Foreign trade “Trumps” other campaign issues

The Reshoring Initiative and our data have been quoted in a number of publications recently. We appreciate the coverage and the exchange of ideas. A summary and review of the issues is provided below.

Forbes on a return to Innovation

While criticism of TPP continues in the political field, the media is chiming in with its own perspectives on how certain domestic issues explain the evidence of lost jobs and industries that others blame on international trade deals. In the Forbes article “Do Trade Agreements Kill Jobs?”, Steve Denning points to ‘the world’s dumbest idea,’ – which he describes as when “companies embraced the notion that the very purpose of a corporation is to create shareholder value as reflected in the current stock price.” This thinking led to mass offshoring, which resulted in the U.S. steadily losing the needed expertise to run and grow businesses in the future. By not making things at home, the infrastructure that supports innovation fell apart and diminished our ability to compete.

As a solution, Denning agues for greater US entrepreneurship with a new business model that adopts agile management practices focused on generating continuous innovation. If US companies want to be innovative and competitive, they need to make things at home. For more on this topic see the upcoming column Manufacturing Matters More.

Academia

Rather than solely blaming trade deals, the larger academic debate between Harvard, MIT and others, is looking inward. To answer the question of why so many intelligent people acted on “the stupidest idea in the world”, Professor Christensen of Harvard attributes some of the responsibility to academics themselves: "It really is scary" ..."The root cause of the problem is the Harvard (pause) the professors at business schools because, for example, we teach our students that the way they measure profitability is return on capital employed as a common measure. So if I am going to be measured by that ... this is a ratio. I can get that ratio up by developing new products that generate attractive profits to go in the numerator of that ratio, aaahhh what the heck, if I just outsource everything then I get assets off of the denominator of the ratio. Either way the ratio goes up. So because the way we teach people (MBA students) to measure things it causes us to outsource that job ..."

Industry Perspective

According to industry insider Dan DiMicco, free trade would be great if it worked, but it doesn’t work. You have to protect and support a manufacturing base because: “As history shows, If you are a nation that innovates, makes and builds things, you have a strong economy, you have wealth, you have real wealth creation where everybody participates in, not just the wall street guys… everybody benefits, you have a growing middle class, and it works.” –CNBC minute 6-7

The New Yorker and the focus on Skilled Workforce

Author Jeffrey Rothfeder accurately reports in “Why Donald Trump Is Wrong About Manufacturing Jobs and China” that the reality is we are no longer net losing jobs to China (or at least very few). Yes, it is important for the American public to be aware of this recent shift balancing in the flow of manufacturing jobs – It is a significant improvement from the rapid bleeding of jobs overseas that we saw in the past.

However, there are still 3-4 million manufacturing jobs that could come back. Unlike Rothfeder, the Reshoring Initiative believes significant action is required to achieve this goal. Currently, at best, if companies did the math properly, we might bring back one million of those jobs in 10 or 20 years. But we will have much better results if actions are taken to further reduce our trade deficit, including: lowering the high USD and corp. tax rates, adding a VAT, improving skills training, and reducing or balancing mercantilist actions by China, Japan, etc. Regardless of whether or not Trump’s plan is the best answer, it must be acknowledged that prior administrations have failed to accomplish these actions.

Rothfeder concludes his article with an appeal for a more highly skilled workforce. The U.S. workforce, as it stands, is the most productive in the world, and is a boon to US competitiveness. But, as he points out, we need even more workers, and by specifically training the lower skilled blue-collar workers who have thus far been left out, we could fill the skills gap, provide new opportunity to workers, keep businesses in the U.S., and stay competitive. The Reshoring Initiative would further add the need to help university bound students see that they will often have better incomes and more satisfaction with a technical community college degree or apprenticeship. See the video Success in the New Economy.

In conclusion:

The proclaimed benefit of trade deals is that they provide more goods to more people at a lower cost. However, FTAs ignore the “cost” of cheap imports -lost production, lost jobs, lost innovation and decreased ability to innovate and compete in the global market. Trade deals put too much emphasis on special interests of investors and corporations at the top of the food chain, and not enough on managing currency manipulation, and protecting our ability to manufacture and innovate on our home turf. Since Globalization is here to stay, trade deals will also remain. But future FTAs need to learn from past evidence and adapt methodology that broadly supports U.S. Manufacturing.

The good news is that the debate surrounding TPP and past trade deals is highlighting the very need to focus on manufacturing, and pointing to specific actions that will be most helpful in reshoring U.S. businesses and improving the U.S. economy. Finally, while it is interesting to pit one theory or method against another, the reality is that real change requires actions by all players across all fields.

We suggest reviewing Behavioral Changes Needed, and reading the articles mentioned in this blog in full:

Do Trade Agreements Kill Jobs? Forbes

Dan DiMicco: Getting The Country Back On Track | Mad Money | CNBC

Why Donald Trump Is Wrong About Manufacturing Jobs and China The New Yorker

Free Trade With China Wasn't Such a Great Idea for the U.S. Bloombergview

STUDY: U.S. Manufacturing Remains Most Competitive Worldwide Despite Headwinds Quality Magazine

Are Trade Agreements Good for Americans? The New York Times

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