The Grand Lie Of Returning U.S. Manufacturing Jobs

J. G. Collins Managing Director, Stuyvesant Square Consultancy
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There’s a reason Donald Trump said, “I love the poorly educated”: it’s because they’re more easily misled.

Let’s be clear: Donald Trump has highlighted a lot of issues in trade and economic policy that I have long advocated, so I’m not “anti-Trump,” nor am I a member of the GOP Establishment.

In my view, U.S. trade policy and treaties have, indeed, been foolishly negotiated and implemented since the first Bush Administration.  (NAFTA, while passed under the Clinton Administration, had been mostly negotiated by the George H. W. Bush Administration.)

Moreover, the failure to secure U.S. borders has, indeed, pushed down wages among low and semi-skilled workers and inhibited American teenagers and college students from gaining the type of low/no skilled employment that many of we children of the 1970’s used to gain a modicum of independence and work skills – an attribute we note sorely missing in many millennials.

But there is nothing in Donald Trump’s persona or executive profile that would lead one to conclude he has any plans whatsoever to correct any of these problems.  His “promises” are nebulous; even fanciful.

First, any candidate’s promise to return U.S. manufacturing jobs from overseas, no matter who makes it, is a demonstrable lie.

The types of low-skill, high-value added jobs that drove the economy of the 1970’s – and that employed the parents of many of us from blue collar families who grew up in that era — have largely been automated. Robots, not assembly line workers, produce most high value-added goods, such as automobiles, nowadays. Sure, there are manufacturing jobs left in America, but those that pay middle-income wages are mostly of the higher-skilled variety: welders, steam fitters, precision lathe operators, etc.

U.S. policy can re-shore low- or no-skilled manufacturing, but it won’t lead to substantial higher-wage job growth. That might cause a feel-good, short-lived revival in labor-intensive manufacturing of lower value-added goods, but competitive pressures from lower-wage workers in developing economies would almost assuredly cause such new manufactories to fail within just a few years. (Even higher-value manufacturing, like that done by Foxconn for Apple, wouldn’t succeed if they were done on America’s shores.)

Second, Trump’s proposal to impose tariffs on Chinese goods in response to their currency manipulations would not only trigger a trade war, but would also raise U.S. interest rates at a time of a mostly moribund economy, possibly pushing the American economy into recession. China, already selling off U.S. debt obligations, would likely eschew U.S. debt as retaliation for Trump’s ill-conceived tariff policy, forcing U.S. interest rates higher to replace the lost Chinese demand.

But there are foreign trade policy options that would enable a more thoughtful candidate to grow U.S. jobs and inhibit foreign currency manipulations by our trading partners.

For example, the new president could pressure the WTO to finalize rules governing the global trade in services by threatening a moratorium on further trade treaties on goods until workable WTO rules for the trade in services are finalized.

The U.S. leads the world in services and in services innovation and we have long enjoyed a trade surplus in the trade in services.  Four in five Americans are employed in the services industry. But nearly all our trading “partners” impose hefty non-tariff barriers to U.S. entry into their marketplace for services. Financial, IT, engineering, transportation, telecommunications, logistical, architectural, creative and other services are all areas where there could be substantial American job growth if the U.S. were able to carry on business in foreign markets in the same manner as foreign companies sell goods here.

Local licensing and ownership requirements often require that American companies hire only local service providers or form partnerships with local service providers to carry on business. Other regulatory burdens similarly inhibit service providers from offering their expertise overseas.

The America of the Industrial Age is gone, like the Agrarian Age that proceeded it. America’s future is in high value-added services; highly skilled, high value-added manufacturing; and technological development and design. If policymakers will work to level the playing field in those areas – instead of pandering to the voters most easily misled, as Mr. Trump prefers – we can restore Americans to higher wage employment.

And we can really win.