Wednesday, January 25, 2017

Bringing Back Manufacturing Jobs to the U.S.A.: Confronting Tough Realities

Meeting with American corporate CEOs at the White House on the first “working day” of his presidency, Donald Trump warned, “A company that wants to fire all of its people in the United States and build some factory somewhere else, then thinks that product is going to just flow across the border into the United States . . . that’s just not going to happen.”[1] The new president was up against “tectonic forces” in trying to bring back “blue collar” manufacturing jobs to his base using tax policy. Yet the business calculus goes immediately on the basis of financial advantage, and the contours of the “game board” include the various tax and trade policies of countries.

Without an import tax of sufficient amount to render the cost savings of moving a factory abroad, CEOs will naturally succumb to the pressure “to increase earnings at a double-digit rate when the American economy is growing by only 2 percent, and the quickest way to deliver higher profits is by reducing labor costs, whether through automation or moving jobs to cheaper locales like Mexico or China.”[2] The push, in other words, is excessive. The cause, according to the New York Times, “is the drive for bigger returns on 401(k) accounts, pension plans and other retirement vehicles that depend on steadily rising corporate profits and, in turn, a buoyant stock market.”[3] Whereas a U.S. president has a term of four years in which to see his policies realized, no such time-span is permitted where quarterly earnings reports are all the rage. Simply put, CEOs must make sure their policies see results and quick. With many emerging-market economies, as well as China, growing at more than twice the rate of the U.S. at the time Trump took office, global—including American—capital takes flight.

It is not as though the CEO’s of American companies who move factories off-shore are unethical. Scott Paul of the Alliance for American Manufacturing, told the New York Times, “I believe a lot of the C.E.O.s in that room [with Trump] want to do the right thing and create jobs in America, but the realities of Wall Street Pressure and a globalized economy leads [those C.E.O.s] to off-shore a lot of these jobs.”[4] One way to align the patriotic value with the business calculus is to alter the “game board” in such a way that it would be cheaper for the companies to manufacture products geared for domestic sale domestically rather than abroad; products directed to the Chinese consumer could still be manufactured in China. The key lies in raising the tariff or tax high enough and in adequately enforcing it. 

To be sure, automation would still mean that a return to the manufacturing hay-days could not be expected. Herein lies a much more difficult challenge: what to do with the remaining blue-collar workers who are not oriented to moving to white-collar professions and yet cannot find jobs in manufacturing. Behind the legitimacy of a tax on American companies moving factories abroad is the hard truth that significant numbers of people in any geographical region are not going to fit into white-collar jobs, for a variety of reasons not limited to education and upbringing as well as values.

[1] Nelson D. Schwartz and Alan Rappeport, “Call to Create Jobs, or Else, Tests Trump’s Sway,” The New York Times, January 24, 2017.
[2] Ibid.
[3] Ibid.
[4] Ibid.