Very good, so in you OWN "optimistic" scenario the prodcution will shift from providing the working people with American life standard to making diamond necklaces for the rich women. This is the pattern of Latin America and most of the Third World.
To my knowledge, diamond-cutting is a skilled and well-paying profession -- at least as much if not much, much more so than working in a leather factory job that your average illiterate Mexican can replace. Diamond pendants and necklaces are hardly the domain of the super-rich anymore, either. This is all besides the point, anyway.
My point, which I used these examples to make, is that any money saved through manufacturing efficiency will ultimately be reinvested into the economy to create more wealth than would otherwise have existed, in the long run.
Yours is the fallacy Hazlitt wrote about: a shortsightedness in only seeing the immediate economic effect on a select group of people, instead of seeing the complete picture and the net result.
P.S. The predominant trend among the Third World is the well-connected powerful few using the government's monopoly on force to protect and enhance their position. Sounds like protectionism and regulation. Doesn't much sound like free markets and trade.