[mdorazio]

Here are the key points the article suggests (it spends quite a long time explaining how we got here):

1) Improve the [government sponsored] Manufacturing Institutes

2) [federally] Back R&D for manufacturing technologies

3) Provide scale-up financing [by the government]

4) Use government procurement power to promote new manufacturing technologies

5) Direct production support [to sectors deemed critical]

6) Provide both “top-down” [gov picks a tech and supports development of it] and “bottom-up” [broad incentives like IRA] support

7) Build a manufacturing focus into existing industrial policy programs

8) Map and fill gaps in supply chains

9) Fix workforce education [by refocusing on legitimate vocational tracks]

10) Put someone in charge [of coordinating agencies, budgets, and efforts]

This is all effectively trying to copy large segments of the China playbook, but in my opinion it misses some rather important points. Namely, protectionism and implicit incentives. On the first point, you can't really compete with China when it is actively hostile to foreign companies and de facto encourages outright theft of knowledge and expertise in exchange for access to its market. As long as we have a significant portion of people yelling about "trade wars don't solve anything" any time someone proposes leveling the playing field, competition is a nonstarter.

On the second point, the elephant in the room is that smart people in the US can make 2-3X as much in software or finance as they can in manufacturing, so what do you think they're going to pick? Which company is private investment going to fund - the SaaS co. with 40% margins and rapid growth or the manufacturing co. scraping 10% margins and 5% CAGR? It's hard to see where the skilled labor and private investment side of the equation is supposed to come from when the incentives are so mismatched - you almost have to find a way to decrease incentives in the currently lucrative pools first.

[jjoonathan]

The Triffin Dilemma plays a big role here. Debt substitutes exports in the balance of trade; running the reserve currency pumps assets and dump exports. If you want to export from the US, you have to compete with a literal money printer for access to talent and resources.

https://en.wikipedia.org/wiki/Triffin_dilemma

This is going to be hella difficult to unwind, especially given the current state of macro awareness in the US: if I had a penny for every time someone in an export industry panicked over the possibility of a declining dollar, even though this would be in their best interest, I'd have too many to carry. Arguably worse, we have an otherwise respectable top 10 list that doesn't include macro anywhere, which is like teleporting onto the Titanic only to hear that the conversation is all about how to best duct-tape the doors. Sigh.

[nibab]

“Which company is private investment going to fund - the SaaS co. with 40% margins and rapid growth or the manufacturing co. scraping 10% margins and 5% CAGR?”

2 of the most valuable companies started in the last 20 years in the US are SpaceX and Tesla. You can still build a huge amount of value with non-SaaS margins.

I think part of the problem here is how structurally unfit VCs are to fund such companies (ie investment horizon and fund lifecycle is 5-7 yrs). THat’s where scale-up financing by the government can make a huge impact.

[mdorazio]

These are great examples. SpaceX is an aerospace company and Tesla's price and hype are based on not being a manufacturing company (Elon touted it as a transportation tech company and not a car company from the beginning). If either were valued as manufacturing companies, their valuations would be in line with traditional peers.

My point is, if you want manufacturing to return, we need American FoxConns, and that means literally 2% margins [1]. We can't rebuild onshore manufacturing with overhyped companies alone.

[1] https://www.foxconn.com/en-us/investor-relations/financial-i...

[SyzygistSix]

The price and hype are based in part on not being a manufacturing company but the business model is certainly based on being a manufacturing company. And the manufacturing segment of both that is expanding. Just because the stock price is ridiculous does not mean the business models are unsound. They are a great example of bringing manufacturing and vertical integration back. They have made their factories work in California, Beijing, and Berlin.

[rtkwe]

Going off of the stock Tesla looks incredible but the price is insane and driven by factors other than their actual production outputs. They had a huge lead at the start but the old giants aren't that far behind them any more and aren't hampered by over promised and underspecced self driving claims and the... Muskness of their leadership.

[datavirtue]

Check out the Mach E review by Scotty on YouTube. Ford certainly is not behind Tesla at all. That Mach E is oders of magnitude more exciting than any Tesla I have ever seen.

[rtkwe]

The main thing Tesla still has over their competitors is the charging network. I've watched a couple X vs Tesla roadtrips and the biggest issue in the non-Tesla is there's way worse information about the chargers you'll find at a particular spot. These were a bit ago so maybe they've gotten better but there were a lot of "oh this charger doesn't work hopefully we have the range to get to the next one" where the Tesla chargers provide pretty good information about the number of people already charging there etc.

It's a gap they're losing a bit by other companies adopting their plug choice but there's still the integration to the car infotainment system.

[flybrand]

Yes!

I oversee a portfolio of industrial products that no VC would touch. Now, some long view PE groups do things like this - the margins can be great, growth can be fast.

[mschuster91]

> On the second point, the elephant in the room is that smart people in the US can make 2-3X as much in software or finance as they can in manufacturing, so what do you think they're going to pick?

Make unions stronger and kill off all of Wall Street finance shenanigans that's purely devoted to creating money out of thin air or skimming (especially HFT). That house of cards is going to crash hard anyway, so best tear it down in a controlled fashion than risk yet another 2008-style uncontrolled implosion.

[ccooffee]

"We've gotta destroy the economy to prevent the economy destroying itself!" isn't a rallying cry that is likely to garner much support.

Do you have any favored proposals for preventing "finance shenanigans"? Given the amount of money involved, I expect any government-driven reformation will be corrupted to serve private interests.

[wavefunction]

The economy of Wall Streeters is divorced from many natural economies these days. Perhaps they have already rendered their desires irrelevant and countervailing to mine and those of others.

[Jensson]

> "We've gotta destroy the economy to prevent the economy destroying itself!" isn't a rallying cry that is likely to garner much support.

That is exactly what you need to do though, blow up the dam now and release the water instead of waiting for it to build up and destroy the entire city. They do that small scale by increasing interest rates already, but sometimes you maybe need to do more.

[JumpCrisscross]

> especially HFT

People deciding to kill things in domains they haven’t the vaguest conception about is how we wound up in this situation. (Killing HFTs would be a major boon to Wall Street. You’re mandating an increase in transaction costs.)

[mschuster91]

We wound up in the situation we are because we let the forces of the free market have free reign in creating all possible sorts of quackery and bullshit.

[Aunche]

> Wall Street finance shenanigans that's purely devoted to creating money out of thin air

Creating money out of thin air has literally been the primary economic function of banks since the Renaissance. You have some people willing to provide useful goods and services, but there aren't enough standardized IOUs to pay them, so you issue new standardized IOUs.

[BeFlatXIII]

Perhaps there is no saving it via a soft landing and the smartest move is to crash it now instead of letting more pile up for a bigger crash later.

[0xDEF]

>Wall Street finance shenanigans that's purely devoted to creating money out of thin air or skimming (especially HFT)

Society is so damn lucky that techbros are politically irrelevant.

[yterdy]

>On the second point, the elephant in the room is that smart people in the US can make 2-3X as much in software or finance as they can in manufacturing, so what do you think they're going to pick? Which company is private investment going to fund - the SaaS co. with 40% margins and rapid growth or the manufacturing co. scraping 10% margins and 5% CAGR?

Ooh, this one's easy. Make software companies give back some of the money they make data-brokering and administering platforms where the vast majority of the advertiser-attracting content is provided, for free, by users. That's where the margin is coming from: users being scammed out of the true value of their contributions. Tax or regulation, pick your poison.

Someone brought up Tesla and SpaceX in another reply. The Tesla whose market share growth was driven largely by EV tax incentives, of course. The SpaceX that built heavily on gifted NASA research and expertise, of course.

[chii]

> users being scammed out of the true value of their contributions

is it a scam? Or are the users willingly trade their data for features?

> The SpaceX that built heavily on gifted NASA research and expertise

i think you're discounting their own hardwork. NASA research is available to any other company - it isn't an exclusive transfer.

[yterdy]

>is it a scam?

Is it a scam if I buy a $1 million painting off you for $50, knowing that I'm aware of its value and that you aren't? It's at best unfair and disingenuous. But what's more important to consider is how the scale of this imbalance has warped our economy: as mentioned above, a large portion of our most educated workers are getting paid to build addictive social media platforms instead of things that are useful and sellable, because tech companies are capitalizing on an arbitrage opportunity that is so massive as to probably be unfair, if not criminal, somehow.

>NASA research is available to any other company

But not NASA grants and personnel contacts.

[psychlops]

I mean they could simply weaken the dollar and then US manufacturing (and other) exports would become attractive again.

[coliveira]

And then everything that the us imports would be more expensive in the next day, fueling inflation...

[psychlops]

Yes, inflation on imports. Investing in the domestic manufacturing sector isn't free.

[MichaelZuo]

This, there ain't no free lunch.

[roenxi]

When did China ever rely on protectionism? I'm sure they have bouts of it here and there but the overt part of their strategy has been a willingness to work hard for low wages combined with refusing to let Chinese land or companies be sold to overseas buyers. But I claim no expertise. There should be a more serious effort to figure out what China's strategy was before there is a conversation about how best to copy it. Focusing on why China succeeded is more interesting and harder to get good information about.

> ... smart people in the US can make 2-3X as much in software or finance as they can in manufacturing...

Sounds like the price of manufactured goods is unsustainably low. Prices will need to go up or a new source of cheap labour be found outside the US.

[zdragnar]

> Focusing on why China succeeded is more interesting and harder to get good information about.

It isn't that hard, really. They had a massive population in relative destitute poverty that was willing to work very hard for a small, but significant, increase in their quality of life, starting with Deng Xiaoping's market reforms through fairly recently.

The surplus of cheap labor is shrinking, and the current "made in China 2025" plan is intended to drive the growth further by shifting more portions of their economy away from foreign services and goods.

The tactics are largely the same, though: massive subsidies to local companies that disadvantages foreign ones, tacit acceptance if not outright approval of theft of trade secrets from those foreign companies that do business in China, and until recently anyway, kept the yuan pegged to the USD, meaning that it is far cheaper to buy Chinese goods than elsewhere. Now, it is tied to a basket of currencies, but held in a fixed range, so it remains intentionally undervalued.

All of this put together ensures that foreign countries will buy Chinese goods and services, and that Chinese people will also prefer to buy locally.

Think of it as a "cold" trade war. Why they were allowed in the WTO with such policies I'll never know.

[roenxi]

It is that hard - you just handwaved all the hard parts. Most of the world is effectively destitute, making <$10k/annum [0]. The vast majority are willing to work very hard for small opportunities to benefit themselves. We're only seeing pockets of economic success in Asia as people copy their neighbors policies. And Deng's reforms ... you handwaved them. What were they? How many good 50 page reports are floating around that actually go in to them? We're talking 50+ years of economic policy between Deng and today, I expect a bit more than just a few Wikipedia links on this one. Even a decade of economic policy across China is a complex subject, China is huge and diverse.

And these massive subsidies - what evidence do we really have? Massive subsidies have not worked well outside of China. What magic is happening in there that makes them effective? Pre-1970 we had a series of superpowers that were effective because they avoided massive subsidies and let failures fail. China can't even afford massive subsidies for most of the period that mattered. The US government's spending might have been bigger than the Chinese economy for a lot of that period, and the companies the US has been subsidising aren't showing any of the vigour that the Chinese ones are.

> ... theft of trade secrets...

People have been screaming from the rooftops for years that the IP edifice is going to reduce innovation in the West. The question is why we subject ourselves to that madness. The amount of cultural destruction in not allowing 1900s works to spread freely is a tragedy, let alone the impact on science and technology. So certainly in theory I agree that the Chinese are getting a leg up here, but it'd be nice to see some analysis. And the problem isn't the Chinese attitudes to IP; that is the solution.

But to emphasis "it isn't that hard" to gloss over decades of highly successful economic policy is just not true. It isn't a serious attitude. If people in leadership positions hold that attitude the situation will worsen.

[0] China's average wage is above the world average, by the way. It crossed the line recently to much rejoycing. I think that is PPP adjusted. https://ourworldindata.org/grapher/gdp-per-capita-worldbank?...

[serf]

Production in China has included benefit from the opposite side of protectionism for some time now; when most countries abide by trade laws, those that don't gain increased exposure to international markets by virtue of offering cheaper goods via production-sans-design.

China itself may not, but the production groups within China have a pretty exhaustive recent history of largely ignoring IP regulations whenever profitable, and the market response has been widely happy-to-consume.

For a single example look at the history of composite bicycle manufacturing from the 60s onward, with specific detail on the emergence of China produced composite bicycles in the 90s -- it wouldn't have gotten off the ground at all without blatant IP theft spurring the first half.

[ramblenode]

The main problem with this take is that the US and China simply have different standards and rules for IP.

China is not "ignoring IP regulations"; they have different regulations. Both the US and China are parties to the WTO and Berne Convention and cases can and have been tried. The US has won many cases against China in the WTO; it hasn't done as well making cases for IP theft and protectionism, which is notable as this is a (relatively) neutral forum.

[ImPostingOnHN]

The main problem with this take is that it fails to explain the differences and their consequences.

If the differences and consequences are the same as if China was outright ignoring IP ownership*, why does it matter that you call the ignoring "different standards"?

*- not that they aren't already

[ramblenode]

Can you point to a case that breaks both US and Chinese law? Otherwise, this conversation will be about vague generalizations.

The issue is that IP is a legal creation, so it can only be stolen if it is recognized in the first place. That said, it does not seem like differences in IP law are usually what people are referring to when talking about IP theft. That is why I brought up the WTO, which is a forum in which the US has sued China for encouraging IP theft--but most of these cases have not been won.

[ImPostingOnHN]

> The issue is that IP is a legal creation, so it can only be stolen if it is recognized in the first place

The same is true of all crimes, they are all legal creations. And from what I can tell, China has the concept of IP. They're protective of their own, for example.

It sounds, then, like you're now agreeing that the IP is being ignored, just saying it's okay because China don't want to recognize it.

If not, I will ask again:

Suppose we have 2 IP owners, and 1 has their IP ignored by China and copied, the other has their IP "considered a different standard/not recognized" by China and copied.

_What differences do the two IP owners experience?_

This is the key question I asked before, and I am asking now. What's the difference for the IP owner? I ask because it seems like you're playing with words, not substance.

[jjoonathan]

It's no secret how export-driven development works. Trade surplus/deficits are controlled at a policy level by debt issuance/purchase. Run a surplus and your export economy will thrive. Run a deficit and your export economy will die.

Running the reserve currency requires running a deficit (others want to export their savings, so you need to import their savings). This pumps assets and dumps exports.