What will it take to Make America Great Again? A big part of it, at least in terms of the public show, is the creation of manufacturing jobs. Of the four words in MAGA, the top two appear to be “America” and “Make”. It’s a noble effort all around, without a doubt.
But can this be done as a matter of policy? Can we turn back evils like bad trade deals and force the products which are consumed in America to be made in America?
Two stories from the opening daze of the Trump administration demonstrate just how unlikely this effort will be. Indeed, it’s entirely possible to cause more damage than good in many ways.
The game goes on forever, like it or not.
The first story, the big promise, is that Trump made phone calls to Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto to start re-negotiating NAFTA. How exactly this might go down remains an open question because the treaty has no formal process for any of this. There is no existing body in charge of it, for one, unlike the European Union. It’s always been a haphazard affair, set up and allowed to run its course.
The process, once it is developed, is certain to take a lot of time. That’s the problem. The further we all get from the election the less critical the effort will seem and the more time those who are benefitting from free trade will have to organize. There is a lot at stake. In 2015, the US exported $267 billion to Mexico and imported $316 billion – making them our second largest export partner, behind only Canada.
NAFTA is a big deal all around. No one is going to let it go without a fight.
Locked together. Note all the arms are rather pale.
Symbolically it looks good to take on Mexico, of course, and there will be a lot of noise in any process that develops. But we can’t expect anything will happen quickly and for that reason it’s ridiculous to assume that anything at all can happen. Whether we like it or not, the US is tied forever to our neighboring nations and we will have to come to terms with this one way or the other.
Some discussion of the role of a Value Added Tax (VAT) in trade has come up over the course of figuring this all out, and there is a point to that. Adjustments to a VAT, really a sales tax, do tend to hurt imports more than exports and can be an important tool for equilibrating trade between nations. However, the US is currently the only developed nation without a VAT. Proposing one, likely as part of an overhaul of corporate tax code, may actually be a reasonable way to go – if unquestionably regressive by itself. But it would also be incredibly unpopular and would reasonably be perceived as a tax increase on consumers.
“Read my lips, no new taxes!” has felled more popular presidents than Trump, after all.
The Toyota plant in Evansville, Indiana.
Away from the dragged out and esoteric negotiations over trade with Mexico, Trump appears to have strong-armed Toyota into a significant investment. With the publicity generated by a demand from Trump, Toyota buckled and decided to invest a whopping $600 million in its plant in Evansville, Indiana rather than at a similar plant in Mexico. It looks like a great victory for the new president all around, and does appear significant.
That is, it’s a big deal until you look at the actual number of jobs – a mere 400. Compared to the labor force of 136 million, it’s not even a drop in the bucket. Next to the 180,000 jobs created every month we can reasonably say that it’s about the total number of jobs created every 97 minutes.
The problem, of course, is that Mexico isn’t taking our jobs – robots are.
Where does this leave the big effort to make more stuff in America? As much as every president is held accountable for things like this, the simple truth is that highly directed policy efforts have almost nothing to do with the situation at all. Broader policy, such as reducing the overhead cost of employees, are almost certainly going to be far more successful. That means a general overhaul of the entire tax code and, of course, the health care system. Anyone paying attention can see that every single aspect of this requires substantially more thought and effort than anyone is willing to invest today.
Where does this leave us in terms of American manufacturing? More of the same, except for a few glitzy headlines. We will always be tied inextricably to Mexico and manufacturing will continue to be automated at a rapid clip. In short, nothing has changed because still, as of now, no one is looking at the things which really make a difference.
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The U.S should make Mexico the 51st State and sell Puerto Rico to the Chinese
I think they are more interested in Guam. VERY interested.
I disagree, Erik, I think it can be done. Whether Trump will do it or not remains to be seen.
Leslie
I think we can have more manufacturing, yes, but we can’t do it chasing these things. It’s about the strength of the US Dollar and the cost of workers – which I would say is driven at least as much by overhead as wages.
I think it’s unrealistic to not protect your industries with tariffs. We’ll never be able to compete with a lot of countries with wages and business overhead and we should not allow that to destroy our economy. Trade is good but a country can not depend upon other countries to supply them with their necessities just because they can be made cheaper elsewhere.
Leslie
I am in favor of tariff protection against nations which are not at the same level we are, and I do think that every nation has to have its own sources of food, water, and energy (the necessities). Beyond that, however, I do favor free trade all around and believe that all developed nations must form a community and get along.
I agree with you there, Erik.
Leslie
I suppose one of the reasons people have tolerated their static/declining incomes is that stuff has become cheaper–much cheaper in some cases–due to imports from relatively- low-wage places like China. I wonder about the overall implications of requiring domestic production, especially given increasing automation.
A good point. Inflation does not exist generally, which has led to a lot of interesting behavior. Whatever we do here will be as automated as it can be – even the coke dispenser at Burger King is automated and self-service now, saving a worker here and there.
Automation, not policy is the bigger factor in jobs. We’re on the verge of self-driving cars and trucks. What happens when trucking and delivery companies don’t need drivers? The local grocery stores now have self checkout lines and the number of checkers needed is falling. On-line shopping is killing retail stores – more job losses. Foreign manufacture is only one part of a lager problem for middle-class workers.
Absolutely. And it is indeed not clear at all what policy can do about this. My hunch is that we have to focus on the social need for work, which is to say something like “make work” in the end. Subsidizing jobs is a bit much, but reducing overhead and making a point of taxing profit, not labor, would be a start.
Still, it’s all what Vonnegut wrote about in Player Piano some 60 years ago. https://erikhare.com/2014/08/27/player-piano/
When I first read Player Piano, I thought that could never happen, but after having a career where it seems like most of my past jobs are now automated, I am thinking Vonnegut got it right in every detail.
Good analysis. I suspect the days of government subsidized job amounting to more than a hill of beans are long over.
I think that is true as well. I’m not sure it ever really worked in the first place, however.
Dare I say it? Maybe the best thing the government can do is get out of the way.
Many times that is true. However, information is always the key to a well functioning marketplace, and there is without question a role for government in telling people what is going on.
Mexico does produce a lot of auto parts and the cars they sell back to need about 50% Mexican parts. The other 50% can come from Asia. Now maybe Trump wants more auto parts made in the USA, so he would have to steal those or world share of jobs back through some mechanism.
One the other hand Asia and Latin America they need industrialization too so they can earn dollars and Euros to buy products from America and Europe.
There are probably more jobs in Auto Parts than there are in the actual assembly. And yes, I have no problem with Mexico having its share of jobs. The stability of Mexico is always going to be in our best interest. I don’t care what you put at the border there will always be a net flow of people or Goods or something else across it regardless of what stupid laws you pass
Describing the amount of social change in the 1960s Bob Dylan said, “You didnt want to go to sleep, so much was going on.”
The same is true now, but for the purpose of keeping an eye on Pres. Trump.
Indeed, we never know what we’ll wake up to.
At least P. M. May survived her first encounter with Pres. Trump.
And so did our ancient alliance, thankfully.
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Thank you! Great post!
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