First, we consider the U.S. private sector and offshoring by companies. There have been reports of companies bringing manufacturing home. Is the problem correcting itself?
It is true that a number of factors are in place that would lead one to expect a revival in U.S. manufacturing, such as inexpensive energy, rising foreign labor costs, and a falling exchange rate for the dollar.[i] However, like Mark Twain’s death, the reports of a return of manufacturing to America have been greatly exaggerated.
There have been reports of isolated instances of manufacturing being relocated to the U.S. from abroad. For example, in June of 2013 Lenovo, the Chinese firm that purchased IBM’s personal computer business, opened a computer assembly plant in North Carolina. However, the facility was to employ a total of 115 workers – not much relief there.[ii] Reports of U.S. companies bringing manufacturing home have thus far been anecdotal, isolated instances that by no means constitute a trend.
When the evidence is examined, if anything, the perverse practice of making things in other countries for sale back into the U.S., if anything, appears to be gaining in popularity. For example, a study published in January 2013, MAPI [iii] considered the causes of the persistent decline in the number of U.S. manufacturing establishments, as illustrated in the following Figure:
The author concluded that it was not rogue plants, but instead the decision to source intermediate inputs from foreign, rather than domestic, suppliers that was the main reason for the decline in manufacturing plants and their related jobs.
Furthermore, the study found little evidence of a resurgence in domestic manufacturing sourcing; to the contrary, the import share of U.S. manufacturing consumption actually rose from 38.4 percent in 2006 to 39.6 percent in 2011, as illustrated in the following figure:[iv]
That is, nearly 40 percent of the value of all U.S. manufactured goods came from foreign sources, and the percentage was rising. So, advances in the competitiveness of U.S. manufacturing had only succeeded in somewhat stabilizing the share of imports, but not in reducing it. The study concluded that although there were factors in place that would seem to favor a revival of U.S. manufacturing, there was little evidence that it was occurring.
[i] For a comprehensive list, see Daniel J. Meckstroth, Ph.D., “The Decline in the Number of U.S. Manufacturing Plants,” Manufacturers Alliance for Productivity and Innovation (MAPI) January 2013, 4.
[ii] “Lenovo Announces Official Opening of U.S. Computer Manufacturing Line in North Carolina.” Lenovo Press Release, June 5, 2013. http://news.lenovo.com/article_display.cfm?article_id=1691
[iii] Daniel J. Meckstroth, Ph.D., “The Decline in the Number of U.S. Manufacturing Plants.”
[iv] The increase in imports was offset somewhat by a rise in the export share of U.S. manufacturing production. Id., 5.
We have seen in the U.S. trade in goods deficits with the export-oriented countries how our so-called free trade agreements have worked out. And yet, we continue . . . At this writing, President Obama was actively pursuing agreement on the Trans Pacific Partnership multilateral trade agreement, but the negotiations broke down over Japanese protectionism – after all these years, we still can’t sell cars into Japan, while we have billions of dollars of net imports of Japanese-made cars. And talk about conflicting policies -- are the people in the White House who are working on the “rural manufacturing initiative” talking to the people who are negotiating the trans-Pacific and European trade agreements?
The mirage of mutual benefits from “free trade” continues to be pursued by Democrats and Republicans alike. It is bad enough when the developed nations of Japan and Europe are involved. But when the agreements are with extremely low-wage, developing countries it is a sure-fire recipe for disaster, Vietnam being the current case in point. Recall the results of the 2001 U.S-Vietnam free trade agreement illustrated in the Figure re-presented here:
We continue to pursue the chimera of access to other countries’ markets while they are busily thinking of ways to keep us out; meanwhile, we have opened our market to their products made with cheap labor, government subsidies, and lack of regulation. We get $25 million of imports in exchange for $5 million in exports -- $20 billion worth of lost jobs, and the gap is exploding. And yet we pursue more free trade agreements. It calls to mind Charlie Brown returning every fall believing that this time it’s going to be different, and Lucy will not pull the football away as he tries to kick it. In any event, the future holds more of the same old same old from the U.S. public sector.
The governments of the mercantilist, export-oriented countries are not capable of changing their ways. Japan has been unable to find a way to kick its economy into gear and must continue to rely on exports, and Germany’s conservative economic policies also prevent it from engaging in any substantial domestic stimulus, again relying on exports for growth. Mexico’s population continues to grow, depressing wages and inhibiting efforts to create consumer demand. China has stated its intention to get more consumer spending going, but thus far has continued to pour the lion’s share of GDP into industry and saving. And there continue to be new entrants into the club of mercantilists, currently the countries of Southeast Asia, who want to work their way of the value chain of exports, especially to the United States.[i] Private companies in those countries continue to partner with their governments in these pursuits.
[i] Robert Blecker reaches similar conclusions. Robert A. Blecker, “Global Imbalances and the U.S. Trade Deficit,” in After the Great Recession, ed. Barry Z. Cynamon, Steven M. Fazzari, and Mark Setterfield (Cambridge, U.K.: Cambridge University Press 2013), 209.
May 15, 2014, Ontario, CA - MIAA's founder, Jim Stuber, delivered the keynote address at the 20th annual World Trade Conference sponsored by the U.S. Department of Commerce and the California Inland Empire District Export Council in Ontario, California. To view the conference agenda, click here:
May 7, 2015, Radnor, PA. MIAA's founder, Jim Stuber, appeared as the guest of host Richard J. Anthony, Sr. on The Entrepreneur's Network TV at Radnor Studio 21. The program featured a discussion of the problems caused by offshoring manufacturing and white collar jobs and how consmers can solve the problem with their spending decisions.
Studio 21 has made the program available for viewing here: