A few years ago, I was asked by someone in a Western military about how Britain might produce a completely domestic drone. It sounds straightforward, or at least easier than building a wholly domestic tank. Drones are fairly simple things; there are only a few hardware developments that separate the clunky old model helicopters, advertised during the holidays when I was a kid, from the machines causing terror in Ukraine. Lightweight high storage batteries, high-powered reliable rotors and electronics small and cheap enough to install on a plastic frame were the core developments. Add in GPS and a camera, and you have a modern drone.
It seems simple, but there’s a reason there is no Western competitor to the Chinese DJI, and even their supply chain isn’t fully domestic. There are few companies in the west that make batteries and certainly none capable of production at the scale and price of Samsung. This is true of almost every manufactured product you can think of. When labour in China became more expensive in the mid 2010s, the production of many basic components moved to places like Vietnam. As a result of yesterday’s tariffs, any American manufacturer will now be paying 46 per cent for springs, switches, valves, fasteners, clamps, pins and a multitude of other items that we don’t really think about, but that are critical for the production of almost everything.
In the short term these tariffs will hurt American manufacturers, but Trump and his team have been clear about their goal. Robert Lighthizer, Trump’s former trade envoy, laid out a very compelling case for tariffs in No Trade Is Free, the core argument being that the West was foolish to think it could offshore manufacturing and retain its technological edge. Not only does relocating manufacturing allow other countries to directly access and copy technologies and techniques, but the companies making the products now have money and expertise for R&D. Many people in Western institutions have been concerned with how the advance of Chinese capabilities in technologies like robotics are going to shape this century. The question is not just whether our companies might maintain parity in the complexity of the finished product but the strategic importance of ensuring the rotors, motors and alloys that comprise the final machine will be manufactured here.
Blanket tariffs on China will go a long way to help Trump’s plan
Ukraine has demonstrated that peer warfare this century, like WW2, is still primarily a contest of industrial attrition. Any conflict between the West and China would immediately cause a shortage of critical parts for almost every weapons platform the West uses. Many countries maintain tight control of their defence industries, not just imports and exports of military equipment but having the scope to necessitate that suppliers are domestic. The hard problem here is that it is extremely hard to track every tier of a supply chain. Despite all the capabilities of the F-35, it’s not leaving the ground if the supply of basic bolts and springs used in the machines that build and maintain it vanish.
The tariff is a blunt instrument, but the hard truth is that the US and its Western cousins are finding it increasingly difficult to compete with China economically or militarily in strategic sectors when Chinese companies have access to easy financing, subsidised materials and cheap energy via their state-owned corporations.
It’s become clear that the West can’t win a direct confrontation without actually making things, and that also means making things that make things, from springs and bolts down eventually to raw ores and refineries.
Trump’s plan is to bring as much of this manufacturing as possible back to the US: to shore up defence industrial integrity and at the same time return jobs to the parts of the country that have been hollowed out. It’s a good strategy, and blanket tariffs on China will go a long way to help. There’s a reason the Biden admin kept, and even extended them. Other selected tariffs are also strategically compelling: Vietnam is a Western aligned country, but it’s also very close to China, not just economically and politically but also geographically. In the event of a conflict, trade could be easily interdicted by the Chinese navy and airforce, so tariffs here also make some sense.
Tariffing places like Vietnam and India that produce a lot of basic components and manufactured machine parts to start onshoring is not too difficult. The European tariffs are different — EU countries produce a lot of high tech, high complexity products that can’t be easily replicated elsewhere. The kind of factories built by the Dutch ASML for the production of its advanced lithography machines don’t just sprout from the ground ex nihilo by throwing enough money around. China has been explicitly trying to replicate their capabilities for a decade and is still lagging behind.
The US alienating its natural allies and restricting its access to products that it isn’t going to replicate on any realistic timeframe looks amateur. It can take a decade or more to see the return on investment for building a new factory. The discussions happening in boardrooms all over the world this week will be judgement calls on whether to move manufacturing to the US or eat the costs in the short term and wait for this, or the next, US administration to change course. The recent tariff ping pong with Mexico and Canada, tariffs on uninhabited islands, thoroughbred horses or tariffing coffee when the US has no domestic producers won’t inspire business confidence in this plan. In the short term these tariffs are likely to be inflationary and disruptive for parties on both sides of the trade with potentially no real effect of bringing manufacturing back.
Trump’s instincts make a lot of sense, but his plan is ill-considered. Tearing up an old rulebook requires having a new one ready — not just hoping you can wing it and write a new one later.
