No Matter What Trump Does, Those Jobs Aren't Coming Back from China

President Trump and other mercantilists are hoping that his tariffs will drive U.S companies out of China, perhaps even back to the United States. They can keep hoping. It’s not likely to happen.

In a further escalation of his trade war, on August 23 Trump “ordered” U.S companies to leave China, or even return to the United States. This prompted a debate among legal scholars as to whether he even has the authority to do that. Regardless of whether he does or doesn’t, it is unlikely to have any impact.

A proviso is called for here. Some U.S companies are already leaving China - and started to before Trump became president. For one thing, wages in China have been climbing. Since 2008, the average wage in China has tripled. But rather than return to Ohio or Pennsylvania, companies are departing for Vietnam, India, Indonesia and Bangladesh, simply accelerating a move that was underway long before Trump launched his trade war.

Will the corporate exodus pick up? Likely not much. For one thing, companies would have to worry about whether the country they choose to go to would be the next target of protectionist wrath. That’s one of the problems with pursuing a protectionist trade policy - one never knows what country will get a target painted on its back next. Unable to decipher any hint of a long-term plan, U.S companies simply have to function on a day-by-day basis.

India is a good example of a future target. Trump has already removed zero-duty access on $6.3 billion of Indian goods. The Indian government has threatened tariff retaliation.

Vietnam is the most frequent country of choice for U.S companies departing China. Vietnam was already becoming the second Asian home of production for U.S manufactures long ago. Nike moved there in the 1990s, and Cannon copiers in 2012. But while the country is seen as a great place for textile firms, toy makers and footwear manufacturers, and even furniture makers, like most Asian countries it has neither the infrastructure nor the skilled workforce most companies need. Vietnam doesn’t even have the population. It is about a tenth the size of China. If a large number of U.S companies were to move their operations there, the country’s ability to serve as a supplier would be maxed out in a year.

In response to the import taxes on China, some countries have developed supply sources in other Asian countries - with the cooperation of the Beijing government and Chinese companies. Much of the raw materials are still sourced in China; Asian production capacity is simply widened.

While we will no doubt see some companies leave China, few will return to the United States. For one thing, there are simply not enough workers available in a mature economy with a low unemployment rate and a growing proportion of seniors. Domestic labor sources do not exist on the scale that would be needed - one of the reasons the Taiwanese firm Foxconn revamped its investment plans in Wisconsin. U.S consumers would have to build a whole new infrastructure - factories, domestic supplier chains, worker training - a task that would likely take decades. As it stands now, with hour a massive return of production facilities, The United States will soon need a half-million more skilled workers. Deloitte estimates it the country will require a couple of million by 2030.

For another thing, the United States no longer constitutes as big a market as it used to. By 2030, it will be accountable for only 7 percent of sales - less than a third as much as China.

Given comparative growth numbers like this, it is not surprising to see corporate executives salivate at the idea of increasing their Chinese footprint. Trump railed against GM for shifting some production to China - a week after China announced projected 25 tariffs on U.S-made automobiles. GM’s operations in China are actually aimed at the growing China market, where they can expect to sell more cars than in the United States. Last year, the company sold 3.6 million vehicles in China - compared to only 3 million in the United States. Despite the fact that it already faces punitive tariffs against its products from China, even Apple shifted production of the Mac Pro entirely to Shanghai. The United States simply doesn’t have the clout it once did.

The biggest problem the United States faces trying to repatriate companies is the fact that American wages are just too high. The average wage for Americans is about $60,000 per year, many times more than China, India or Vietnam.

If Washington tried to somehow force companies to repatriate their operations, domestic firms won’t be doing much hiring, at least not of American blue-collar workers. They will take a look at the cost of robotics, and realize that it’s a lot more efficient to shift to robots than pay increasingly scarce blue-collar workers $50 an hour. There would be more production in the United States - but no more jobs. That would be a boost for Silicon Valley firms that provide much of the AI software, but would just intensify the wage gap.

Of course, robots are not yet able to meet the needs of some companies, such as footwear makers, which require detailed, intricate work. If they are forced to compete from the Unites States, many of these companies will simply go out of business. Would Nike be able to compete with a European or Asian firm if it was yoked to U.S wage rates? More likely, they would look at Asian growth rates, and move more operations there. Again, the only result would be fewer jobs in the United States, and more in Asia.

Anyone hoping that blue-collar jobs will magically return to the United States can stop hoping for any such thing. Those jobs are gone. There is no point in crying over spilled milk.

Presidential Deeds

Words are not deeds. Unfortunately, a look at the record leads to the question: With free traders like this, who needs protectionists?

Consider that the (Reagan) administration has done the following:

-- Forced Japan to accept restraints on auto exports. The agreement set total Japanese auto exports at 1.68 million vehicles in 1981-82, 8 percent below 1980 exports. Two years later the level was permitted to rise to 1.85 million.(33) Clifford Winston of the Brookings Institution found that the import limits have actually cost jobs in the U.S. auto industry by making it possible for the sheltered American automakers to raise prices and limit production. In 1984, Winston writes in Blind Intersection? Policy and the Automobile Industry, 32,000 jobs were lost, U.S. production fell by 300,000 units, and profits for U.S. firms increased $8.9 billion. The quotas have also made the Japanese firms potentially more formidable rivals because they have begun building assembly plants in the United States.(34) They also shifted production to larger cars, introducing to American firms competition they did not have before the quotas were created. In 1984, it was estimated that higher prices for domestic and imported cars cost consumers $2.2 billion a year.(35) At the height of the dollar's exchange rate with the yen in 1984-85, the quotas were costing American consumers the equivalent of $11 billion a year.(36)

-- Tightened up considerably the quotas on imported sugar. Imports fell from an annual average of 4.85 million tons in 1979-81 to an annual average of 2.86 million tons in 1982-86. Not only did this continued practice force Americans to spend more than other consumers for sugar, but it created hardships for Latin American countries and the Philippines, which depend on sugar exports for economic development. The quota program undermined President Reagan's Caribbean Basin Initiative and intensified the international debt crisis.(37)

-- Negotiated to increase restrictiveness of the Multifiber Arrangement and extended restrictions to previously unrestricted textiles. The administration unilaterally changed the rule of origin in order to restrict textile and apparel imports further and imposed a special ceiling on textiles from the People's Republic of China.(38) Finally, it pressured Hong Kong, Taiwan, and South Korea, the largest exporters of textiles and apparel to the United States, into highly restrictive bilateral agreements. All told, textile and apparel restrictions cost Americans more than $20 billion a year.(39) The Reagan administration has stated several times that textile and apparel imports should grow no faster than the domestic market.(40)

-- Required 18 countries--including Brazil, Spain, South Korea, Japan, Mexico, South Africa, Finland, and Australia, as well as the European Community--to accept "voluntary restraint agreements" to reduce steel imports, guaranteeing domestic producers a share of the American market. When 3 countries not included in the 18--Canada, Sweden, and Taiwan

-- increased steel exports to the United States, the administration demanded talks to check the increase. The administration also imposed tariffs and quotas on specialty steel. These policies, with their resulting shortages, have severely squeezed American steel-using firms, making them less competitive in world markets and eliminating more than 52,000 jobs.(41)

-- Imposed a five-year duty, beginning at 45 percent, on Japanese motorcycles for the benefit of Harley Davidson, which admitted that superior Japanese management was the cause of its problems.(42)

-- Raised tariffs on Canadian lumber and cedar shingles.

-- Forced the Japanese into an agreement to control the price of computer memory-chip exports and increase Japanese purchases of American-made chips. When the agreement was allegedly broken, the administration imposed a 100 percent tariff on $300 million worth of electronics goods. This episode teaches a classic lesson in how protectionism comes back to haunt a country's producers. The quotas established as a result of the agreement have created a severe shortage of memory chips and higher prices for American computer makers, putting them at a disadvantage with foreign competitors. Only two American firms are still making these chips, accounting for a small percentage of the world market.(43)

-- Removed Third World countries from the duty-free import program for developing nations on several occasions.

-- Pressed Japan to force its automakers to buy more American-made parts.(44)

-- Demanded that Taiwan, West Germany, Japan, and Switzerland restrain their exports of machine tools, with some market shares rolled back to 1981 levels. Other countries were warned not to increase their shares of the U.S. market.

-- Accused the Japanese of dumping roller bearings, because the price did not rise to cover a fall in the value of the yen. The U.S. Customs Service was ordered to collect duties equal to the so-called dumping margins.(45)

-- Accused the Japanese of dumping forklift trucks and color picture tubes.(46)

-- Failed to ask Congress to end the ban on the export of Alaskan oil and of timber cut from federal lands, a measure that could substantially increase U.S. exports to Japan.

-- Redefined "dumping" in order "to make it easier to bring charges of unfair trade practices against certain competitors."(47)

-- Beefed up the Export-Import Bank, an institution dedicated to promoting the exports of a handful of large companies at the expense of everyone else.(48)

-- Extended quotas on imported clothespins.

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