I made the trade for a Ford Taurus. By then my little red Datsun 210 had traveled from California to New Hampshire. It had carried me through my masters degrees, my early career days, into a marriage and kids. The seat fabric had rotted and split. The paint finish was crackled and faded. A family of mice had decided to store dog food pellets in the fabric roof lining. (We have ever since stored dog food in metal cans!) But this car meant something to me and it was a hard possession to give up. But I needed a car that didn’t slip and slide in the snow and that carried me with a little more dignity to my engineering manager job. So I made the trade. It was fair. It was good.
These days, in the midst of isolationist leanings, there is a great deal of talk about fair trade. The treaties that were enacted over a decade ago are being blamed as the root cause for all of our economic woes and lack of full employment. The US has 14 trade agreements in effect with 20 countries. We are in the process of examining and likely will be rejecting an additional Asia-Pacific trade agreement, known as the Trans-Pacific Partnership (TPP) Agreement and are in negotiations with the EU regarding the Transatlantic Trade and Investment Partnership (T-TIP). Why are these agreements in place and are they fair and good?
The argument for international trade agreements is that they reduce barriers to U.S. exports and protect U.S. interests and enhance the rule of law in partner countries. The reduction of trade barriers and the creation of a more stable and transparent trading and investment environment makes it easier and cheaper for U.S. companies to export their products and services. This is goodness if both parties have something valuable to exchange and if each side ends up satisfied with the arrangement. Right now in the US we are not satisfied. We have lost over 5M manufacturing jobs since the beginning of the century. Our annual trade deficit was $500B or 3% of the GDP last year. That money is used by foreign investors to buy real estate or businesses or other assets. But these stats don’t tell the whole complicated story. The complex story makes the solution complex. The WSJ covered this recently in an article on the Future of Manufacturing. If we close our borders to trade or if we heavily tax imports to slow down in the influx of goods, there are consequences.
- We export more services than we import to the tune of about $300B. If we slow imports we could slow exports of our service industry thus hurting those US businesses.
- If we tax imports of cheaper goods we are creating a regressive tax. In other words we will hurt the people with smaller incomes who can’t afford it.
- We could lessen the value of our currency making imports look more expensive but that again will be a regressive action, hurting the wrong people.
- Moving quickly could cause an economic backlash that could push the US into a recession.
None of the ideas above are easy to implement without repercussions. But we can take positive action to increase our competitiveness and move back to a positive trade balance. However, these ideas require leadership, partnership with government, some patience and a bit of altruism. We as a country seem to be short on those things right now.
- Measure the costs: Company executives should measure the full, true cost of off-shoring. Doing the math rather than just following the crowd could accelerate the trend to keep manufacturing in the US.
- Train workers: There is a gap between manufacturing workers needed versus available even today. This gap will increase as our baby boomers retire. We need to create training programs and apprenticeships like are available in Germany and other countries.
- Embrace Technology: There are ways to improve our competitiveness and the time is ripe. Additive manufacturing, Internet of Things (IoT) and collaborative robotics are ways to use our technical prowess to beat the competition. US universities have developed and progressed these capabilities and progressive companies are employing them to improve productivity and features. The government should encourage investments in manufacturing technology. US incentives for investments in factory automation and research lags behind our competition.
- Employ Lean and Agile Methodologies: Productivity in the US (GDP/hour worked) has increased year over year for 3 decades. In the first quarter of 2016 it actually decreased by .6%. We need to find ways of doing more with what we have. Lean for Manufacturing and Agile for Innovation are two proven ways to improve efficiency and speed up results.
- Create Manufacturing Ecosystems: Regional governments have been encouraging a resurgence of focused manufacturing capabilities. Examples are the growth of automotive manufacturing in the Southeast or capital machinery in the Midwest. These clusters are attracting the right kind of workforce, setting up supply chains and are working with regional governments to create workable tax schemes.
We will not rewind time to the days when you could provide for a family and retire on one assembly worker’s wages. But it is possible to generate a good living with the new jobs that are emerging. A robot technician’s salary is about $60K. A CNC programmer and operator earns about $40K. With the right kind of training and infrastructure we can revitalize manufacturing in the US and embrace good and fair trade once again.
Good and fair trade is within our reach. I gave up my Datsun with thoughts of better driving days to come. Similarly, we need to let go of the past and embrace a new manufacturing reality of automated factories building products the rest of the world will want to buy.
Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek. Barack Obama