Chapter 9 - What does the future hold?
More Trouble with Trade
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The Five Actors
In Chapter 1, I suggested that we bear in mind four “actors” in the drama of U.S. trade relations: (i) the U.S. public sector; (ii) the U.S. private sector; (iii) foreign countries’ public sector; and (iv) foreign countries’ private sector. It appears that we can expect more of the same from each of these, with the notable possible exception of the U.S. public sector, given the results of the 2016 presidential election. (For example, on his first full day in office, President Trump signed a memorandum withdrawing the U.S. from the proposed Trans-Pacific Partnership.)
However, I also noted in Chapter 1 that there is another set of actors taking part in the situation: American consumers. As we consider what the future portends for trade, a case study should give us pause: in the Spring of 2016, General Motors started supplying U.S. dealers with the Buick Envision sport-utility vehicle entirely produced in GM facilities in China.
GM claimed that Buick had “holes in its lineup” as U.S. customers enjoying low gas prices moved toward S.U.V.s. The company had “ample Envision capacity” at a factory in Shandong province in China. The Envision is one of the first completely Chinese-made cars being sold in the U.S. Volvo, recently purchased by China’s Geely, had begun shipping to the U.S. small numbers of its S60 model made at a plant in China. The Envision reportedly was designed and engineered at GM facilities near Detroit. It is built by Shanghai GM, a joint venture between GM and SAIC Motor Corp., and is enjoying strong sales in China. Sales of the Envision in American also have been brisk, as consumers have not been concerned with the cars’ being made in China.
China has a great deal of overcapacity in its automobile production market, with capacity to make 40 million light vehicles and sales expected to be 25 million in 2016. Much of this capacity is in joint ventures with U.S. automakers, so one can expect that the case of the Envision is only the beginning of things to come. And if American consumers are ready to buy Chinese-built Buicks and Mexican-built Fords without batting an eye, then the future does indeed hold “more trouble with trade.”
More Job Losses
What do we see when we look to the future of employment? Every two years, the Bureau of Labor Statistics publishes its projections for employment for the coming ten years; in 2015, the BLS published its projections for the period 2014 through 2024.
More Job Losses in Manufacturing
For manufacturing employment, the BLS projected the loss of an additional 814,000 jobs, a seven percent decline, from 12.2 million to 11.4 million. Apparel, textiles, and leather goods, already decimated, were projected to shed an additional 135,000 jobs, a 34 percent decline. Computers and electronics were projected to lose an additional 130,700 jobs, a 12 percent decline. Of 21 manufacturing sectors, only one, fabricated metal products, projected an increase, of one percent; employment in all other sectors was projected to decline through 2024.
What will this look like on the ground? We can catch a glimpse in Granite City, Illinois, just north of St. Louis, where US Steel has operated a steelmaking plant since the end of the nineteenth century. An enormous, sprawling facility, US Steel describes it on its web site as “a leading supplier of high-quality hot-rolled, cold-rolled and coated sheet steel products to customers in the construction, container, piping and tubing, service center, and automotive industries.” Only it is not -- it shut down at the beginning of 2016, laying off most of the 2,000 workers. The company said the shutdown was temporary, until sufficient demand returned; in November, the union web site was telling the still-idle workers about the union’s food bank, and where they could pick up donated turkeys for Thanksgiving.
One worker told a New York Times reporter how he had taken a job there in 1999 at age 38, starting out shoveling slag and ending up operating the crane that carried the 350-ton ladle of molten steel. Making $24.62 an hour and overtime, he took home $86,000, enough to get a daughter through grad school and a son started in college. Now, his eyes were tearing up as he recounted telling his son he wouldn’t be returning for his junior year. The head of the union local told the reporter of how his duties now amounted to that of a social worker, including dealing with the previous night’s news that a worker, one of his high school classmates, had shot himself to death, leaving behind two children. The American dream broken, because China had built too many steel mills and was dumping their product on the American market to stay operational, even as they built more mills.
If you go on Google Earth, you will see that the US Steel mill is about the only thing happening in Granite City. Surrounding it are residential neighborhoods largely populated by its workers. Neighborhoods that, if the mill doesn’t reopen, will be like the neighborhoods around the Carrier plant in West Indianapolis, 240 miles up the road by I-70, where families will be riding it out until their homes are foreclosed.
Many of BLS’ projected job losses in manufacturing will occur due to automation and the application of robots and artificial intelligence in the manufacturing process. But this makes it all the more important that we do not send any of the remaining manufacturing jobs overseas.
More Job Losses in Services
Perhaps even more alarming than the trend in manufacturing jobs, is the future for service-sector jobs. It turns out that many industries and job functions that some thought were safely protected against offshoring, including the white-collar and high-skilled, are not.
In a 2007 study, Princeton economist Alan Blinder reviewed 800 occupations with respect to their potential to be offshored. His middle case conclusion was that 25 percent, representing some 33 million jobs in 2004, had the potential to be offshored. A study by the U.S. Bureau of Labor Statistics reached similar conclusions. The BLS identified 160 service sector occupations that are susceptible to offshore outsourcing. (Blinder’s study included all occupations.) The 160 occupations included a wide spectrum as to required skill and training and sophistication of services, from proofreaders to biophysicists. At the time of the study in 2008, there were 30 million people employed in these occupations.
Since those studies were conducted, offshoring has continued, and has been moving up the value chain. Companies are increasingly moving sophisticated, mission-critical functions such as product design and research and development to China, India and other offshore locations, according to a study by Duke University and management consulting firm Booz Allen Hamilton (now Price Waterhouse Coopers). Among the study’s findings:
The ‘hot’ sectors in offshoring these days are new product development and design, engineering services, R&D, and analytical knowledge services, including legal services. In fact, innovation services are now the second most prevalent set of services offered by providers (after IT) and among the fastest-growing service lines . . . .
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Global consulting services providers such as Booz (PriceWaterhouseCoopers), KPMG, and Accenture stand ready, willing, and able to assist U.S. firms in sending these jobs offshore. But you don’t need to engage them – the foreign firms will come to you. I recently received a personalized email solicitation from a company in India. It included a long list of administrative, technical, and research-oriented services that they stood ready to staff for me, beginning immediately. I looked at the list, and the more extensive list provided on the company’s website, and thought, “what do we tell our children?”
If we continue our current course, without a dramatic shift in direction, then we must tell our children and grandchildren to study the BLS list of 160 occupations, and not to aspire to any of those -- because there are several hundred million qualified individuals in India and elsewhere who stand ready to do those jobs for less than it costs to live in America, and U.S. employers are prepared to send the work to them to cut costs and maximize profits. Even if you do land one of those jobs, pay off your college loans, marry and have children, and spend fifteen years with your company, you may come to work some Friday and be told your Indian replacement is arriving on Monday, or will begin work in Bangalore.
And that leads to another conversation. Because then, we must say to our children, by the way, that means that there are going to be a lot more Americans vying for the remaining, non-tradeable jobs. So, there is going to be some very stiff competition, and unless you are the very best of the best, you are not going to make the cut. This is the harsh society we are creating, as discussed in Chapter 7.
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Chapter 10 - A Call to Arms
Destroying our Industrial Base
In my view, it is both a high moral crime and economic suicide to consciously, even intentionally, remove the factories, large and small, that are the productive engines driving the economies of communities across America.
During the Second World War, with some notable exceptions, bombing raids were directed at the industrial capacity of the enemy. I knew two men who during the war were children in the north and south ends of Manchester, England. The one who lived in the southern, industrial end, was bombed; the other who lived in the northern end was not. Now, our misguided trade and economic policies are having the same effect: it is as if we were intentionally bombing only the productive, industrial manufacturing centers of the United States. Except it is more like a neutron bomb, that leaves all the structures standing, but empty, with all the production, and even the formerly used machines, gone — to Mexico, or China, or Vietnam.
So it is with the Budd factory that used to make automobile bodies in Philadelphia. It is several city blocks on a side, six or seven stories high. It now stands empty, having closed in the 1990s. A sign outside announces the availability of one million square feet of space for purchase or lease.
And it is not just the factory that gets up boarded up. So, too, go the small businesses that supplied the factory and supported its workers. We hear of “food deserts,” areas of our cities that are not served by a supermarket. The reason we have food deserts is that we have created “job deserts,” neighborhoods and whole towns where there are no jobs to be had, because the factories stand empty, and there is nothing to replace them.
What is worse, the effects are falling upon those least able to cope with them - Americans with a high school education and perhaps some junior college, or who perhaps earned a graduate equivalent diploma, or who perhaps never received their high school diploma.
Let us recognize that these are seventy percent of Americans, doing the seventy percent of jobs that do not require a college education. I think some of us tend to consider high-school educated, working Americans as some sort of minority, and one that may be worthy of disdain, even contempt.
As Beth Macy has pointed out, at the end of the day trade policies with fancy names implemented in Washington eventually make their way to small towns like Sumter, South Carolina, and Bassett, Virginia, where globalization’s real-life burdens are shouldered by low-income workers.
We also must remember that moving all this production overseas has not been done solely, or even primarily, to offer lower prices to American consumers. At least for the first movers, the primary motive was profit.
Wal-Mart was in financial trouble after Sam Walton died in 1992, so they increased their sourcing in China. A store manager remembered “all of this stuff showing up,” and being amazed that it had 60, 70, even 80 percent margins. That is, Wal-mart was making that much gross profit on each sale. Apple’s profit on a sale of an iPhone was 59 percent of the sale price; 30 percent for an iPad.
Ethical considerations aside, this is in almost no one’s economic self-interest. So long as it was someone else whose ox was being gored, many of us thought this thinking was just fine. Oh, isn’t that too bad, that all those shoe-making jobs went offshore. But it was inevitable, wasn’t it? And aren’t we better off with everyone being able to buy cheap shoes from abroad? And shouldn’t those former shoemakers be doing something more befitting an American, requiring higher skills, while we give the low-skill work to those poor foreigners?
It is easy for us to think that way when we believe that what we do is immune from loss. Many people believed that about furniture, which was thought to be too bulky to be shipped long distances economically. They were wrong: the foreign producers figured out how to ship components to be assembled after arrival, and the container ships grew large and efficient enough to ship just about anything. And so has it been with many other industries and job functions that some thought were safely protected against offshoring, now including the white-collar and high-skilled, as discussed in Chapter 9. The offshoring is spreading to many previously thought immune.
And the effects are not limited to the occupations that are subject to offshoring: when those jobs are sent overseas, their former occupants, or people who were thinking of going into the field, are diverted into the non-tradable occupations, increasing competition and driving down wages. The downward effect on wages ultimately affects nearly everyone. Even for those immune from these effects, when the economy has been sufficiently hollowed out by all this offshoring, there will be too few haves and too many have nots. In many ways, we are already there, but it will get worse, with suffering and social unrest.
Our elites have failed us
Our academic and political elites . . . have failed to serve the needs of ordinary Americans to be able to make a go of it in their lives. The elites who tell ordinary Americans that it is their duty to ruin their lives and give up everything they have worked for to lift someone in another country out of poverty . . .
Those of us who are policymakers, being in the position of a modern-day shepherd, have a high duty to look out for the interests of the ordinary American. . . But we have been failing in that duty. Here is what we have been doing instead:
LETTER FROM WASHINGTON to the residents of Anywhere, U.S.A.
Oh, your life has been ruined, and your community, too? Oh, I’m sorry, but you know, that’s just the cost of the increase in welfare everyone is experiencing through the lower prices of the things made and done abroad. You know, this all is due to unstoppable forces beyond our control, and there are going to be winners and losers. And besides, you don’t have to be a loser. You need to get out there and retrain yourself for a high-skill job. What’s that, you say, you don’t have money to live on while you go to school full-time? And what’s that you say, there are no jobs to train for? And what’s that you say, you have an IQ of 100 and aren’t so good at school, but you’re a hard worker? I’m sure you’ll figure it out. In the end, though, it was worth it, because you and everyone else in America is better off, because we can buy our ten dollar shirts and get thirty percent off on our furniture, and, oh yeah, so are those foreign workers who got your jobs - we’re raising them all up into a new global middle class. Isn’t it wonderful? Thanks for doing your part to make it happen! You’re the best! Say hello to everyone for me. I hope you guys are doing okay.
But it is not just the policy makers. It is not just the companies who are operating the distribution centers through outsource contractors, claiming that they can wash their hands of the working conditions, that they have clean hands. It is not just the companies moving their factories to Mexico because their current workers can’t match the Mexican wages. None of us has clean hands. Every time we go for the low price, we are complicit. . .
We have a duty to first, do no harm, and secondly, do what we can to repair the harm done. . . . Who will speak up for ordinary Americans? . . . Those of us who are doing well have both a moral obligation and a self-interest in promoting economic self-sufficiency for American families. . . . But the ultimate motivation is our concern for, and duty to, the next generations. . . We are trading away our children’s future. . .
For seventy years, our leaders have been in thrall to simplistic economic and trade ideologies that have been at odds with the facts and our real-world experience. . . . It is as if we have been sleep walking in a trance, in the thrall of some wizard who has us under this spell called free trade. . . . The thrall of the dogma of free trade calls to mind the words of President Lincoln:
The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew. We must disenthrall ourselves, and then we shall save our country.
Indeed, we must disenthrall ourselves of the dogmas of the past, of the notion –
• That free trade will be fair trade, or will result in balanced trade.
• That America is still the leading manufacturing country in the world.
• That manufacturing doesn’t matter.
• That manufacturing in America is healthy, or at least recovering, through re-shoring and the application of new technologies.
• That our non-manufacturing, service jobs won’t be offshored.
• That the remaining, non-tradable jobs are enough to support the economy.
• That a low-price, low-wage, “low road” economy is sustainable.
• That we can survive as communities and as a nation if current trends continue.
We must disenthrall ourselves, and the first thing we must do is imagine a better future.
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