What has Donald Trump’s business experience taught him about how capitalism works?

Milton Friedman famously wrote that business has only one social responsibility: “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” So, then, the task of business is creating market-relevant value through competitive capitalism.

Or as economist Timothy Taylor puts it: “Capitalism for growth, government for fairness.” Not that business smarts are irrelevant when thinking about how government should operate. Private-sector experience can provide valuable insights into the real-world trade-offs of government action. And it can provide ideas and guidelines about how to better shape public policy to provide a healthy ecology for innovation and creative disruption.

Republican presidential candidate Donald Trump at the construction site of the Trump International Hotel at the Old Post Office in Washington, March 21, 2016. REUTERS/Jim Bourg.

So what about the business experience of Donald Trump? What has it taught him about the intersection of government and business in the context of the broader global economy? One answer is that it has led Trump to mistake crony capitalism for competitive capitalism. But it also appears to have failed to provide him with crucial nuts-and-bolts knowledge about how modern capitalism works in practice.

In a review of the Trump Organization, The Economist recently wrote that the billionaire businessman “has not yet created a great company, raised permanent capital on public markets, gone global, or diversified very successfully.” And, “Whether he has transcended the business of property to become a global brand is debatable.”

The Trump Organization is not GE. And the limited, parochial nature of Trump Inc. perhaps explains Trump’s limited, parochial understanding of how global capitalism works. Take his idea to force Apple to make all its products here in America. In an instructive piece in Wired, reporter Issie Lapowsky explores the reality of Trump’s idea:

Jason Dedrick is a Syracuse University professor who studies global value chains in the information technology industry — that is, the processes used by specific companies to beat the competition. He says Apple doesn’t just outsource its manufacturing to a single supplier in a single country. Instead, it requires a vast and remarkably complex supply chain to compile one iPhone, and that supply chain has been cemented over decades as consumer electronics have evolved.

“It has just been growing and getting more refined to the point where all the suppliers are in Asia, Southeast Asia, and China,” Dedrick says. The manufacturing equipment itself costs billions of dollars, he says, and the expertise to run it pretty much only exists in those locations. What’s more, those supply chains have become incredibly lucrative for Apple in their efficiency — in a 2011 study, Dedrick found that for every iPhone sold, Apple retains nearly 60 percent of the value. …

Dedrick estimates the cost of building domestic manufacturing facilities would reach into the billions. Add to that the substantial difference in the cost of labor in the US, and you’re talking a radical hit to Apple’s bottom line. Apple already manufactures its Mac Pro computer in a facility in Austin. But at $2,999 to $3,999, that’s a high-cost, low-volume device compared to the iPhone. Forcing Apple to produce a low-cost, high-volume device like the iPhone in the US could jack up the price of the device, making Apple less competitive than foreign rivals like Samsung.

With margins shrinking, the hypothetical dominoes would begin to fall, and Apple, which has a fiduciary duty to maximize profits, would look for other corners to cut, Dedrick says. That could mean scaling back on its corporate operation or shuttering retail locations, both of which employ thousands of people in jobs that are higher paid than factory work. Or, in the best case scenario, Dedrick says, Apple would develop or acquire automation technology to compensate for the increase in human labor costs, and all of those jobs it was supposed to create would be outsourced once again, only this time to machines.

So what seems like a simple, obvious response to offshoring — reverse it! — creates all manner of unintended consequences, such as perhaps creating effectively a pro-robot employment policy. Hey, the world is a complicated place.