden and Finland have just done that. For a variety of reasons in the early 1990s, these two countries experienced quite a significant decline in the share of manufacturing in their economies. In Finland, manufacturing accounted for 24 percent of GDP. By 1991, it had declined to 17. In Sweden, manufacturing as a share of GDP declined from 21 to 16 percent during the same period. But by the early 2000, Finland brought its manufacturing share of GDP back up to 24 percent, and Sweden raised its manufacturing share of GDP to 20 percent.

The same trend can be observed in Singapore. Singapore experienced quite a significant decline in manufacturing in the mid-1980s, from 27 percent to 20 percent. But by the mid-2000s, it had recovered back to 27 percent. By the way, Singapore, despite what people think, is one of the most industrialized countries in the world: in terms of per capita manufacturing output, it ranks in the top five globally. There’s an interesting myth about it being a service economy.

The most industrialized country in the world is Switzerland. You think that the Swiss are dealing in the black money from Third World dictators and selling cow bells and cuckoo clocks to American and Japanese tourists. Actually, it is literally the most industrialized country in the world, if you count in terms of manufacturing output per person.

These countries have managed to revive their manufacturing industry, and since then they have declined a bit. But the lesson here is that these countries could do that only because they had a deliberate policy to revive manufacturing. What Donald Trump is trying to do is wishful thinking. Countries that have successfully increased their manufacturing output have deliberate policies to support manufacturing. In the Swedish and Finnish case, it also extended to retraining the workers made redundant because of the decline in traditional manufacturing sectors and then turning them into workers for new industries.

Finland is the best example. It used to specialize in making pulp paper as well as metals like steel and iron. But in the 1980s and ’90s, the government had a deliberate policy to promote the electronics industry. During that period, the government made a concerted effort to restructure the economy, which involved a lot of industrial policy, a lot of retraining of workers, and so on.

They can definitely help. The most appropriate use of tariffs is what is known as infant industry protection. This is an idea that was invented, actually, by Alexander Hamilton, the very first Treasury secretary of the United States. His argument was that we should protect and nurture small industries in the same way that we protect and nurture our children until they grow up and can go out in the wider world.

Hamilton wrote “The Treasury Secretary’s Report on the Subject of Manufacturers” in 1791, two years after he became the Treasury secretary. In that report he made the case for protectionism. But what people — even people who are fans of Hamilton — forget is that he supported putting other kind of policies in place to allow the American industries to grow within the kind of protected boundary that was provided by the tariffs. He supported infrastructure, the development of a banking system, a government bond market, patents, and of course subsidies as the key components of industrial policy. He had a real plan. It wouldn’t be unjustified to call the report the first ever systematic economic development plan in human history.

My native South Korea was one of the poorest countries in the world in the early 1960s. Our per capita income was about $90. Ghana’s was around $190, Senegal’s was around $315, South Africa’s $600, and Argentina $1,100. But South Korea used a very determined and systematic industrial policy, which included trade protection, to become one of the richest countries in the world.

To deploy the childrearing analogy again, in one of my previous books, Bad Samaritans, I wrote this chapter called “My Six-Year-Old Son Should Get a Job.” I asked the reader to imagine that I had a six-year-old son — which was true at the time, now he’s twenty-five — and that I had the realization that he was a bit of a parasite. I didn’t use such a strong word, but the argument was that I pay for his food and lodging and his education, his health care, his Nintendo games. But what if I sent him to work? I would save a huge amount of money. He could go out in the world doing whatever a six-year-old can: shining shoes, selling chewing gums on the street, and so on, and he would pay for his own upkeep. But obviously, if I send him to school and help him for another twelve to fifteen years, he could become an architect or a nuclear physicist.

In this respect, giving tariff protection is like sending a kid to school. But the kid has to study if he wants to become a productive person. And as a parent, you must help this kid study and give appropriate encouragement as well as restraints. That’s why you need industrial policy — tariff protection alone rarely works.

No. From the 1830s, the United States’ economy was actually one of the most protected in the world. Hamilton’s plan didn’t come into force right away, because when he made his proposal, people like Thomas Jefferson said, “This guy is insane.” We could export our cotton and tobacco — of course there was no mention of slavery — to Europe and buy manufactured products that are not only better but also cheaper, even considering the not-insignificant cost of transportation. The US was such an underdeveloped economy at the time that these arguments were very attractive.

The thinking was, why should we subsidize inefficient Yankee manufacturers? Initially Hamilton’s plan was rejected. The US Congress just raised the average tariff rate from about 5 percent to 12 percent. This was in no way enough to protect American industries. But after the Anglo-American War of 1812–16 — the first and the last time that that the US mainland was invaded by a foreign army — the Americans realized that, they needed to develop their manufacturing if we want to become a fully independent nation. And then from the 1820s, they started raising tariffs. By the 1830s, they became the most protected nation.

No, there was a huge conflict around it because the Southern slaveowners wanted free trade. They didn’t want to buy inferior American goods. This led to a constant wrangling, which was finally settled in the American Civil War. People think the Civil War was entirely about slavery, but it wasn’t. Abraham Lincoln was willing to let the Confederate states keep slavery as long as they didn’t try to extend it to the newly created Western states. He personally thought that slavery was barbaric, but he also thought that blacks were racially inferior. And he argued that they should all go back home — as if there’s a home for them to go back to.

So he wasn’t primarily motivated by anti-slavery sentiment. He was, however, a very strong advocate of protectionism. After the North won the Civil War, the average tariff rate was raised from about 35 percent to 50 percent. This period of protectionism lasted really until World War II. During that period, American industry managed to catch up with British and other European competitors.

But one crucial difference between then and now is the nature of the American capitalist class. During the nineteenth and early twentieth century, they were undeniably truly horrible people. They hired Pinkerton, a private security company, to shoot striking workers and actively brought in scabs. The conditions which workers labored under were also much more dangerous than they are now.

But one advantage they have over capitalists today is that at least they invested. Behind the tariff wall, they were willing to invest and grow. Unlike many other countries, the United States had a huge internal market so it could actually keep some level of competition within the domestic market without being open to international trade.

This time around, it’s different because basically the political economy of neoliberalism in the US since the 1980s has produced this parasitic financial system. It works, first of all, by suppressing workers’ wages. The Economic Policy Institute, the Pew Research Center, and even the Fed have all published data showing that, in real terms, American wages have been stagnant between the 1970s and the late 2010s. Wages initially declined in real terms until the late 1990s. Since then, wages have risen a bit, but they are only about 10 percent higher than what they were in the 1970s.

In two ways. One was importation of high-quality, cheap consumer goods from China and other developing countries. This was made possible by China joining the World Trade Organization (WTO) in 2001. The second factor was a huge explosion in the consumer debt in the form of credit card debt, car loans, house mortgages, and so on. These became a bubble that burst in 2008.

But even though the wages were not rising, workers were able to keep their jobs because with the same money they could actually buy more things. Things became so much cheaper thanks to the import of goods from China and other countries. On top of that, workers could run up huge personal debts.

Having generated so much more profit by outsourcing and offshoring, replacing domestic wages with foreign wages, American corporations started giving money away to the shareholders. There were hardly any share buybacks in the United States until the early 1980s. Even though it was legal in other countries, it was illegal to do so in the US until 1982.

Shareholders became much more powerful from the 1980s compared to the ’60s and ’70s when American corporations were more frequently run by professional managers. But from the 1980s, shareholders started exercising greater power and influence. By the early 1980s, 54.4 percent of total profit was given away to shareholders. That was 50 percent in terms of dividends and 4.4 percent in the form of buybacks. By the 2010s, things had changed dramatically.

These companies were basically still giving away about half of their profit in dividends. But they were doing buybacks equivalent to more than 60 percent of their total profit. They were actually borrowing money to do share buybacks.

Throughout the last twenty-five to thirty years, the top US corporations have given away 90 to 95 percent of their profit to shareholders. They have no money to invest. Why is it that Boeing, which is one of the most successful aircraft companies in the world, are not even able to make a safe aircraft? Because they are doing these huge share buybacks and just don’t have money to invest in R&D.

In economics textbooks, you learn that the stock market is a way to channel the household savings into corporations so that they can invest. That function doesn’t exist anymore in the United States. The stock market has basically become an ATM for shareholders who are forcing companies to cough up all the profits. If you were to offer protections to these kinds of companies, they just wouldn’t invest.

They would actually make even greater profits, because they wouldn’t have foreign competition and would be able to raise prices. But then with that extra profit, the hope maybe is that they would invest it and that would raise productivity. But they just won’t do that. Infant industry protection in the nineteenth century only worked because capitalists were not affected by pressures from short-term-minded shareholders. They were investing to grow and raise productivity. This kind of thing worked in South Korea in the 1960s, ’70s, and ’80s because the government forced these companies to invest through various industrial policy measures.

Exactly. The reason that the so-called China shock was so much more damaging in the United States was because of the nature of America’s political economy. Sweden and Finland of course faced competition from cheap Chinese imports, but their corporations kept investing in raising productivity and diversifying. This allowed them to partly fend off competition, partly by moving into new areas. Workers in these countries also enjoyed the security of an extensive welfare state and what economists call an active labor market policy.

These workers were retrained and relocated and got help with finding new jobs. In the United States, you don’t have that. Instead you have this parasitic financial market. I think that given the US’s actual political economy, tariffs are going to deliver pain rather than gains.

Developing countries have huge trade deficits, but you cannot say that deficits and surpluses reflect unfair competition. No one forced the Americans to buy Korean cars or Chinese solar panels. They bought them because they wanted them.

This logic is bizarre. Why is the United States not looking at imbalances in services, which usually work in favor to the Americans? In the last few decades, the US economy has been restructured into becoming an exporter of oil, gas, agriculture, and services. Why are the Americans not looking at imbalances in agriculture? The United States has a huge trade surplus with South Korea in terms of agriculture. Is it okay for the Korean government to accuse the Americans of unfair practices in the agricultural sector because the United States gives huge subsidies to its farmers? America might have a deficit in terms of manufacturing trade with Mexico, but it has a surplus in terms of service export with Mexico. Just looking at our manufacturing and saying that all this is due to unfair competition by other countries is bizarre.

If you argue that whatever deficit a country has is due to the unfair practices of other countries, then what should be made of government regulation? I mean, regulation against, I don’t know, chlorine-washed chicken exports to the European Union is costing Americans money. Even though I don’t want to eat those American chickens, I can at least see some logic there.

Look at the computer, the internet, touch screens, GPS systems, or semiconductors. These technologies were all initially developed through American military research. So you could say that by giving these huge subsidies for defense research, Americans actually engaged in unfair practices.

I don’t know how to end that or where to begin, but basically, Americans have to accept that they are not as good as they used to be. If we are talking about 1950, you could complain that our things are so much better than everyone else’s. If you are not able to sell it somewhere, it must be due to some regulations, some hidden protection, and so on. Even then, that’s a problematic argument. But today, Americans have to accept that they cannot build ships because they have basically run down their own shipbuilding industry.

They can’t make good semiconductors because they have refused to invest in these industries and have let the Koreans and the Chinese and the Japanese make these chips. To me, America’s response looks like the tantrum of a country that was once the undisputed hegemon of the global economy now having been reduced to a much weaker position, largely thanks to the actions of its own capitalist class. Outsourcing, offshoring, and not investing are the causes of American relative decline.

Developing countries need a multilateral framework. If there’s no multilateral framework, the rich countries will come and pick them off one by one. And this is what they did in the old days when most of these poor countries were colonized. These countries were forced to sign unequal treaties in which they gave up their right to set their own tariffs, had to sell rights to mining and logging and stuff like that and at a bargain price. The problem with the current debate is, it’s either Trump madness or going back to the old 1995 WTO/NAFTA world. We need a multilateralism that is pro-developmental.

We need to be a bit careful in using the words “globalization” and “deglobalization.” There are different forms of globalization, for example, between the end of World War II and the 1970s. This was a very regulated regime. Capital flows were very strictly controlled by all countries other than the United States. But even the US had very strict regulations on lots of things. Most Americans probably are not aware, but under Harry Truman and Dwight Eisenhower, the top income tax rate in the United States was 92 percent, the highest in the world.

Throughout this period, in many countries the share of wages as part of the national income rose. In most countries, wage growth kept pace with productivity growth. That link has been broken. This is the main reason so many anti-immigrant or even pro-fascist politicians are emerging in the rich countries.