Back to the industrial commons this week. What if the real cost of bad industrial policy isn’t just offshored factories — but millions of smart kids steered away from building things?
This one started with a clip from Palmer Luckey on Rick Rubin’s podcast. Large excerpt from that podcast in today’s Recommended Listen. Luckey, who founded Anduril, doesn’t pull punches when talking about what the U.S. lost in letting go of manufacturing.
Here, I’m exploring the downstream effect of those choices:
Why smart students in the U.S. and China make such different decisions
How subsidies can create labor gluts, not golden tickets
And why, in China, state support often lowers wages instead of raising them
Thank you for subscribing. Occasional forwarding is okay. If you are not a member, please sign up here.
“There are no solutions, there are only trade-offs; and you try to get the best trade-off you can get, that’s all you can hope for.” ― Thomas Sowell
What Shapes a Nation’s Talent?
Imagine a smart 18-year-old in the U.S. and one in China. Both are top students, both at a crossroads. What they choose to study — and eventually do for work — isn’t just a matter of personal interest or ability. It’s shaped by something much larger: the structure of opportunity that surrounds them.
In the U.S., that means scanning a labor market where the best-paying jobs are in tech, finance, or law. In China, it might mean heading straight into engineering — because that's where the jobs are, and where the state is pushing investment.
These decisions don't happen in a vacuum. They’re a feedback loop between labor markets, education systems, and industrial policy. And when subsidies flood a sector, and firms outgrow those subsidies—they don’t just reshape industries. They reshape lives.
The Slow Erosion of America’s Industrial Commons
I previously covered Andy Grove’s warning not to abandon so-called “commodity” manufacturing. Those mundane operations—casting, welding, molding—aren’t low value. They are part of an industrial commons: the shared know-how, infrastructure, and labor pool that support entire industries.
Losing an industrial commons today means losing the ability to scale future innovations tomorrow.
We hollowed out our manufacturing base. Not overnight, but steadily — driven by flawed economic models and free trade orthodoxy. The idea was simple: let comparative advantage do the work. But free trade doesn’t exist. It’s managed trade. And we let other nations manage it better.
As Palmer put it:
The problem is — and I mean, there are a million problems — but what we did was hollow out our country by allowing China into the World Trade Organization and letting American companies outsource manufacturing to China without penalty, without import tariffs, without any disincentive to do it. Why wouldn’t you, if you’re allowed to send production to another country where everything’s cheaper, there are no environmental regulations, and no labor laws? Why wouldn’t you?
We’ve been able to get a bunch of cheap stuff over the last 50 years as a result. That has helped in some ways — everyone in the U.S. can buy cheap TVs, cheap cars, and cheap goods because of China’s rise. But the flip side is there’s no more manufacturing here.
The erosion of our industrial commons was gradual, except the labor part—that went quickly. Here we can see it with respect to our manufacturing employment statistics:
Smart Kid in America
Let’s look at it through the eyes of a high-achieving American student.
If you’re a smart kid graduating high school in the U.S., you’re probably not thinking about becoming a process engineer. You’re thinking about Google, finance, consulting. That’s where the money is. That’s where the opportunity is.
You’re not choosing a career in injection molding. You’re not moving to a rural town to work on heavy industrial equipment—unless you’re driven by an unusual passion. Those jobs are lower-paid, less secure, and easily offshored.
The logic is simple: if good manufacturing jobs don’t exist, students won’t prepare for them. Why would they? These are smart kids. They optimize. And when few people study or train in industrial disciplines, fewer experts emerge. The remaining talent ages. Many are already near retirement.
Rebuilding U.S. manufacturing isn’t just about equipment or reshoring. It’s about changing the incentive structure so that talented students see a future in building things again.
Smart Kid in China
Now let’s look at a smart kid in China.
He’s passed both the high school and university entrance exams—no small feat, as each filters out more than half of all students. He’s good at math. His professors encourage him to pursue engineering. His friends are doing the same.
China’s industrial policy is clear: build national champions in sectors like EVs, semiconductors, renewables, nuclear, and materials science. Local governments roll out the subsidies. Engineering jobs are abundant and prestigious. So he enrolls in an engineering program.
After graduation, he lands a job at a fast-growing EV startup in Anhui. The company is well-funded and ambitious. For two years, it grows rapidly … then collapses, part of a wave of subsidized firms that couldn’t survive without more state support.
Still, our smart kid is lucky. His company had one valuable innovation, which another firm buys out. He finds a new job quickly. Others aren’t so fortunate.
As firms consolidate, labor demand cools. But now there’s a surplus of engineers, all with some experience. Wages stagnate. Bargaining power shrinks. But the firms benefit. They get a deeper bench of technical workers for less.
BYD, China’s EV powerhouse, employs over 110,000 engineers. That’s not a coincidence. It’s the result of an incentive system that grows talent and then harvests it.
The Feedback Loop
Here’s the point: the labor market is inside an ecosystem. It’s shaped by policy. And that policy shapes the stories students tell themselves about the future.
In the U.S., we told smart kids to chase prestige, capital, and optionality. In China, smart kids were told to help build the future — with the state ready to back them. The incentives were clear, and so were the outcomes.
But when subsidies peter out or industries consolidate, there's fallout. Supply overshoots demand. Workers bear the cost. Wages stay low. Employers gain leverage.
In the end, engineers, and labor more broadly, are often left holding the bag (like households). They become collateral damage in a system flooded with subsidies that Beijing can’t—or won’t—shut off.
Because once you flood the market with engineers, you’ve changed the landscape. You’ve built a commons (labor resource), which is super helpful if the goal is techno-national dominance and gaining ever more market share. Whether it’s sustainable or not—that’s a different question.
What Do You Think?
Have you seen examples of how career incentives are shaped by policy in your own field? What’s needed to get more smart students to choose “hard” industries again—and keep them there?
Recommended Listen
Palmer Luckey on Rick Rubin’s Tetragrammaton podcast:
It’s not made in China. I could have made that in a tenth of the time if I had just gone to China. It would have been so much easier.
RR: Is there a possibility that over time America can get back its manufacturing base?
Absolutely. The problem is — and I mean, there are a million problems — but what we did was hollow out our country by allowing China into the World Trade Organization and letting American companies outsource manufacturing to China without penalty, without import tariffs, without any disincentive to do it. Why wouldn’t you, if you’re allowed to send production to another country where everything’s cheaper, there are no environmental regulations, and no labor laws? Why wouldn’t you?
We’ve been able to get a bunch of cheap stuff over the last 50 years as a result. That has helped in some ways — everyone in the U.S. can buy cheap TVs, cheap cars, and cheap goods because of China’s rise. But the flip side is there’s no more manufacturing here. So if you’re a smart kid coming out of high school deciding what to do with your life, you’re never going to become a manufacturing process engineer. You’re not going to say, “I want to make injection molding equipment.” You’ll go work on Wall Street, at Google — wherever the economic opportunity is. That’s what most people do: they want to take care of their families the best they can within the opportunities available to them.
Very few people say, “No, I’m going to work at a lower-paying job with fewer prospects, likely in the middle of nowhere, because I love industrial equipment.” It happens, but rarely. And so, fewer and fewer people even know how this stuff works. Those who do — a lot of them are older. Much of our remaining manufacturing expertise is held by people in their 50s, 60s, or 70s, many of whom are retiring or close to it.
To bring back manufacturing in the U.S., we need to undo those distorted incentives. We need to change things so that a smart kid does want to become a manufacturing engineer.
And look — this gets into politics — but I generally lean libertarian. I’ve always been a free-trade guy. But what we’ve had with China and others is not free trade. They don’t let us into their markets. When I was at Facebook, I wasn’t allowed to sell Oculus Rift headsets in China — even though they were made there. They wouldn’t let me sell to their people. They locked out American companies. They don’t want us making money in China.
What we had wasn’t free trade — it was a one-way money express into China, and nothing came back out. That’s one of the reasons that even though I’m libertarian — and tariffs go against libertarian doctrine — I feel like we made a bunch of really bad decisions. We’ve had unfree, one-sided trade. The only way to start fixing that is some form of tariff.
And tariffs aren’t just about other countries — they’re also a signal here at home. They tell investors and banks: if you invest in manufacturing in the U.S., there will be a playing field you can actually compete on. Imagine a 19-year-old version of me, but passionate about manufacturing. He goes to a bank and says, “I want to start a factory to build something America needs. The Chinese version is subject to tariffs, so I know I can compete — even though they have coal power and slave labor.” You want that bank to say, “Yes. We believe in that. We’ll give you a business loan.”
But without a tariff, the bank just says, “No. You’re going to fail. China will beat you — no labor laws, dirt-cheap energy, and they burn more coal than anyone in history.”
So yeah, I fall on the side of believing some problems take decades to create and decades to fix. It won’t be easy. It will be painful. But I think it’s possible — and necessary. If we can’t make the things we need to maintain our quality of life, we are subservient to our adversary.
Please consider hitting the like button, it helps others discover us. Or consider forwarding this to a colleague or friend.
“We hollowed out our manufacturing base. Not overnight, but steadily — driven by flawed economic models and free trade orthodoxy”
Is the flawed economic model you refer to “capitalism”? And free markets more generally rather than free trade? The leadership of firms are essentially obliged to return the highest value back to shareholders, hence lower cost options should theoretically always be chosen, be that manufacturing in China/Mexico, or call centres in India/Philippines.
It’s beginning to feel like with this China tariff argument, quite a number of libertarians are going to realise that the logical destination is something that really isn’t libertarian at all…
P.S. As an 安大 graduate I’m always pleased to see Anhui get a shout out!
"“No, I’m going to work at a lower-paying job with fewer prospects, likely in the middle of nowhere, because I love industrial equipment.” It happens, but rarely. And so, fewer and fewer people even know how this stuff works. Those who do — a lot of them are older. Much of our remaining manufacturing expertise is held by people in their 50s, 60s, or 70s, many of whom are retiring or close to it."
if we take this quote out of context, it could very much be referring to China or the US. Chinese kids today dont want to work at low-paying factory jobs their fathers and mothers did; they all want to become engineers. China may have an army of engineers but whos actually gonna make the things they design?
as conflicting as the two countries are, they also share plenty of similar symptoms. china looks at the US today and sees its future. perhaps thats why policymakers in beijing are so reluctant to take the steps towards boasting consumption and welfare.