A nice riposte to the “we don’t make anything anymore and those evil Chinese sell us stuff and take our jobs” line that comes from both Donald Trump, Bernie Sanders, and quite a few politicians in other parts of the world:
On the trade front, American manufacturing continues to expand and thrive — an absolute economic fact that is, perversely, unknown to the great majority of Americans, who believe precisely the opposite to be the case. Americans have false beliefs about manufacturing for a few reasons: One is that while our factories produce much more than in the past, they employ fewer people; another is that we tend to produce capital goods and import consumer goods — you won’t see much labeled “Made in the USA” at Walmart, but you’ll see it on everything from the aircraft flown by foreign airlines to the robotics in automobile factories overseas. Another factor, particularly relevant to the question of manufacturing and trade, is that a large (but declining) share of those imported consumer goods comes from China, a country with which we have a large trade deficit. That isn’t because the Chinese are clever, but because they are poor: With an average annual income of less than $9,000, the typical Chinese household is not well positioned to buy American-made goods, which are generally expensive. (China is a large consumer of U.S. agricultural products, especially soybeans.) Add to that poorly informed and sentimental ideas about what those old Rust Belt factory jobs actually paid — you can have a 1957 standard of living, if you really want it, quite cheap — and you get a holistic critique of U.S. economic policy that is wholly bunk.
In addition, how is China expected to buy is Oil, Petrol and other commodities denominated and settled in US Dollars unless it has the US Dollars to pay for them. For China, direct economic trade with the United States is the easiest way to achieve this.
What is China expected to do? Beg for Dollars?
John, I doubt the people beating up on China know, or care. I mean, foreigners selling us stuff are unfair!
Oh yeah, durable domestic goods, like John Deere tractors, and Electrolux appliances.
China? Junk? you bet. I’d feel better if the junk had higher value as raw material when recycled.
Personally, I keep my eye out for “Pacific Rim”, South of the (US) Boarder (SWIMMING in dollars), and Canadian, foreign mining, machine, and unskilled “assembly” and shipping.
I don’t expect China to beg for dollars, like Venezuelan manufacturers have to do, I expect them to trade (ie)soft drinks, crappy food franchises,grain based snack foods, and a few mothballed submarines, for LOTS of mediocre vodka and gas/oil for “our allies”.
Maybe a few “resort Islands” with brand new landing strips?
Gee, by now (as all teeth are getting longer) those who tarry here must be well aware that perceptions, not facts, predominate in the Res Publicae of the Western World.
Same applies to the UK, manufacturing has never really been in decline here either despite the persistent myths, UK goods still occupy a valued spot in many product lines, albeit made with less people and more expensive.
On the subject of trade deficits, the best way to equalize them is to trade, the underlying objection is that Trump, Sanders et al don’t want to be “equal” with Chinese, in some perverse fascist identity. Equally the Chinese are having to come to terms with the same concepts, and they are also learning how to trade properly, consider how they screwed up the rare earth mineral monopoly through state controlled quotas, now they have lost that trade advantage almost entirely, time to trust the invisible hand not the one holding a little red book.
Is there actually anything bad that comes out of free-market trade?
Something I have never really understood is the complaint that I hear a lot from politicians that China is manipulating their currency to undervalue the yuan. I don’t understand why that is a problem at all. For sure currency manipulation is a very real thing, after all President Obama did exactly that when he printed two trillion dollars to save us from a recession, supposedly anyway.
However, from what I understand the only people really impacted are the Chinese people themselves who have their savings stolen from them and the real price of goods they sell going down. The normal market mechanisms where yuan are traded for dollars or pounds should correct for this devaluation, and the consequence should be that Chinese yuan denominated prices should go up to compensate for the reduced value of the yuan.
Maybe the Chinese government controls the prices, I don’t know, but if so that is the problem, not the screwing around with the yuan. To me the only people who suffer are the Chinese.
It seems to me that the whole “China is a currency manipulator” is more politicians saying “they are manipulating currency for their own benefit and they are doing it better than us….”.
But I’m not an economist, so I am probably missing the obvious. (Though some, such as Humphrey Appleby, would argue that “not being an economist” is a distinct advantage for understanding economics.)
Fraser:
I’m not sure how this relates to currency manipulation. But, from my perspective as an engineer working in product development, the problem with getting things made in China isn’t that it can be done at a lower price — that’s a good thing — but that the end result is (in many cases) of inferior quality. The difference in quality is slightly less than the difference in price, so there’s a strong temptation to get stuff made there. Most manufacturing companies these days are pretty good at tracking the direct cost of goods. What they’re not nearly so good at is tracking the downstream cost of poor quality and “connecting the dots.” One company I recently worked for had “saved” millions by moving a lot of its manufacturing to Shanghai. But they had warranty claims on 90 percent of the product they shipped, in the first quarter after delivery. Nobody was even tracking what that cost.
China is the crack cocaine of the supply chain world.
There is always a trade-off between price and quality. You can buy a screwdriver at Sears with a lifetime warranty or one at Harbor Freight for half the cost which you know will break eventually. You can buy “artisan” bread from a bakery or assembly-line bread at Walmart. Everyone has to decide where his preference point is, whether higher quality is worth the cost. There’s nothing objectively “wrong” with lower quality; it merely caters to a different market. Of course, if people don’t realize that the quality is lower, and think they’re “stealing” something, caveat emptor.
And there is nothing inherently wrong with a “trade deficit” either. First of all, the entire concept is an economic fiction. Every economic transaction is ultimately between two individuals; aggregating them into national totals is misleading in the extreme. Second, that “deficit” we experience is a “surplus” in the other country, and must be put to work somehow. The Bank of China and Columbian drug lords can only sit on so many dollars; the rest have to be spent somehow. That can be on products such as oil, in which world markets are denominated in dollars (for the present, anyway; note that more and more of those transactions are now being denominated in other currencies, notably the Chinese renminbi). But ultimately it must be invested in the US. That means purchasing US government debt, investing in US equities, buying US real estate, etc. The dollars always come home to roost eventually.
Indeed Laird: What is the trade deficit between Indiana and New York State?
It sounds like a ridiculous question, because it is.
It’s just that we are used to the question being scaled up to look at countries ‘trading’ with each other, when we do not see the individual actions aggregated.
Ah, the old pesky “employ fewer people.” Well, hey, that’s just eggs for the omelette, innit? And really I am rather put out with Williamson’s tendentiousness here and his “absolute economic facts,” as I admire his writing greatly. A 1957 standard of living in 1957 was, you know, pretty schweet, even if today it would be bottom quintile country.
Decades ago, much light aircraft manufacture was moved out of the United States to other countries by insane legal interpretation – in that case, the liability laws were mostly responsible, or at least they were the most obvious insanity in the situation. IIRC, at one point, the Piper company was sold for $1 plus liabilities after various activist judges,legislators and regulators had passed or reinterpreted laws so that if you stole a light aircraft, flew to an airport where you had not permission to land, landed upside down through your own incompetence, then rashly released your safety hardness and fell, sustaining injuries, you could sue the manufacturer who made that plane some years back.
There is an element of outsourcing that is about saying that US (also UK / Eurocrat / whatever) workers must be protected from working in ‘unsafe’ jobs or making ‘unsafe’ products or whatever (often, the ‘protection’ is to oblige them to be unemployed), so the products come from abroad, where these issues are ignored – with or without some ‘Oh yes, we certified everything’ label stuck to the resulting goods.
It is regrettable that this distinction between free trade and coerced destruction of home industries is (AFAICT) not well understood by those who are its chief victims. Of course, the Bernie Sanders and Jeremy Corbyns of this world do not want it to be understood.
Indeed. Trade between nations such as US/UK and such as China is only free from the point of view of their respective governments, not from the point of view of the people of either of these nations.
The problem with Trump though is that he is promising to make it even less free than it is now.
The main problem with the global rise in livings standards is that it was caused by free trade rather that Oxfam and Save the Children.
Shocking, I know.
Meanwhile, the fact that American manufacturing continues to expand is a point made here too by Yaron Brook on the Rubin Report. Enjoy:
https://www.youtube.com/watch?v=089xOB9bbhU
Fraser! I cannot begin to tell you how happy I am to see your reference to Sir Humphrey, who certainly understood How Thing Work at the practical level. (I recall the colloquy among Sir H. and colleagues, which also included the fact that the Minister of Education was illiterate. And the reps of other good chaps similarly skewered.)
Of course, The Right Sort seem rather down on the LSE….
Fortunately I have the entire course of study, as presented in two sets of BBC documentaries, on DVD. :>))
A noble cause, opposing Donald Trump and supporting Free Trade, must not lead us into using bad methods.
American manufacturing is not “thriving” – to be frank, it is a bit sick to say it is “thriving”.
There is a serous problem, a very serious problem, but Protectionism is NOT the solution.
The quotation in the post is why we lost to Donald Trump – the smug pretence that there is no problem, that American (and British) manufacturing is “thriving” when it is obviously not “thriving”.
The people can remember when industries existed and they watched them die – do not tell them they are “thriving”.
The point is to deal with a desperately serious problem. The problem of a society based on borrowing money to pay for imports – that is not sustainable (it just is not).
Not to pretend the problem does not exist.
Ted Cruz suggested radical deregulation (an end to the EPA war on industry) and taxing imports and domestic production EQUALLY (not the present system of taxing domestic production very highly – via Corporation Tax and Social Security tax, and not taxing imports at all). A 16% tax on all sales (domestic production or imported) not the present system of taxing domestic production – but not imports.
That might not be the correct solution – but at least it sees their is a
“American manufacturing continues to expand and thrive”
I wonder why the workers are voting for Trump in that case.
I’m not an economist, but something doesn’t add up here.
As I was saying….
What Ted Cruz suggested might not be the correct solution (although I think that radical deregulation and moving taxation from production to consumption has a lot to recommend it – if coupled with the reduction of government spending, which Ted Cruz did link it to) – but at least it sees there is a problem.
The more I read the Kevin Williamson quote the worse it seems – and I am on the same side as him.
Go around telling everyone that they are idiots – that their eyes deceive them, that their towns and cities really have lots of factories that they simply do not have.
That is not the way to convince people of the case for Free Trade and against Donald Trump.
That (talking in the way the quotation does) is the way to get a punch in the mouth, from people who are being told they are idiots for trusting the evidence of their own eyes (collapsing cities and towns).
“But the figures Paul – the figures”.
Actually there are no figures in the quotation.
But I will give a couple of stats.
American industrial production (according to the latest figures I have seen) is DECLINING (more than 2% decline in the last little period).
Not certain industries or only in a few towns – overall.
And Chinese industrial production is going up – by over 6% (if one believes them).
An economic policy that says people can just carry on borrowing money to spend on consumption (consumption of imports) makes no sense.
There is a problem, a desperate problem, in both the United States and Britain.
I am on the side of Kevin Williamson – I oppose Donald Trump and I support Free Trade.
But arrogant stuff like this, which is basically saying “you are all idiots – contrary to your eyes, manufacturing is thriving” cost us the election.
I am prepared to get myself killed in a good cause.
But I am not going to get myself lynched in some industrial town, which has seen the factories closed down, by coming out with stuff such as “manufacturing is thriving”.
I am not going to die for a lie.
John Galt – May 6, 2016 at 12:24 pm:
China can get dollars or euros or any other reserve currency by selling to any nation that has them (nearly all). It does not have to run a trade surplus with the U.S. China can also trade directly with oil exporters, selling them appliances, clothing, etc.
Paul Marks – May 6, 2016 at 10:03 pm:
Williamson was not writing about what happened in the last quarter or year. For a generation or more, Americans have been told that U.S. manufacturing has collapsed, all the factories are closing, all the jobs are offshored to Mexico or China. (Many years ago, I read an SF story about a time traveler from the 1942 U.S. to IIRC the 1980s. He met some proto-Trumpkins who told him hysterically that “the Japs are destroying all our factories.” He went back to 1942, and reported that Japan was going to win the war.) Remember Perot’s 1992 “giant sucking sound” campaign against NAFTA?
But in fact, real U.S. manufacturing sector output has increased by 86% since 1987. It peaked in 2008, took a big hit in 2009-2010, largely recovered by 2013, and has stagnated since. But on a historical basis, it is very close to its all-time high.
That’s what Williamson was writing about, and what most people don’t see.
I’ve spent a lot of time in my work visiting factories throughout the country. One thing you don’t see a lot of is people. Receptionists have long gone in the main, replaced by entry phones and a phone list, neither of which can sue or take maternity leave. There is a constant search for efficiency and reducing staff numbers, and improving quality.
Smart people in the background upstairs check what’s going on and where they are going, and the lesser-qualifed get near the machines, often just watching rather than ‘doing’.
And they make stuff, lots of it.
The only level playing field is a cemetery.
Julie,
Only effwits become politicians, even the Communists in Russia realised that anyone who believed their dogma was dysfunctional.
Production may be up, but manufacturing employment is down. We are seeing the link between labor and production broken, with nothing to replace it except a dole economy – which, for the first time in history, we may be able to afford.
There are some similarities to the Late Roman Empire, allowing that automation has the same effect on employment as slavery. IIRC, and I may be wrong, an indolent Roman citizenry eventually couldn’t be bothered to keep the Empire going.
Laird is right, there’s nothing inherently wrong with poor quality. But it creates a two-fold problem for western manufacturing firms.
Many western manufacturing companies — especially smaller to medium-size ones — don’t have very sophisticated methods of determining the root cause of downstream costs (such as warranty claims). That makes them more easily fooled than they should be by low vendor prices.
The other is a cultural difference. In Europe and North American there’s an expectation that a vendor is genuinely trying to meet your specifications. They might fail, but they fail in good faith. That’s an attitude that’s frequently absent in China (or, at least, Shanghai, which is the area I have the most experience with). In fact, it’s not uncommon in Shanghai to find a vendor who doesn’t even really know how to read a drawing. They’ll ask you to send sample parts so they can copy them. This tells you right away that they’re not even thinking about things like tolerances. Another phenomenon I’ve seen is a vendor, who makes commodity-like parts, not scrapping or reworking out-of-spec product but simply shelving it and waiting for a new customer. The first batch you get from vendors like that is crap; they’re just testing to see how big a sucker you really are.
As Laird said, caveat emptor. One could argue that dealing with the kinds of vendors I’ve described makes western companies stronger — those that survive, anyway. But the difference in how business has historically been done in the west is a public good whose value we shouldn’t take for granted.
I’ve read some commentary that noted that even the loss of medium technology manufacturing would have severe repercussions in terms of knowledge bases down the line – the expertise, troubleshooting skills etc is not that fungible.
What happens in the future when most low level, unskilled jobs, are largely automated and the majority of workers on the wrong side of the Bell Curve (eg. IQ below 90) cannot find jobs because they’re either outsourced or automated?
Certain cultures may find it nice not to have to work to maintain a passable standard of living. Others may find it intolerable – what is the point of living when you have just enough to eat, enough entertainment, and a place to sleep, but no job, no prospects, likely no partner, and no real future to look forward to?
@Tedd
> the problem with getting things made in China isn’t that it can be done at a lower price — that’s a good thing — but that the end result is (in many cases) of inferior quality.
But, as others have pointed out, quality is just monetized. You pay a price for quality if you want to, or you pay a lower price for lower quality if you want to. I live in Chicago with some of the best pizzerias in the world, but the city is still full of Dominos and Little Caesar’s pizza joints.
And I will share my experience, which is different than yours (though obviously both can be true at the same time.) I used to develop electronics products and we TRIED to get them done in America, but we just couldn’t. American job shops took way too long and didn’t push for our business and made lots of errors. So we went to Shenzhen where we got cheaper, higher quality and faster, and that despite the fact they had to air freight the prototypes to us and container ship the final products. These Chinese factories are set up to work at levels of efficiency that American factories can only dream of. (Again though that is my experience, which might differ from yours.)
America should be worried by China not because they are very cheap but because they are very good.
Which isn’t to say that America can’t be great. It is still a fact that most innovation happens here. Though we should worry about the things that kill that — our crazy tax laws and our “safe zone” universities and (to revived an earlier discussion) a patent system that does the opposite of what it promises, namely crushes innovation.
We’ve discussed this here before.
My experience with sourcing parts (primarily electromechanical) in Chine vs the US much-more-closely matches what Fraser Orr describes than what Tedd describes. In the specific field of injection-molded parts, the vendors I used in Shenzen were just light-years ahead of comparable US suppliers, in quality, delivery, tool and part cost, and they would successfully mold designs that US vendors would declare to be ‘impossible!’.
Are there chesp and shoddy Chinese vendors? Why, of course. And you have to learn to avoid them, the same way you have to learn to avoid some US vendors. The language and culture differences make this hard to do, which is why you must have a Chinese ‘fixer’ for this process.
But I think it’s unwise to dismiss all Chinese manufacturing as shoddy and corrupt. As Fraser Orr notes, they are often very good indeed, and we should exploit that goodness and the presently-lower costs for as long as we can.
llater,
llamas
The quality of Japanese products has seen a significant improvement.
Remember how cars manufactured in Britain used to run out of electricity, people stopped buying them.
Australian food products are highly valued in Asia- we might even try to develop the North to farm more products.
As for jobs, hair-dressing is a recent vocation. I bet robot-customising would be a lucrative job, tailoring robots to households. I’d want my robots to display shark-supporter colours and slogans!
Williamson has no experience in manufacturing and his vapid article proves it. If American manufacturing was thriving as he suggests, everyone would have friends employed in the sector. What was once a diverse area with upward mobility where a truck driver could learn how to operate a CNC machine (and make a good wage without a degree) has been gutted by regulators and politicians who gave away American innovation instead of encouraging other countries to develop their own economies.
Paul Marks, US manufacturing is thriving. What has – as Runcie and others said – changed is that the numbers employed have fallen, a sign of a drastic rise in labour productivity.
If Chinese imports are of lousy quality, why is Mr Trump (not a man whom I associate with the word “quality”) worried about this, since presumably, the outstanding quality of home-grown stuff will win out on price….?
David Stockman addresses this issue (and much, much more, as is his wont) in this recent article on his website. With respect to manufacturing, Stockman notes that
None of which is to say, of course, that Williamson is entirely wrong when he observes that “American manufacturing continues to expand and thrive”, merely that his comment largely irrelevant to the vast majority of people. It’s nice that Boeing is producing lots of shiny new jetliners and selling them abroad*, but that doesn’t mean much to anyone other than its relatively few (in the grand scheme of things) employees. I’m not entirely certain of the point Williamson was trying to make, but if he was intending to mollify the legions of angry Trump (and Bernie) supporters he has failed spectacularly. And managed to come across as a clueless Marie Antoinette wannabe in the process.
Incidentally, Stockman is predicting a Trump landslide victory in November. Read the article for his rationale.
* Subsidized by the Export-Import Bank, but that’s another discussion entirely.
But this analysis seems to be under the mistaken impression is that the purpose of industry is to produce jobs, when it is not, its purpose is to produce goods and services.
As it always is, it is ultimately the responsibility of every individual to make himself useful, to make himself skilled in such a way that he can trade his abilities and skills for the money he needs to live on. I work in the computer industry and parts of it go extinct all the time. Consequently I have to constantly reinvent myself by learning new skills and domains so that I can continue to be useful and trade that usefulness for money.
It is no different for factory workers or other manufacturers. In fact it is a gross disservice to tell them that the Chinese are taking their jobs, as if their jobs are theirs by gift of god. Rather we should be telling them, and everyone, make yourself useful. Be a contributor. If your exact skill is no longer useful, pivot to adapt it to make it useful in a different way.
Otherwise it is just charity. (Not that there anything wrong with that, but let’s at least call it what it is.)
But as ever, the root cause is the school system that pumps this nonsense entitlement mentality into kids, and is seems is designed to make little fungible workers that are so much easier to control that self determined, self actualized people.
That’s the right attitude to have. It also requires a certain level of intelligence and self-awareness that many people do not have, limited by their cognitive ability, culture, etc. And it’s correct to place some of the blame on the education system.
However, what happens if a sizeable percentage of the population belongs to this category? They’re not exactly looking for charity, they’re willing to work meaningful jobs, but there are no meaningful jobs left for them?
Are we actually gradually moving into a post-scarcity world, or is it just that automation and technology is moving society and economies to the point that there’s no place left for lower ability workers?
@The Wobbly Guy
> However, what happens if a sizeable percentage of the population belongs to this category?
I have rather more faith in people that apparently you do. I’m not suggesting everyone become some brilliant entrepeneur, what I am suggesting is that they lose the attitude that “I’m a welder” or “I’m a box stuffer”. These are attitudes that are inculcated into people through poor cultural norms and education, and these are things that “society” should fix. It really is such a disservice to tell someone who works in a fairly menial job that that is the best they can do. And in fact the truth is that, outside of the welfare trap, it doesn’t happen all that often. People do reinvent themselves, we just need to clear out the cultural memetics and poor education that resists that at every turn, the memetics that you should stay in your place. And let’s face it, the system is designed to keep people in their place, because they are rather easier to control that way.
Look, I remember during the miners strike in the 1980s, miners were being offered something like 30-40 thousand pounds in redundancy pay, equivalent to 150 to 200 thousand pounds today. Whole villages of hundreds of men had these payouts, and they were complaining. Shit that is a LOT of capital. If these men just got together and pooled their capital they could have made amazing things happen. But they were too stuck in the idea that they dug chunks of carbon out of the ground.
I’d simply say this, you should never underestimate the resourcefulness of a human when driven to action and when obstacles are swept out of his or her way. I’m a lazy bugger, but I adapt all the time. Why? because I like to eat.
How about?
They would have needed to drop and challenge the collectivist Trade Union attitudes that prevailed, not easy even in metropolitan Barnsley at that time. But you are right, if your culture fails, try another one.
@Mt Ed, I agree, it is hard. But the way you do hard things is by being strongly motivated. The NUM offered the workers an alternative to that the hard work of making themselves useful, and that is surely their greatest crime. What an alternative too! Instead of being useful rather take your efforts to make other people less useful! As Thatcher said in her famous last speech as Prime Minister — “You’d rather see the poor poorer than see the rich get richer.”
The thing is you don’t have to think far outside the box usually. For example, some of the men could have pooled their money into a joint stock corporation and bought the mine. I am sure that the government and the NCB would have been very supportive of such an approach (Thatcher in particular would have LOVED it.) Could they make it profitable? I don’t know for sure, but what I do know is that what you need to produce a profit when you are a big fat nationalized industry is VASTLY different than what it takes to make a profit running a small nimble business.
When the mine was expended, what then? What do you do with a huge hole in the ground? Surely there are lots of things you can do. Storage — for example high quality long term storage of data, garbage dumps? Or how about this — build it into an amusement park. Can you imagine the sort of roller coasters you could build in one of those places? Or the “Haunted Mansion” you could build.
I know nothing about mines or mining and I can come up with a bunch of ideas in five minutes.
Again though, the greatest crime is to encourage a memetic system in which the sort of narrow thinking that leads to people feeling trapped in their current situation. Encouraging the self limiting ideas that prevent people from becoming bigger and better. In fact it is the very Achilles heel of the union concept — that people are fungible rather than distinct individuals. And when you are treated as fungible you quickly become empty of ambition, ideas and innovative thinking.
(BTW, the best example of this latter point is teachers. The idea of unionizing teachers deeply offends me, as if teachers were factory workers on an assembly line constructing education like a Model T Ford.)
They are. Only most of the product (school graduates) are not nearly as great as any of the Ford products.
Laird, so are you saying the government should prevented the decline of manufacturing and “real” jobs? I assume not as you seem consistently laissez faire.
Williamson is targeting the victim mindset of people who have attacked free trade – as Trump is doing – for destroying “American jobs” while ignoring the basic truth that trade, by definition, is a positive sum process. And he’s srguing that a lot of the problems associated with “the white working class” can’t be blamed on liberal economics, which collectivist don the left and right are claiming (lefties do this when bleating about neoliberalism). I thought Williamson’s article was a brilliant laceration of this sort of self-pitying narrative.