Over the last decades we have witnessed massive flight of manufacturing jobs from the United States, as companies were trying to take advantage of low cost labor in the developing countries. The practice of outsourcing, or moving production overseas, made perfect economical sense, stimulating international trade, increasing profit of corporations and reducing the price of goods. At the same time, the policies supporting outsourcing caused resentment in the circles of workers that lost jobs to overseas labor.
The new administration started the reforms with massive attacks on international trade, exerting pressure on large corporations with overseas manufacturing facilities. Facing the threat of becoming the next target of Donald Trump’s Twitter activity, the corporation started frantic public relations campaigns, publishing plans of massive investments in US manufacturing facilities and hiring of US workers. We have seen companies like Amazon, Ford, Carrier, Toyota and General Motors outlining plans of development of their US manufacturing infrastructure. Needless to say, that most of those plans were developed before the elections and then reshaped to fit the latest trend.
For a company smaller than Amazon or Boeing, the probability of being targeted by Trump’s Twitter is minuscule, but humans nature tends to exaggerate the threat. The dreaded possibility of public relations nightmare or executive sanctions, makes the bravest to comply with the proposed guidelines. We should expect to see smaller, less visible corporations to follow the agenda and return at least some production capacity to the US. The proposed 35% import tax on the products manufactured by the US companies overseas will only facilitate the process. In short term this will increase the number of the US manufacturing jobs and improve the employment numbers. As a result, the popularity of the Trump administration will soar. But will the effect last? Very unlikely.
The manufacturing jobs will return to the United States, but leave soon afterwards
The companies move production overseas because it is profitable. Outsourcing at least some of the manufacturing is unavoidable in the global market, where lowering the cost of production is imperative. For some corporations working in competitive markets, moving production overseas means staying business. Note, that government contractors do not move jobs overseas, because they have access to almost unlimited budget and can price their products as they wish.
If the jobs are artificially kept in the US under the threat of administrative actions, bad publicity or import tax, the corporate profits will take a direct hit, and the investments in the manufacturing sector will dwindle. The companies will try to pass at least some of the increased manufacturing costs to buyers. This will be reflected in rising retail prices, adding to inflation. Eventually, the administration will change to one with different position on trade, and the jobs will quickly return to where they belong – to the place with the cheapest labor.
The manufacturing jobs will return to the United States, but will be performed by robots
There is also a different possible outcome. The pressure to keep jobs in the United States will force companies heavily invest in manufacturing automation. Due to recent progress in robotics, the sophisticated equipment for manufacturing automation is readily available on the market. Fully automated assembly lines are used by Tesla Motors to assemble high tech automobiles in the US. The sports shoe making company Adidas runs fully automated manufacturing line in Germany.
The design and installation of automated assembly line requires sizable investment, but this may become increasingly attractive if pressure is put on the corporations to move manufacturing back to the US. This seems to be a win-win outcome with one exception: automated manufacturing lines it do not create massive employment. The automated assembly lines are run by a few highly qualified people. The production, particularly assembly, will return and stay in the US, without massive job creation.