Walmart Suppliers Complain of Obstacles to American Manufacturing

http://www.reuters.com/article/2014/06/04/us-walmart-reshoring-idUSKBN0EF0AF20140604

In the above-linked Reuters article, Walmart’s suppliers are reported to be complaining of problems in re-establishing American manufacturing to help meet Walmart’s very publicly proclaimed goal of sourcing an additional $250 billion of American-made goods over the next decade.

Their complaints include a lack of domestic suppliers for components, an inexperienced work force and so on.  I have no doubt that their complaints are valid.  There’s hardly anyone left here making anything other than cars and trucks.  (As an aside, have you ever noticed that there are virtually no foreign-made trucks on the road?  Even Toyota and Nissan pickup trucks are made in the U.S.  Why?  Because the U.S. has continued to maintain a 25% tariff on all imported trucks.)  However, these complaints ring hollow when you consider the fact that when these American companies moved production to China, China was completely devoid of all such resources.  Yet, they found ways to overcome those obstacles so fast that, in a few short years, China manufacturing went from zero to the being the world’s dominant manufacturer.

Why?  Because those companies were motivated by a completely untapped, virgin market of 1.3 billion new consumers.  That’s one hell of a big motivation.  But what motivation do they have now to rebuild factories in  the U.S., other than Walmart asking them to do so?  (And I’m sure Walmart isn’t offering to pay them more to do it.)  And, what little motivation that provides is completely offset by the fact that their China plants will now be slowed by reduced exports to the U.S.

A big part of the problem is that Walmart sells end-use products, and not components, sub-assemblies or raw materials.  Those companies have even less motivation to come back – they don’t even have Walmart on their backs.  It’s kind of like the U.S. trying to apply a tariff to some end-use product.  It never works because, ultimately, it puts the companies involved at a disadvantage when trying to obtain materials and components.

Provide real motivation  and they’ll all find a way around these obstacles, just as they did when they moved to China.  Only tariffs, applied across the board to nations incapable of providing the U.S. with an equivalent market (overpopulated nations with emaciated per capita consumption), can provide the profit incentive companies need to make the transition.

I’m no fan of Walmart, but give them credit for trying.  But they need help in the form of trade policy that’s rooted in how the world of trade really works – help that our government lacks the wisdom and courage to provide.  Until that happens, the manufacturing renaissance will remain a myth.

 

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