President Trump's import taxes have always been a tactic lacking a strategy. As such the possible outcomes are limited. If the goal is to end unfair and unreciprocated access to the U.S. market, tariffing the import of Chinese-made shoes, or European cars, is arguably an effective tool.
But if the goal is also to encourage companies to make more stuff in America, tariffs aren't a remedy. Companies operate in China for a reason. In many cases the means of production reside there, not here. Moreover, as Harry Moser at the Reshoring Initiative points out, "uncertainties from the tariffs will cause 2019 reshoring and FDI (foreign direct investment) to be moderately below the 2018 level." Tariffs may actually be slowing down the reshoring of manufacturing jobs from China to the U.S.
Now that the President is ordering American companies out of China and production reshored, all eyes are on the domestic supply chain. But if U.S. companies are to actually make more stuff in the U.S., two things must happen.
First, we need to agree that the patient is sick.
Today we labor under the assumption that, in some parts of the U.S., we're a manufacturing superpower. The past few years, I've hashed out the results of Ball State University's national manufacturing report card, which this year again basically flunked the manufacturing economies of the West. California was an exception in the 2019 Report, improving from a D to a C.
At the same time, the Rust Belt manufacturing economies in states like Indiana, where the report's sponsor, Ball State University, is located, get As and Bs every year. The difference? Manufacturing employment per-capita. It's a metric that reflects decades of legacy manufacturing.
Why, then, haven't we witnessed a tsunami of American brands returning to the U.S. to set up shop in Kentucky, Michigan, or Ohio? I wrote last month of Black Diamond's decision to return to Asia after reshoring manufacturing in 2013. Why not Indiana? Easy answer. Even in U.S. communities that support high concentations of manufacturing jobs, often the ecosystems lack the skilled labor and advanced processes and machinery that comprise the modern, integrated supply chains found in China.
Are there pockets of highly advanced manufacturing operations in the U.S.? Of course. But scale is lacking, in part because American companies have invested in offshore operations, for decades.
When we acknowledge that U.S. companies can't immediately walk away from investments in offshore manufacturing, but should redirect resources in the future, we'll pursue a second imperative: embracing a 'moonshot' strategy to modernize America's means of production.
In a smart column, "Trading Up: Why America Must Ditch China and Pursue Better Manufacturing Opportunities," Robert Atkison summarizes it this way:
"The second tactic in a market-based decoupling strategy should be to weaken China's comparative advantage in manufacturing and strengthen America's manufacturing industry by establishing a national moonshot initiative to modernize and automate U.S. factories. There are various manufacturing applications for new technologies, including 5G, sensors, robotics, and artificial intelligence, which, with the right policy support, could significantly improve factory productivity, making it possible for much of the U.S. manufacturing sector to be a competitive alternative to China. But without a national manufacturing automation strategy, this vision will be fruitless."
We're talking a national industrial policy. Are we ready to embrace such a plan? What of the naysayers who object that we'd be playing favorites with manufacturing?
There's a litany of less ambitious means to pursue as we debate the merits of a manufacturing Marshall Plan: invest in technologies, people, and process for most-favored industries, in some cases driven by regional and community preferences; publicize companies and leaders currently reimagining manufacturing; develop resources that make it easier for companies to locate capable supply-chain partners; elect officeholders who advocate for local manufacturing.
There may never be a better opportunity to rally the nation around a moonshot-like goal to reconstruct our manufacturing commons, our national means of production. At the same time, we should look closer to home. And make small changes that add up to something big in the future.
Bart Taylor is publisher of CompanyWeek. Reach him at firstname.lastname@example.org.