Last week, Forbes magazine published an article that should have gotten more attention than it did. It summarized a study compiled by several business schools and an electronics supplier conglomerate revealing that companies are shifting production into the United States as opposed to out of it.
Yes, into the United States — it is not a typo.
According to the study, Asian and European companies are sparking this shift. The study cited access to the United States, which is still the world’s largest economy, as the reason so many companies are making investments in the United States. It also stated that technological innovation is also attracting foreign investors.
Of course, the United States has had a trade deficit every year since 1976 that continues to widen, per the latest data. Regardless, the study is still a positive sign in a story that has been very bleak for the U.S. for decades.
The article – which cites experts and not self-serving politicians — gives some clues about how U.S. manufacturing can be revived so we can go back to producing more than we consume. Here are some key takeaways:
For some, it seems that the simple but popular trade theories of Donald Trump, presumptive GOP nominee for the presidency, were more accurate than those of all of the Ph.D. policy wonks in Washington, D.C. While Trump wants to build a physical wall between the U.S. and Mexico, it also seems he wants to build a virtual wall between the U.S. and some of its biggest trading partners — e.g. China, Mexico, Japan — via steep protectionist duties and import taxes. Unfortunately, trading partners tend to retaliate. For example, consider the 1930s era Smoot-Hawley tariff disaster.
To be fair, Trump has some validity in his arguments. Free trade requires fair trade, but to say that the U.S. trade deficit is driven primarily by currency manipulation and imbalanced duties and tariffs is nonsense. Labor in developing nations is cheaper, which reduces production costs and leads to point number 2.
It is a fact that labor costs in foreign markets tend to be cheaper; however, Americans have the ability to educate workers and leverage technology. Per the experts in the study, the U.S. is attractive because of R&D, technology, manufacturing efficiency, and more capability.
Here’s a thought — why not make American workers more competitive by focusing on technological innovation and skills instead of blocking American consumers from a free market of goods? Why should America compete away from its core strengths? If our advantage is to make things better (more efficiently with better technology or with more bells and whistles), why not play to that?
The reason is that change is hard, particularly for an economy as large as ours. While we mostly have moved into the 21st century, some of our workers have been left behind because we have not adapted our system of educating workers, bringing us to an undeniable truth:
Back in 2011, President Obama was chastised for his statements on how ATMs and airport kiosks were taking away human jobs.
But, he was correct.
Technology and innovation significantly increase productivity, requiring fewer workers to achieve the same tasks. The study cited earlier in this article shows that US manufacturing output per employee is at least 80% more productive than that of Chinese manufacturing.
But increases in productivity lead to a reduction in employment since you need fewer workers, right?
It would lead to a reduction in certain types of workers. When technology is used to increase productivity, that technology needs to be programmed, managed, upgraded, and maintained. These are the 21st-century jobs requiring 21st-century skills.
The President has been presenting these changes as part of a larger argument — the U.S. economy is going through a structural shift, and workers, businesses, and educational institutions will need to adapt.
In his 2016 State of the Union, Obama introduced the concept of encouraging corporations (the entities with a lot to gain with a workforce adapted to this new reality) to partner with community colleges to re-educate workers with more relevant skills.
This approach seems more creative and laudable than some of the demagoguery in the presidential election. People can beat China up all they want, but it will not change the fact that this is the 21st century and 1930s approaches to trade deficits will not solve the problem.
But at least nobody is proposing building a wall in the Pacific Ocean.
An economic conservative till the end, Hughey strongly believes in the power of self-empowerment as the solution to many of society's problems. He is a business consultant for a management advisory firm in the Washington DC area and a contributor to Project 21, a black conservative organization. He also appears on television as a political and policy commentator on TVOne and RT. A graduate of Stanford Univeristy and Harvard Business School, Hughey believes that education and economic awareness are the keys to empower Americans to take back our nation.