Here’s What Trump Doesn’t Get About American Manufacturing

Fortune ^ | 2017-01-14 | Bill George

[E. Pluribus Unum]

If the Roman emperors ruled by edict, President-elect Donald Trump appears poised to rule by tweet. Even before taking office, Trump has discovered he can move the world’s largest global corporations with simple, 140-character tweets. And though his aggressive approach is winning politically, good politics doesn’t necessarily mean good economics.

Voters see Trump fulfilling his campaign promises to close America’s borders and bring jobs back home. He is using the bully pulpit to stand up for workers by taking on the most powerful American companies, including Ford (F, +0.32%), General Motors (GM, -0.45%), Toyota (TM, +0.14%), Boeing (BA, +0.34%), Lockheed Martin (LMT, +0.76%), and United Technologies (UTX, -0.54%)/Carrier.

Thus far, no CEOs have had the courage to stand up to Trump. General Motors CEO Mary Barra has said the company’s small-car production will remain in Mexico, but it could only be a matter of time before she’s forced to change course. Trump’s sudden tweets likely worry many CEOs who fear they may be his next target. Right now, most have just tried to stay out of his way. Some, like SoftBank’s Masayoshi Son and Fiat’s Sergio Marchionne, have put forth peace offerings to invest more in the U.S.

[central_va]

Protectionism Didn't Cause the Great Depression

Tariffs in United States history

We Need a Tariff, Not a Corporate Income Tax

[central_va]

History 101:The Crash was triggered by the Trade War

The official start of the Great Depression is Sept. 1929. The Smoot-Hawley Act was signed June 1930 10 months AFTER the start of the Great Depression.

[MomwithHope]

My hubby understands American manufacturing from a unique perspective. He is a Lean Six Sigma Master Black belt. He has worked here and overseas both for a large manufacturer and as a private consultant. If government is identified as part of the problem that can be fixed by removal. Get government out of the way and make processes more efficient, work smarter and American manufacturing will grow. The money they save can go into research innovation and hiring. Jobs that pay well. He tells me the military is already using Lean Six Sigma, that is good to know. Hopefully it will be used throughout the government so budgets are not just cut willy nilly.

[WashingtonSource]

Fortune has been leftist as long as I can remember. They know nothing about the economics of manufacturing.

[BobL]

Sounds like a lot of LABOR in those costs...not to mention that you conveniently omit parts suppliers.

[central_va]

Parts = materials. Most car parts are made by automated process with very little labor costs. Here is a youtube on how engine blocks are made. Notice the only human interaction is the inspector at the very end of the process.

How it's Made: Engine Blocks

[ameribbean expat]

Every single major advance I’ve had came about precisely as you described. Show up, work hard, opportunities present themselves and the guys in charge would rather promote somebody who is a known quantity.

Along the way I’ve had to learn bookkeeping, accounting, finance, negotiating, basic legal concepts, project coordination, concrete repair, commercial plumbing and electric. Wouldn’t trade my OJT for a Harvard degree, because the best part has been the friends I’ve made along the way.

[BobL]

No labor costs to build engines.

THEN WHY ARE THEY SO DAMN EXPENSIVE! Steel and aluminum is what, $2/lb? - engine should be under $1000, but a new engine is MUCH MORE.

[central_va]

Bob the factory has suppliers that deliver the parts to the factory. It is fixed contract price. The labor for the parts is built into the price. Making car parts IS NOT labor intensive.

Fact: The average car takes between 25 and 30 man-hours to make. Union rates are around $100.00/hr(w/ all benefits etc.) Non Union $50.00/hr. YOU DO THE MATH.

[central_va]

Bob when you buy an engine you are paying for the overhead which includes the engineering and robotic set up. Plus maintenance. The skilled labor makes the molds. Once the assembly line it is up and running it is cheap to make each part. Little labor involved almost a non factor.

Assembly i.e. bolting the engine together, probably takes less than 3 man-hours per engine. A lot of that is probably automated. Then testing and packaging and shipping. Another man-hour. This is a guess as figures are impossible to get. Manufactures don't want you to know. So you have to make educated guesses.

But this is irrelevant as the factory gets billed per engine. A material cost.

[BobL]

Enough going around with you...I obviously know all of that...and you obviously know that virtually everything you state involves labor, much (maybe most) of it union, or union-type labor (such as building plants and robots)...and they ALL factor into the cost of a product (including the labor involved with removing iron ore from the ground)...which is my point - if those labor costs are not controlled, then prices shoot up if we lose access overseas.

So, enjoy your Sunday!

[central_va]

Have a nice day. You are real piece of work.

Don't worry Bob, a pair of pliers made in the USA won't cost $4,354.29 at Ace Hardware. LOL.

[RegulatorCountry]

Where was this astounding cost savings to the US consumer, when manufacturing of most everything was sent offshore? I don’t recall it. Do you?

[central_va]

If you, a manufacturer, can shave 5-8% off production cost you would have three choices to make:

1. Pass all of it to you customers.
2. Pass part of it on to your customers and keep some for profit.
3. Keep all of it as profit.

Well 1. wouldn't make sense. What would be the point of offshoring if your bottom line remains the same? If you are doing just to keep up with your competition and your bottom line profit remains the same then the whole offshoring experiment thing is simply a way of making Americans unemployed. Really sick sh+!.

Option 2. might make sense, throw a point or two at your customer. Would they even notice?

Option 3 is the more likely. Would the international stockholders stand for giving away profit to the customers? That would be outrageous to them.

[ConservativeMind]

There wasn’t a 44% excise tax in 1913. That is what excise taxes brought in.

[RegulatorCountry]

Prices didn’t drop at all, they remained the same or even increased over time. The manufacturers took it all as profit, so there goes another free trader argument down the drain.

[central_va]

You forgot to mention quality is in the toilet.

[conservatism_IS_compassion]

Rather than jawboning companies to make uneconomic decisions, Trump and Congress should instead work with major employers to train and educate workers. ^{do what the government schools claim to - but don’t.}

[conservatism_IS_compassion]

If you, a manufacturer, can shave 5-8% off production cost you would have three choices to make:

1. Pass all of it to you customers.
2. Pass part of it on to your customers and keep some for profit.
3. Keep all of it as profit.

Well 1. wouldn't make sense. What would be the point of offshoring if your bottom line remains the same? If you are doing just to keep up with your competition and your bottom line profit remains the same then the whole offshoring experiment thing is simply a way of making Americans unemployed. Really sick.

Option 2. might make sense, throw a point or two at your customer. Would they even notice?

Option 3 is the more likely. Would the international stockholders stand for giving away profit to the customers? That would be outrageous to them.

I think no one would offshore for a lousy 5%. Way too much trouble. Companies offshore because they are being, or shortly will be, slaughtered by imports from the places they are tempted to offshore to.

Which means that by offshoring they are actually “running as fast as they can, just to stay in the same place.” And therefore "option 3" is not available; the competition from suppliers already offshore does not permit it.

IMHO.

[Disestablishmentarian]

That’s why the short-term answer must include tariffs.