The end result of Trump trade policy
Ironically, the Trump Administration’s policy on globalization & jobs will produce the very effects it’s trying to prevent
We often consider the ramifications of policy implementation statically — as if net effect on Day 1 (or any other snapshot in time) were all that matters. So, let’s think about Trump’s proposed border taxes, tariffs, and general trade policy more dynamically.
Higher input costs
Most of why American businesses offshore manufacturing is because unit labor costs are lower abroad. The Trump administration can eliminate all the tax arbitrage it wants, but US labor cannot compete with Mexico given our higher domestic standard of living — which is something I don’t think we’re willing to compromise. Therefore, repatriating that manufacturing would invariably increase input costs.
Higher input costs are borne by either the business (i.e. tighter profit margins) or the consumer (higher prices). Honestly, I’d gladly pay more if an American can have a job — and I support “Made in the USA” on a daily basis. However, the problem is that these “saved jobs” are unsustainable — and I’d expect the laborforce prefers a sustainable job over an unsustainable one. These “saved jobs” are the equivalent of feeding a man instead of teaching him how to fish:
“Give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a lifetime.”
They’re also contributing to our secular slowdown in labor productivity:
“Government can help with the reallocation of time savings. The biggest store of this savings glut is embedded in the unemployed, underemployed, and part-time labor who are threatened by obsolescence. This labor needs retraining for new skills that can be redeployed toward today’s and tomorrow’s businesses. (There’s also a case to be made that governments’ overindexing to unemployment rates as key performance indicators has eschewed quality-of-employment in favor of quantity-of-employment. As a result, we have an increasing excess of labor producing a relatively fixed level of output — and hence stagnant productivity.)”
You can impede our trade, onshore these jobs, and increase national income on Day 1. Beautiful… except, you cannot stop other countries from competing with us in the external sector. If America becomes insular — even if isolated sectors are forced to repatriate manufacturing capacity in the name of jobs — she will become a high-cost producer relative to foreign competitors. The international community will eat her lunch.
The expressed intention of this policy is jobs, specifically manufacturing jobs. That means there’s not a lot of latitude for making our goods globally competitive in this new regime. In other words, there are no other input costs that can be cut to substantially offset our relatively high cost of labor — especially given labor’s large share of manufacturing’s equation. Furthermore, productivity gains are not an option: increasing aggregate output per unit of labor displaces jobs by applying technology to either reduce headcount or evade an incremental new hire.
So, tech destroys jobs then, right? Well, it depends. It’s creative destruction, wherein: certain jobs become obsolete, but the reallocation of that labor is the key. How fast that flywheel spins determines the marginal benefit of such technology.
The focus is supposed to be on accelerating that flywheel, boosting America’s competitiveness on the global stage by applying technology to increase productivity. Such innovation is the inorganic complement to organic demographics, both of which drive sustainable economic growth. The US has the good fortune to lead the developed world in both components too, but we’re squandering the opportunity.
Anthony Bardaro is the CEO of Annotote, an app that lets you highlight and take notes on any media, then your annotations help summarize that content for everyone else in the network. Don’t waste your time, get straight to the point! For content worth keeping, try Annotote today: http://annotote.launchrock.com