👻 Truck or Treat! 🎃 A “Labor Shortage” Vanishes Into Thin Air

And more from this week…

Positive results continue to emerge from the Trump administration’s ongoing experiment in tightening the labor market for truck drivers. As we highlighted last week, trucking spot rates are rising for legal American drivers. Now, in an especially stunning turn of events (and an entertaining one, for industry watchers), the American Trucking Association is admitting that, actually, there never was a labor shortage. “What we have in the United States is a quality problem around drivers, much more so than an absolute number,” says one official. “There’s never been a lack of people with [licenses]... what we lack is the number of qualified drivers who meet our high standards of professionalism and safety,” says another. You know what might help with that? Hiring and retaining qualified drivers.

As Gord Magill explained last year in an American Compass essay, “Crash and Churn”: “There is, in fact, an oversupply of truck drivers in the United States. The problem for trucking companies is retaining drivers, but doing something about this problem costs them more than ignoring it and using government funds to paper it over.” Time to let the market rip!

This week brought a number of exciting technological developments, about which Oren would like to have a word:

Many opponents of reindustrialization don’t even consider the goal to be a valuable one. “Exports are the unfortunate thing we do just so we can get those desirable imports,” said Jason Furman, chair of President Obama’s Council of Economic Advisers, at the World Trade Organization’s Public Forum in Geneva last year. “We should not want to be” a manufacturing center again, according to Michael Strain, director of economic policy studies at the American Enterprise Institute.

But then comes the claim that the horse has already left the barn, and the United States has no plausible pathway to regaining leadership. That argument is frustrating in part because it underscores the folly of abandoning manufacturing in the first place—supply chain control, hard-won expertise, technological leadership supposedly didn’t matter as we were losing them, but now that they’re gone, it turns out they are in fact vital to building anything new. Oops. More importantly, though, with better policy that creates the right incentives, dramatic shifts can occur quickly. We know this because… that’s exactly what created the problem.

Companies were really good at taking supply chains they had spent decades developing, picking them up, and moving them to an entirely foreign business environment and culture with little experience and an underdeveloped workforce. Indeed, it is exactly those companies now whining that they can’t possibly be expected to do the same, but for the benefit of the United States. It won’t be cheap or easy. It won’t happen by magic or through the power of an invisible hand. But it has been done and it can be done again.

Helping matters along, new technological breakthroughs have the potential to let the United States “leapfrog” other countries that have invested heavily over the prior generation. The concept of leapfrogging usually applies to developing countries—for instance, not having to install traditional telephone infrastructure because the population can just adopt mobile phones. But after decades of failing to invest in our industrial base, we now find ourselves in a similar position. Skipping the entire wave of industrial process developments and robotics around which other countries have built their advanced manufacturing sectors, we can embrace the incoming wave of innovation, on which we are not already behind. Of course, a disproportionate share of upstream scientific research and technological progress always originates here, but we have usually been happy to see it commercialized and scaled abroad. What happens if we actually keep it here?

Artificial intelligence is the obvious example. AI can enable not only new forms of robotics and automation, but also new basic materials science, improved machine tooling, and more efficient logistics. Dean Ball wrote a fantastic essay on these opportunities last year, “Move Fast and Make Things”:

What constitutes the basic industrial infrastructure of manufacturing? Generically, it is the ability to move raw materials through processes such as casting, machining, welding, and finishing, and then assemble those processed materials reliably into useful things. Basic as these steps may sound—in fact, partially because they sound basic—the U.S. lags behind in virtually all of them.

A new generation of firms and entrepreneurs is rebuilding our industrial base with fresh thinking and new technologies applicable at each step—first and foremost, artificial intelligence.

This week, Shyam Sankar, Palantir’s Chief Technology Officer, made a similar point: “AI isn’t about AI – it is our asymmetric advantage to deliver country-scale transformation. AI is about Reindustrialization. AI is how we give the American worker superpowers and make them 50x more productive. American leadership in industrialization is re-emerging: Mobilize.”

He was doing this in the context of celebrating a new partnership with Nvidia, which is somewhat ironic, because Nvidia’s position is that we should erase this asymmetric advantage by quickly expanding China’s own AI capacity (which Nvidia would profit from). In Nvidia CEO Jensen Huang’s view, “Does it really matter who gets there first? I think in the final analysis, I don’t think it does.” All of which suggests that perhaps the White House should not take Huang’s advice on selling his chips to the CCP.

But I digress. Exciting news emerged on other fronts as well this week. Be sure to read the New York Times story on Substrate, a new company trying to develop new ways of etching transistors on silicon. (And for more, read SemiAnalysis’s breakdown of the new technology.) Researchers at UT-Austin, meanwhile, are pioneering new ways of processing rare earths. (Tanvi Ratna has a good breakdown there.)

Commercializing and scaling technologies like these will take years; they do not constitute an argument against making the investments necessary today to re-shore advanced semiconductor manufacturing or rare earth processing. As importantly, they do not provide some counterargument against trade protection and industrial policy. One might be tempted to think, this is why concern about China’s dominance is overblown; the winds of creative destruction are always blowing and one era’s dominant producer is the next era’s laggard. And in free markets, there’s truth to that sentiment. But globalization has replaced that model with one in which the winds only blow in one direction, ensuring that, regardless of who develops the technology, certain countries are the best places to build it. By refusing to play that game, the United States has ensured only that it loses every time.

A unique culture of upstream innovation combined with rules and incentives for scaling that innovation in the United States, with American workers, was the secret sauce of American capitalism for most of the twentieth century. We can succeed again. Not by rebuilding mid-twentieth-century factories, or by just replicating ones operating abroad today, but by being the place where the next generation of technology takes root. – Oren

CHECKING IN ON THE GOVERNMENT SHUTDOWN

Political winds may have begun shifting this week, as some prominent union leaders began putting pressure on Democrats to reopen the government. Teamsters president Sean O’Brien joined Vice President J.D. Vance at a White House press conference, and wrote, “Senators should stop screwing around and pass the House-passed clean, short term funding bill.” Everett Kelley, president of the largest federal workers’ union, likewise issued a statement calling on Congress to “reopen the government immediately under a clean continuing resolution that allows continued debate on larger issues.” Asked about his break from the Democratic Party line, he responded, “I don’t feel like I owe anybody.”

SPEAKING OF THE DEMOCRATIC PARTY’S COLLAPSING COALITION…

“Left-wing ideas have wrecked Democrats’ brand, new report warns.” At Semafor, David Weigel has the story on a new analysis of where Democrats have gone wrong. The underlying report, Deciding to Win, is chock full of interesting data, like the exploding emphasis on race, climate, guns, and LGBTQ issues in the party’s platform.

One fascinating finding, apropos of Oren’s essay earlier this week on the liberal elite’s foolish opposition to tracking and empty platitudes about a “life of the mind,” is that “get rid of tracking in public schools” is among the least popular of the Left’s positions, right up there with “defund the police” and so on.

In other collapsing consensus news, Bill Gates has abandoned climate catastrophism:

Although climate change will have serious consequences—particularly for people in the poorest countries—it will not lead to humanity’s demise. People will be able to live and thrive in most places on Earth for the foreseeable future. Emissions projections have gone down, and with the right policies and investments, innovation will allow us to drive emissions down much further.

Unfortunately, the doomsday outlook is causing much of the climate community to focus too much on near-term emissions goals, and it’s diverting resources from the most effective things we should be doing to improve life in a warming world.

As Oren wrote more than eight years ago:

The idea that humanity might prepare for and cope with climate change through adaptation is incompatible with catastrophists’ outlook. Yet if the damage from climate damage can be managed, anticipating challenges through research and then investing in smart responses offers a more sensible path than blocking the construction of pipelines or subsidizing the construction of wind turbines. Catastrophists countenance progress only if it can be fueled without carbon-dioxide emissions. Yet given the choice, bringing electricity to those who need it better insulates them from any climate threat than does preventing the accompanying emissions.

Welcome back to sanity, Bill.

PROGRESSIVE BILLIONAIRES MAKING GOOD POINTS, CONT’D

As long as we’re celebrating Bill Gates, a tip of the hat to Michael Bloomberg as well, for his eminently sensible editorial: “AI Won’t Give American Children the Education They Need”:

…tech companies that seek to sell hardware and software to American schools march to the beat of shareholders, not students — and if their utopian vision takes a dark turn, it is children and families who pay the price. If history is any guide, parents and educators should think twice before joining the big parade.

For the seminal discussion of these misaligned interests, the repeated harm to education, and the framework necessary in the context of AI, check out the recent paper from American Compass’s Brad Littlejohn: Teaching to the Tech.

AND OF COURSE, THE MOMENT YOU’VE BEEN WAITING FOR…

YOUR TRADE ROUND-UP

A big week this week, to say the least, with President Trump touring Asia and meeting with China’s President Xi Jinping. The big news is that there was so little news, which is a good thing. The United States and China have settled into a ceasefire posture in which each is attempting to limit investment and disentangle supply chains from the other, while limiting unnecessary costs along the way, and that’s as it should be.

Two areas of concern to watch closely:

• Is President Trump still considering advanced AI chip sales to China? That would be a huge mistake, as American Compass lays out in a new policy brief, Stop Selling the Rope: Protecting American AI Dominance from China’s Globalization Playbook.

• Does President Trump want to encourage direct investment by Chinese companies in the United States? That would be a huge mistake too, as American Compass has explained in its seminal paper on A Hard Break from China.

In Southeast Asia, the United States struck what appear to be quite robust agreements with Malaysia and Cambodia that would contain China’s mercantilism. Peter Harrell has the rundown.

In Japan, channels for the $500B+ in investment commitments are beginning to take shape, according to the Financial Times: “The US government and the owners of Westinghouse have struck an $80bn deal to build a fleet of nuclear reactors, using funding from a trade agreement with Japan.”

In Europe, the time for choosing continues to steam toward EU leaders like an oncoming train. “There is a growing sense that for officials in Brussels, Paris and increasingly Berlin, an independent Europe needs to be more muscular when it comes to policy towards Beijing,” reports the South China Morning Post. Meanwhile, “Chinese Auto Giant BYD Posts Fivefold Sales Surge in Europe,” per the Wall Street Journal. And, “German Firms Hand Over Secrets That China Could Use for Leverage,” according to Bloomberg.

How did we get here? Rest of World has the story of “China’s $143 Billion Push to Dominate the Global EV Industry.”

Where are we going? “China Will ‘Save’ European Auto Jobs But Devour Rivals, Warns Ex-Stellantis Chief,” in the Financial Times:

Chinese carmakers will end up as “saviours” of European factories and jobs, in a creeping takeover that will hasten the demise of some western manufacturers, the former head of Peugeot and Jeep maker Stellantis Carlos Tavares has warned. In a return to the limelight after leaving Stellantis nearly a year ago in a boardroom clash, Tavares sketched a gloomy picture for European auto groups in particular, as they grapple with stringent emissions regulations, the global trade war and shifting policy on electrification. Tavares told the Financial Times that this fallout over the next 10 to 15 years would happen in part as China’s carmakers, already on the lookout for takeover targets, make further inroads in Europe, building up capital stakes or buying factories on the verge of closure.

The Council on Foreign Relations’ Brad Setser has the brutal epilogue: EU car exports to China are in freefall and “will drive a shift in German politics, but with a lag. Relying on China for demand proved almost as costly as relying on Russia for natural gas supply.”

All of which explains why Canada is… oh no, wait, in a fit of spite, “Canada Set to Side With China On EVs.” If Canada were to do this, it would find itself outside the renegotiated USMCA (USMA, then). Which is why it won’t happen. But sure, have fun Canucks. Not much else to do there in the winter…

As for everyone else, enjoy the weekend!