Manufacturing’s Returning To America

Updated Nov 7 2:45 MT.

US Steel Announces 10,000 New Jobs

On Nov 7, 2016 US Steel CEO Mario Longhi announced that the company would be putting up to 10,000 Americans back to work due to brightening regulatory and economic conditions, catalyzed by Donald Trump’s election this November.

Analysts are expecting increased tariffs (some already in force), which will shelter American industry from predatory foreign competition, and decreased regulatory burdens.

Masa (SoftBank) Announces Up To 50,000 New Jobs

A day earlier, the Japanese multinational Masa, or SoftBank, announced yesterday that it would invest $50 billion dollars in America.  The money will come from an investment fund (worth $100 billion) that Softbank is currently setting up, in partnership with Saudi investors.

SoftBank, who owns 82% of Sprint, says that this investment will create 50,000 new jobs in America (which we desperately need).  This is a huge win for America’s working class, who has seen their quality of life erode due unmitigated offshoring over the last 30 years.

 

President Elect Donald Trump tweeted the investment decision after his personal meeting with SoftBank’s Chief Executive Masayoshi Son, who wanted to tell Trump in person:

I just came to celebrate his new job. We were talking about it. Then I said I would like to celebrate his presidential job and commit, because he would do a lot of deregulation. I said this is great. The United States would become great again…

…we are going to invest $50 billion into the U.S. and commit to create 50,000 new jobs.

This announcement comes on the heels of Carrier’s decision to keep one of its plants in America as well.

Apple Contemplates Opening US Factory

Earlier in November, Apple indicated that it had just concluded preliminary feasibility studies to relocate its iPhone assembly facilities, which currently employ almost 700,000 people in Taiwan and China, back to America.

CUPERTINO, CA – SEPTEMBER 09: Apple CEO Tim Cook shows off the new iPhone 6 and the Apple Watch during an Apple special event at the Flint Center for the Performing Arts on September 9, 2014 in Cupertino, California. Apple is expected to unveil the new iPhone 6 and wearble tech. (Photo by Justin Sullivan/Getty Images)

Its subsidiary, Foxconn, estimates that doing so would double assembly costs, from $12.50 to $25 per unit.  Given that a 32GB iPhone sells for $650, these added costs are unlikely to be a deal-breaker.

Apple’s CEO Tim Cook has expressed a desire to relocate production to America in the past, however he said it was not feasible, not because of costs, but because of a lack of technical facility:

the US, over time, began to stop having many vocational kind of skills

Essentially, he said America forgot how to make things.  If present trends continue, this probably won’t be a problem for long.

Ford Mustang.

Ford Expands Louisville Assembly Plant

Ford Motor Company also confirmed in November that it was not moving its Lincoln MKC production from Louisville, Kentucky, to Mexico—instead, they promised to invest $700 million over 4 years to upgrade the Louisville plant, expanding its capacity.  They estimate they will need to hire 300 new full-time employees.

Ford’s representative, Christin Baker, says that Ford was:

encouraged that President-elect Trump and the new Congress will pursue policies that will improve US competitiveness and make it possible to keep production of this vehicle here in the United States.

Other manufacturers who have decided to increase American capacity include Trans-Lux, a maker of LED and LCD displays, and US Steel.

Stuff Will Still Be Cheap

Some people think that relocating production back to America will make goods prohibitively expensive.

They’re wrong, here’s why.

1. There are two sides to the equation: consumption and production. Although offshoring may result in hypothetically cheaper goods, it’s equally true that many people either:

(i) lost their jobs (either directly, like factory workers, or indirectly, like the barber who relied on the factory workers) or

(ii) found new, but worse jobs (the average wage cut for a displaced factory worker was 17.5%—waiting tables doesn’t pay as good as building cars, go figure).

At the end of the day, the benefits aren’t as big as you think (if they exist at all).

2. The nominal cost of goods is irrelevant—what matters is the cost of goods relative to wages (the real cost). Since 1973, nominal wages and the cost of goods (as per the Consumer Price Index) have increased at the same rate.  This means that offshoring hasn’t yielded cheaper goods in real terms, because it undermines income to an equal degree.

3. This logic doesn’t include something called the Okun Gap, which is essentially the opportunity cost of mothballing capital equipment, and skilled labor when an industry is offshored. Just look at all the abandoned factories and warehouses strewn throughout Michigan.  When this is accounted for, the hypothetical “gains” of offshoring are fairly minimal.

4. In the long run, goods are made cheaper by improving technology—any gains made by moving production to a nominally cheaper jurisdiction are a one-off. However, they also reduce the incentive to invest in better (more efficient) technology, because wages are lower.  This actually undermines technological advancement, and therefore real economic growth.

It also has the perverse effect of resulting in highly efficient American factories being replaced with inefficient (but cheap) factories in China.  This is bad for the world as a whole (because it allocates resources inefficiently), and it’s bad for us in the future (because we lose some of our highest-growth industries).

Re-industrializing America will be good for the working, and middle class, and America’s long-term economic growth.

This is a good start.

Select Sources:

Bergsten, Fred C. and Joseph E. Gagnon. “Currency Manipulation, the US Economy, and the Global Economic Order.” Peterson Institute for International Economics, Policy Brief, 2012.

Bureau of Labor Statistics “Inflation Calculator.” Accessed June 3, 2016. http://www.bls.gov/data/inflation_calculator.htm

Chao, Elaine L. 100 Years of US Consumer Spending, Data for the Nation. New York: US Department of Labor, 2006.

Hipple, Steven F. “People Who Are Not in the Labor Force: Why Aren’t they Working?” Bureau of Labor Statistics: Beyond the Numbers (4), 2015.

Muro, Mark, et al. “America’s Advanced Industries: what are they, where are they, and why they matter.” Brooking’s Institute, 2015.

United States Census Bureau, “Trade in Goods, 1985-2016.” Accessed May 20, 2016. https://www.census.gov/foreign-trade/balance/c5700.html

About Spencer P Morrison 82 Articles
JD candidate, writer, and independent intellectual with a focus on applied philosophy, empirical history, and practical economics.Author of "America Betrayed" and Editor-In-Chief of the National Economics Editorial.

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