Tariffs “a problem with no solution?”

August 31, 2019

https://www.cnbc.com/2019/08/30/basic-fun-ceo-jay-foreman-to-keep-production-in-china-despite-trump.html

In the above-linked article, Jay Foreman, CEO of Basic Fun, Inc., the toy company whose most well-known product is “Lincoln Logs,” whines that the tariffs on China have created “a problem with no solution.”  He complains that Trump’s order to American companies to find a new supply chain, preferably in the U.S., leaves him with no good alternatives.  If he moves production to another country, like India, he may soon face the same tariff problem there.  Move production back to the U.S.?  “There’s no labor here,” he says.

“I’m not really sure the American consumer is ready to start making toys in the kind of conditions you might see in factories in India, and there’s no labor here in the United States to manufacture toys,” said Foreman.

In addition to labor condition concerns, Foreman said that moving production to India, for example, is risky because Trump has already criticized that country’s trade practices.

I’m confused.  American consumers don’t make toys, especially in India.  Workers make things, not consumers.  And Indian factories are staffed with Indian workers, not American consumers.  I think he’s saying that American consumers might be turned off if they learned that the toys they’re buying are made in deplorable conditions.  I suspect that the Chinese factories aren’t that much different.

There’s “no labor here?”  What a crock.  The U.S. is awash in labor.  There are still ten million Americans who haven’t been put back to work since the “Great Recession” in 2009.  The only reason that unemployment in the U.S. is so low – 3.7% in July – is that these long-term unemployed have been factored out of the labor force.  This is why per capita employment remains approximately 2% below the pre-2009 level.  It’s the reason that the American economy is able to add 200,000 jobs every month during this period of economic expansion without any effect on unemployment and barely any upward pressure on wages.  The workers seem to appear out of thin air like magic every month.  It’s not magic.  The workers are here, waiting and eager to be put back to work.

Any time some company executive complains that they can’t find workers in the U.S., it’s because they can’t find workers at the wages they’re willing to pay, which is probably minimum wage or even less, if they could get away with it.  Offer $20 an hour, a more reasonable wage for the kind of skilled work required by manufacturing, and see how many workers show up at your door.  The impact on product prices would be minimal, and more than offset by rising wages.  After all, every consumer is either a worker or is supported by a worker.

Oh, by the way, it’s kind of ironic that Mr. Foreman complains that his toys can’t be made in the U.S. when the most iconic toy in Basic Fun’s line-up, Lincoln Logs – a toy inducted into the National Toy Hall of Fame in 1999, is actually made in Maine by Pride Manufacturing for Basic Fun.  And guess what?  American consumers still buy Lincoln Logs for their kids.  No one complains that Lincoln Logs’ manufacturing should be shipped to China so that they can save a few cents.

Advertisements

Michigan Throwing in the Towel

April 16, 2009

http://www.freep.com/article/20090415/BUSINESS06/904150404

Today it was announced that unemployment in the state of Michigan jumped to 12.6% in March, the worst in the nation.  Bankruptcy is now almost a sure thing for General Motors.  For Chrysler, it’s more than a sure thing.  It might as well have happened yesterday and there will be no reorganization.  They’ll go straight to liquidation.

Against this backdrop comes this report from “Michigan Future, Inc.”, an Ann Arbor based think tank.  (See the above link.)  The following paragraph is of special interest:

“The decline in autos is part of an irreversible new reality that manufacturing is no longer a sustainable source of high-paid jobs,” the report from the Ann Arbor think tank Michigan Future Inc. states. “The world has changed fundamentally. We either adjust to the changes or we will continue to get poorer compared to the nation.”

“Manufacturing is no longer a source of high-paying jobs.”  I guess somebody forgot to tell China, Germany, Japan, South Korea, Taiwan, Ireland and every other nation that has built a high standard of living using manufacturing as its back-bone.  These are all nations where manufacturing workers are very well paid and receive benefits that are as good or better than any in the U.S. 

So what’s the solution proposed by “Michigan Future, Inc.”?  They want Michigan to become a “knowledge-based economy,” employing the following strategy:

• Build a culture that highly values learning, an entrepreneurial spirit and being welcoming to all.

• Create places where talent wants to live by making public investments.

• Increase public investments in higher education.

• Transform teaching and learning so that it’s aligned with the realities of a globalized world.

In other words, we’re going to retrain everyone to do something else.  We’re going to pump them full of the kind of “knowledge” that the global community so desires.  Have you done your knowledge-shopping today? 

Knowledge is useless unless it’s put to work – primarily for making things.  Oh, sure, I suppose we could train more people to be economists, teaching them 18th century economic theories and other “knowledge” that is now a proven failure.  Or we could train more MBAs to run more hedge funds, operate more off-the-books accounting schemes and design more investment vehicles like mortgage-backed assets and credit default swaps. 

But what “Michigan Future, Inc.” probably has in mind is more software developers.  No doubt, we need people to do the coding that makes our computers work.  For example, consider the period at the end of this sentence.  It took some sophisticated programming to make that dot appear on your screen.  But nobody thinks about everything else that was involved.  What about the sprawling, multi-billion dollar, computer-controlled chemical complex that was required to make the acrylo-butadiene-styrene plastic that went into making that particular key on your keyboard?  Or the injection molding plant that shaped that plastic into the key?  Or how about the enormous boiler and steam turbine required to move the electrons from my keyboard to your display? 

Let’s go back to the subject of auto manufacturing.  Low tech stuff, right?  High school dropouts bolting stuff together, right?  Is that what you think?  Think again.  Think about huge factories crammed full of computer-controlled robotic equipment, and the people trained to design, build and maintain those robots.  Think about the engineering skills and computer applications involved in designing the chassis to crush perfectly in a collision, absorbing the impact while protecting the occupants.  Or just think about the bolts themselves:  the heavy equipment involved in mining iron ore, the steel mill required to turn that ore into raw steel wire or bars, the maching equipment required to turn that bar stock into fasteners with hex heads and perfect thread patterns.  Now think about the engineering and manufacturing that went into making all of that equipment.  Doesn’t sound so simple now, does it? 

Manufacturing is an absolutely essential ingredient to a healthy economy and a high standard of living.  The demise of manufacturing in the U.S. goes a long way toward explaining the steady decline in our standard of living.  The only knowledge that’s in short supply in Michigan and the U.S. in general is the knowledge of the role that misguided trade policy has played in exporting our manufacturing jobs to nations that fully appreciate the value of manufacturing.