Everything Is Connected

Years ago, I had the opportunity to meet with an entrepreneur who was directly involved in the creation of the VCR, only to see its manufacturing move to Asia. We kept in touch for a while, and at one point, he told me something that stuck with me: Don’t forget that everything is made everywhere. That was an exaggeration, of course, but it was also a good characterization of the globally integrated economy we all live in. Many things are indeed made in lots of different places. More importantly, end products are increasingly the result of assembling parts from many different sources in many different countries. Automobiles and mobile devices are excellent current examples of that.

The important lesson in his comment, though, was not the globalized nature of production but the importance of connections. Today, he would probably not say that everything is made everywhere. He would say everything is connected to everything else, often in unexpected ways. That is today’s point: There are always unintended consequences of economic action. Competent policymakers try to anticipate all of them and prevent the bad ones, but they rarely succeed. When I was in the government, we would issue a new export control regulation, and often, some months later, I would have a visit from someone complaining that we had put him out of business. Pointing out that the government did not intend to do that and that he had an opportunity to warn us about it in advance, because the rulemaking process had a public component, provided no comfort. Here are some other examples of unexpected downstream consequences.

The plight of U.S. farmers due to Trump’s tariffs has often been reported. Most of the time, the stories focus on retaliation, usually by China, which has caused U.S. farmers to lose their export markets. More in-depth commentaries point out that a larger problem is the increased cost of machinery due to steel and aluminum tariffs and fertilizers, as due to tariffs. The newest connection was farmers’ complaints about the ban on Chinese drones. It turns out that twenty-first-century farming is high tech, and drones play an important role in targeted fertilizing and irrigation. Who knew? Certainly not the government when it issued the ban.

Another result of Trump’s trade policy on agriculture is increased deforestation in the Amazon region because of China’s action in abandoning U.S. soybeans for Brazilian beans. Farmers, seeing an opportunity to increase their production, are burning the forest to grow more crops and provide more space for cattle grazing.

Climate change is clearly not a priority for the Trump administration, but it is well-established that clearing forest lands in the Amazon, one of the world’s greatest carbon sinks, can only make climate change worse.

Moving away from trade, another intriguing example involves wolves. Some areas in the western part of the United States are reintroducing wolves into their ecosystems. This has been controversial. The wolves help control growing deer populations, but they also kill farm animals. One unexpected development is that they also play a role in reducing car crashes involving deer. Wolves, like humans, tend to follow existing paths, since that is the easiest way to get from one point to another. Those paths include roads, and we are now seeing reductions in car-deer crashes because the deer are learning to avoid roads because of the wolves. I don’t think anybody anticipated that outcome.

Finally, a much-studied historical example is the impact of the U.S. interstate highway system. Originally intended for defense purposes and to facilitate long-distance travel and the movement of goods from producers (or importers) to consumers, the system had two other unforeseen results. As it was built out with rings around cities and spurs into them, it made commuting easier, which facilitated movement from city to suburbs, reducing a city’s tax base, leading to a decline in services, which furthered the downward spiral. The parts of the system that went into or through cities often split communities into two, generally the less affluent ones, because land was cheaper to acquire there and the residents had less political influence.

None of this is exactly news—well, maybe the drones and wolves are—the problem of unanticipated downstream consequences is not new. That is why, over a long period of time, the government has created processes designed to ferret out possible bad results so that policymakers can take them into account when making decisions. Part of that is the use of public comment periods to give stakeholders an opportunity to lay out their concerns. Part of it is an interagency process designed to make sure possible outcomes are carefully weighed and examined so that officials have the best shot at making an informed decision. When those processes are truncated, as is happening in the current administration, the country gets poorer decisions, which often must be revised once the unintended consequences become obvious. That can often be avoided if the processes work and are populated by experienced professionals. We get rid of experience at our peril, as we are learning now.

William A. Reinsch is senior adviser and Scholl Chair emeritus with the Economics Program and Scholl Chair at the Center for Strategic and International Studies in Washington, D.C.