Made in America

Alliance for American Manufacturing president talks about the delicate balance of trade and U.S. production    Gallons and gallons of ink have already been spilled about the Trump administration’s plan to restore the United States’ manufacturing sector to its former glory.
   But in truth, there have been groups aiming to achieve that goal for the last decade. One of those is the American Alliance for Manufacturing, an organization that in 2007 laid out a blueprint to drive growth in American-made goods.
   AAM played a key role in the development of Congressional Democrats’ “Make it in America” initiative and the Obama administration’s push to increase U.S. exports.
   But in the years since AAM released its five-year “blueprint” in 2007, there’s been a substantive change in the national discourse around manufacturing jobs and the role of imports in the U.S. economy, culminating in an election that many see in retrospect as a referendum against globalism.
   The Adam Smith Project spoke with AAM President Scott Paul this week about what exactly changed from 2012 to the 2016 election with respect to how Americans view manufacturing and how U.S. manufacturing goods fit into the broader global market.
   It’s clear that the second term of Barack Obama’s presidency was tied, in large part, to his unflinching support of the Trans-Pacific Partnership, a huge multilateral free trade agreement between 12 Pacific Rim nations. The agreement became a lightning rod for those who feel that the U.S. has sacrificed its own manufacturing sector at the altar of foreign-made goods.
Paul noted that the TPP, while significant, was only the latest roadblock the U.S. manufacturing sector would have had to overcome.

There is no prototypical manufacturing term in that respect. Everyone has their own story.

   “In the last 17 years manufacturing has faced a few different challenges,” he said. “The rise of China been a pretty consistent thread that’s gotten bigger over time, which compounds the opportunity (for companies wanting to source abroad) or disadvantage (to U.S. manufacturers).
   “Then you have the recession, which really drove employment down. That had an enormous impact on output, trade flows, and employment. Then things leveled off again in 2014, and you can trace a lot of that to global weakness and the strength of the dollar. There are continuing challenges with China’s global overcapacity.
   “And then you’re getting more into the politics of this. For most of the Bush administration, there was no willingness to push back on China on trade challenges or currency manipulation. With the Obama administration, there was more of a willingness, but then there was this emergency industrial policy because of the collapse of the auto industry. Obama kept a focus on manufacturing, and on fostering an innovation ecosystem, areas like apprenticeships and building skills. But the trade agenda became dominated by the TPP negotiation.”
   A critical piece of the U.S. manufacturing puzzle, of course, revolves around U.S. companies’ ability to export. And that ability is tied to so many dynamics outside the direct control of policy makers. But Paul said he “doesn’t know anyone who doesn’t want to export more. The question is what’s healthy and market-based and what’s market-distorted.”
   In some respects, Obama’s and President Donald Trump’s views on the strength of the U.S. manufacturing sector comes down to a simple difference. Paul said Obama recognized the value of exports, but Trump, during his campaign and the opening month of his presidency, “the focus he has had on the health of domestic manufacturing has focused on import competition.”
   Paul said the benefits of exports are well understood in Congress and that there is a “vigorous and healthy conversation about that,” despite there being relatively little direct discussion of those benefits during the campaign in 2016.

It’s a lot to ask the average voter to have a detailed understanding of global supply chains.

   But Paul also sought to dispel the notion that the U.S. manufacturing sector is somehow uniform.
   “Within manufacturing, it’s complicated,” he said. “There are manufacturers who export and see that as their biggest net asset. There are those that see lots of import competition and believe that is their biggest challenge to growth and opportunity. Some see it both ways. There is no prototypical manufacturing term in that respect. Everyone has their own story.”
   Which makes lobbying around a particularly set of policies similarly complex, an issue the other advocate groups for manufacturers has encountered as well. It’s well established that the majority of U.S. exporters are importers as well.
   The Chicago Tribune, for instance, highlighted how the U.S. business suit maker Hart Schaffner Marx, which manufactures in the Chicago area as well as Cleveland, is dependent on imported fabric. A sizable import tax on that fabric, as might happen if a proposed border adjustment tax was to be adopted, would send the company’s tax bill spiraling and would force it to increase prices in an already price-sensitive market.
   I asked Paul a question about whether the average U.S. consumer understands the nuances of global supply chains, such as in the example above.
   “At some level, a consumer has an understanding,” he said. “Take an automobile. If you see under the hood, inherently there’s an understanding that these parts may come from all around. But it’s a lot to ask the average voter to have a detailed understanding of global supply chains. Some companies go out of their way to hide things and so I don’t know if the corporate engagement is there either.”
   In other words, if consumers knew where components and finished products were made, they might be inclined to make different consumption decisions. AAM research shows consumers are overwhelmingly favorable toward American-made goods, and that even small amounts of purchases of those goods contribute to sizable growth in U.S. jobs.
   The conversation with Paul inevitably turned to how companies that have spent decades establishing efficient global supply chains based on the use of foreign suppliers might feasibly reconstruct those supply chains to manufacturer partly or wholly in the United States (even if they were inclined to do so). He said companies are more than able to do so because they are constantly examining their sourcing activity anyway.

Any firm is going to do an analysis of the costs and opportunities of sourcing and assembling from different platforms. Labor costs, access to consumer markets, political risk, quality, the country’s infrastructure, and tax base. Those all come into play.

   “Policy levers on taxes, exchange rates, shipping rates, and a host of other factors can influence where these supply chains go,” he said. “Any firm is going to do an analysis of the costs and opportunities of sourcing and assembling from different platforms. Labor costs, access to consumer markets, political risk, quality, the country’s infrastructure, and tax base. Those all come into play.
   “Those lists vary from year to year, and are dependent on the law of supply and demand. These decisions are being recalculated all the time.”
   Moreover, Paul said it’s “naïve to think US wouldn’t want to put domestic manufacturing into an advantageous position,” as he cited initiatives by China, Germany, South Korea, and Japan to protect their manufacturing bases.
   “For so long, the policy in the U.S. was dominated based on the philosophy of open markets and backing away from intervention,” he said. “No one ever said ‘we have to manufacture in the U.S. to sell there. Now they may.”
   Paul emphasized that companies are equipped to manufacture in the United States if the policies are conducive to it. He said he doesn’t see the administration and Congress pursuing across-the-board tariffs.
   “I don’t think people should hyperventilate about trade wars, because I don’t think that’s happening,” he said. “But if the administration and Congress shift sourcing decisions, that’s a good thing.”
AAM is, at the end of the day, a lobbying group, and when I asked Paul about his view of how Congress approaches the growth of manufacturing, he said that politicians are by definition pragmatic.
   “Among policy makers, all politics is local,” he said. “If you’re a member of Congress representing export industries, that’s the point of view you adopt. If you’re in an area that faces import competition, you’ll be sensitive to that. There are very few purists in Congress when it comes to trade policy. There are a few free trade advocates and conversely some who are against free trade agreements no matter what it says. But there are a whole lot of folks who are in the middle and weigh the economic benefits.”