Refusal to renegotiate seems to be based on the endless anti-China rhetoric from the administration. It’s now also become a “bring jobs back to America” rally point. The theory is that manufacturing in America can simply turn itself back on.
In an op-ed piece in The New York Times, US trade representative Robert E. Lighthizer makes some interesting, if highly debatable, points. He points to the stampede to offshore US manufacturing as the main cause of the current situation. Since this move was made by corporate America as a whole, it’s hard to believe that the move was some sort of fad. It was a considered move, starting with the maquiladoras in Mexico, and then spreading offshore to lower-cost countries. The whole idea was to reduce costs and improve margins. It worked, spectacularly.
China, of course, was one of those countries. The problem with the analogy is that China is also the world’s biggest manufacturer. The Chinese can mass produce on a scale other countries can’t. Apple, Microsoft, etc. crunched some numbers and had their products made in China starting at least 30 years ago.
American companies have made huge money through this arrangement over the decades. Their costs are now structured on this basis. Moving manufacturing back to America involves a few major issues for US companies:
1. Managing costs
2. Finding places to manufacture
3. Building new facilities for production
4. Dedicating expensive space in the US to production
5. Reworking margins to deliver profits at different costs
6. Tooling up factories to make modern products
7. A skilled workforce
8. Internal quality controls to deliver top quality products
9. A massive wages, plant and equipment bill for manufacturers
10. US taxes at all levels
11. Commercially successful products. These things have to sell, too.
12. Competing with China on its own terms, at least at first
13. Market management for products, like distribution from the US, etc.
14. Possible restrictions on US products brought about by US trade policies to Europe, etc.
15. Tariffs. What went around will definitely come around.
It’s not totally impossible, but it is extremely difficult. All these things would take years to do. A.I. and automation can theoretically do it. That, however, involves additional costs and certainly won’t create jobs. The Chinese use robots for a lot of their assembly work.
Economic benefits, well, sort of, kinda
The other glaring issue here is who, exactly, benefits? Local economies? State economies? The national economy? All of the above, or none of the above? Typically, US manufacturing is a local benefit, but that’s diluted in the wider economy. It’s adding a few bucks here and there, not Christmas for all.
Adding freight, distribution and services would see at least a few more jobs, but it’d take time and market penetration for US manufacturing to re-establish itself to do that consistently and make a difference. There are just too many added costs, and manufacturers have to be cost-conscious.
Trade ain’t made in the shade
The US domestic economy is huge. It can and it has supported big manufacturing, but there’s another factor involved. Trade. A US market saturated with local products will depress prices. You can have X number of manufacturers in this market able to make big money. The rest is trade.
Given the bruising, much-resented US trade deals in recent years, the overseas market may not be too keen. Tariffs annoyed everyone. That was particularly the case when the world’s leading exponent of free trade, the US, went protectionist. It can’t be expected that US goods will find a ready market globally.
That’s a serious kick in the teeth for repositioning manufacturing in the US. Setting up will be extremely expensive. The US domestic market is currently in a very serious hole, with massive unemployment and reduced spending power. It’s hardly the ideal environment in which to start manufacturing.
Trade IS the other option to support local US manufacturing, and it’s likely to be negotiated on a very abrasive basis. China, meanwhile, can be expected to compete hard, and undercut US prices. There’s no shade here for the US. Trade conditions and terms are super-hot. There are no cool spots, just hot rocks to manage.
A huge irony
US products used to have an excellent reputation for quality. RCA, for example, was quite literally the international standard in its sector. GM, Ford, etc. were world leaders in design and technologies. All of that was thrown out the window in the offshoring rush. Getting back into that position won’t be easy, or quick.
The nation that created globalism, world trade as we know it, and even the consumer society we know, has written itself completely out of the script. Getting back in can’t be easy. This is a complex, and largely hostile, trade environment. Maybe talking to China would be less… murderous?
