COMMENTARY: Made (and bought) in America

Trade doesn't impact everybody equally, but that's beside the point: trade can create jobs

By: Eric Johnson
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Photo: Koshevnyk / Shutterstock.com
   I recently read an interesting commentary from an Australian business reporter in The Guardian about how trade is sold by politicians in two ways.
   Imports are sold as a way to improve living standards, the author, Greg Jericho, wrote in mid-2016, while exports are a way to trumpet the benefits of free trade deals in providing better global market access to a country’s products.
   I actually think that’s an apt observation, and it’s especially relevant during a week in which the Trump administration has christened “Made in America Week” as it attempts to focus its agenda on a core message from the election campaign: U.S. jobs.
   What’s the goal of the weeklong promotion of American-made goods?
   “Not only will the American worker never be forgotten, but they will be championed,” White House spokesperson Helen Aguire Ferre said in a statement.
   That echoes a familiar refrain from the campaign trail. The administration lives by a simple equation: Made in America equals jobs.
   If only it were that simple.
   Trump may have had fun Monday playing around with some of the amazing made-in-America machinery paraded around the White House grounds. But there’s much more nuance to stoking the U.S. manufacturing sector than tough talk and truck shows.
   It’s really about imports, our standard of living, and the efficacy of free trade agreements.
   I’ll give you an example: apparel.
   Much has been made this week of the fact that the clothing line of the president’s daughter, IvankaTrump, is manufactured entirely abroad.
   White House Press Secretary Sean Spicer had this response when a reporter asked about the apparent conflict between the president’s daughter (a White House advisor) touting a Made in America policy and maintaining a supply chain wholly dependent on foreign sourcing.
   "There are certain things we may not have the capacity to do here in terms of having a plant or a factory that can do it,” Spicer told reporters. “The beautiful thing about a capitalistic society is if there's enough of a demand for it, it will happen.
   "But some lines, some industries, some products may not have the scalability or the demand here in this country, but like so many other things, if there's enough of a demand then hopefully somebody builds a factory and does it."
   I agree completely, and apparel is actually an interesting weathervane for the extent to which the administration will tolerate products not made in America.
   There are literally dozens, if not hundreds, of U.S. apparel producers in existence, from shoemakers in Maine to T-shirt makers in Los Angeles. The question is not whether there’s capability to make those items, it’s about scalability and demand.

There are literally dozens, if not hundreds, of U.S. apparel producers in existence, from shoemakers in Maine to T-shirt makers in Los Angeles. The question is not whether there’s capability to make those items, it’s about scalability and demand.

   Of course, those two things concepts are inextricably linked. If there’s enough demand for a product, a company can invest in creating the scale to produce it to meet demand. Production at scale drives down cost, whether an item is made in America or abroad.
   There will always be a labor cost differential between sourcing here and abroad in developing markets. But there are other supply chain benefits to sourcing locally – shorter lead times, lower inventory carrying costs, absence of international transportation costs, zero trade compliance costs.
   It’s hard to think a U.S. manufacturer that would choose to source abroad if it didn’t make sense to do from a cost standpoint.
   Here’s where we get back to demand. There are affordable made in America T-shirts, especially from online-only retailers that don’t have the burden of expensive storefronts to maintain.
   But where is the explosive demand for these T-shirts? Anyone with internet access can type “made in the U.S.A T-shirts” and find a half dozen online outlets that provide a competitively-priced product.
   Is it a matter of changing U.S. consumer shopping habits more than killing free trade deals? Or should we submit to our decades-long course of outsourcing production and focusing on supply chain efficiency?
   Does the answer lie somewhere in between?
   Michael Mandel, chief economic strategist at the Progressive Policy Institute in Washington, D.C., posits that e-commerce and the rise of digital corporations will create the middle-income jobs lost from traditional manufacturing over the last half century.
   “The e-commerce sector is adding jobs much faster than the general retail sector is losing them,” he wrote in a March research paper, The Creation of a New Middle Class?: A Historical and Analytic Perspective on Job and Wage Growth in the Digital Sector. “We found that the ecommerce sector added 355,000 jobs from 2007 to 2016—more than enough to compensate for the 51,000 jobs lost in the general retail sector.”
   In reporting on Mandel’s theory, the New York Times noted that not all agree with this theory based on the idea that many of the “e-commerce jobs of the future,” like warehousing and transportation, may well be automated. There’s also the issue of how the government counts employment.
   “In truth, his argument relies to some degree on the assumption that many of the new jobs created in a category known by the government as ‘general warehousing’ are tied to e-commerce,” the newspaper said. That may be a good assumption — but it’s impossible to know for sure.”
   The bigger issue is that job creation isn’t magic. Prioritizing U.S. jobs creates tensions that largely don’t exist in a trade-friendly environment. If the Trump administration assesses tariffs or quotas on steel imports, that decision doesn’t occur in a vacuum. The EU is said to have already drafted a list of U.S. products to which it will apply retaliatory tariffs or quotas.
   Pulling out of the Trans-Pacific Partnership won’t just impact the price U.S. consumers pay for goods sourced from other TPP members. It also restricts duty-free access to those markets for U.S. companies. Which impacts jobs more?
   The problem for me of focusing on “Made in America” is it’s like reading every other page of a book. It doesn’t make sense to focus on the benefits of one aspect of trade, and assume the worst about the other aspects.

The problem for me of focusing on “Made in America” is it’s like reading every other page of a book. It doesn’t make sense to focus on the benefits of one aspect of trade, and assume the worst about the other aspects.

   Yes, the United States has accumulated a huge trade deficit. That’s because we’re the wealthiest nation on Earth and have the power to buy things. But the things we buy from other nations contribute to their wealth. That eventually translates into economic and political stability in those other markets, which ultimately benefits the United States.
   Those markets also accrue the wealth to buy products from us as well. It’s a virtuous circle for which “Made in America” campaigns don’t fully account.
   Yes, trade and free trade agreements create inequalities. But maybe it’s time to embrace those inequalities and figure out how best to translate them into jobs. Truck shows and stump speeches don’t create jobs. Forward thinking policies do.