Donald Trump is sounding more like he wants to smash NAFTA, as I recommend, instead of renegotiating it. So, what if a President Trump really did throw up a protective tariff sufficient to cause companies to bring their plants back to the USA? How many are we talking about? To think about this question, I have invented a new term:
The exo-economy is that portion of the US industrial base which is located outside of our borders. You have probably seen estimates of 40,000-60,000 factories that have moved overseas. We can only guess because our government does not keep any official statistics. Nevertheless, if we used an estimate of 50,000 that would be 1,000 new factories for each state in the union.
If all of those factories came home, that would indeed constitute a revolution.
But that is only half of it. The free-trade era is decades old, and during that time, factories have been built in nations like Mexico, China, and Taiwan that were never in the USA to begin with. If you watch Shark Tank, then you know that it is pretty much impossible for an entrepreneur to get funding if they don’t have a “China strategy.” So, the vast bulk of new American manufacturing capacity has been sited overseas for many years now.
How many of these virgin exo-factories are there around the world? God only knows, however we can get an idea by looking at the size and growth of nations and companies whose economies have been constructed to export to the USA. I would like to see a professional economist study this issue and come up with an estimate. Personally, I think that a very large chunk of the emerging-markets “miracle” is comprised of plants that export nearly all of their output to the USA. Think Foxconn; their giant factories that produce phones and tablets for the USA were never here to begin with. A protective tariff would cause that production to relocate to the USA.
Nobody knows how big the exo-economy is, but there is no question that it is huge. We might have to double our estimate of incoming plants from 1,000 per state to 2,000. Of course, if we put up tariffs, other countries would retaliate with tariffs of their own and our exporters would lose business. However, I think the net effect would be enough new jobs to get all of our 43 million citizens on food stamps back to work.
This will be a project of Earth-shaking proportions. Consequently, we need to put a lot of thought into it. We need…
A Globalization End-of-Life Plan
Trump talks about a 35% tariff on Mexico, but that only makes sense if you want to single-out and punish Mexico. Such a tariff wouldn’t cause companies to come back to the USA; it would only cause them to go to Bangladesh, Vietnam, or Singapore. So, any protective tariff would need to be across the board; not designed to punish any one nation, but rather to rebuild the smoking-crater that we call the USA.
In order to give companies time to adjust, it might be a good idea to raise the tariff 10% per year with the first hike as soon as possible. While 10% might not prevent Ford from moving its small-car production to Mexico, it would let them know that the 35% was coming for sure.
Another approach would be to go industry-by-industry. Since the tidal-wave of demand for domestically-produced products would be so huge, we have to make sure that our existing industry could ramp-up swiftly. For example, if we put a tariff on shoes, how long would it be before domestic manufacturers could scale up? Years? Decades? That would be a terrible hardship on female citizens.
Of course, just because we put up a tariff doesn’t mean that products would stop coming in immediately. They would still come, if needed, but cost a little more. In most cases. In other cases, angry countries might just cut us off completely, and that could indeed be debilitating. Remember the dust-up we had with China a few years ago over rare-earth minerals? If Asian nations cut us off from technology, it might be a long time before you could get a new cell phone or laptop. And Mexico could turn the lights off in San Diego:
Mexican windmills export energy to San Diego (story here).
There are many more aspects that need to be studied beyond economics. After all, if Trump brought factories back to Detroit, and made it look like Ho Chi Minh City, would he be lauded or reviled?
Ho Chi Min City.
Trump wants to remove “un-needed” regulations on business, but I don’t think Americans will stand for going back to a toxic environment. We know for a fact that companies can manufacture products safely, cleanly, and profitably, so why tolerate anything less?
One of the big “free trade” perks for companies is what we might call the Pollution Privilege. So, not only do you make money on cheap labor, but you make additional profits by not having to worry about poisoning the peasants. This, of course, is a barbaric practice and should not be brought back here.
Tim Cook says that Americans are too stupid to make things. Of course, if you send all the factories away, as companies like Apple have done, and then criticize the former workers for having rusty skills, may I suggest the possibility that you are a jackass? Of course the USA is blanketed with rusty-skilled workers. Republicans like Donald Trump tend to think of retraining as a form of welfare. But this should be one of the very first things that Trump does. Even low-tech production like sewing clothes requires a high level of skill. Putting a Nike factory in the hood, or the trailer park, will be like a UFO landing. The factories have been gone for so long that an entire generation has no idea what goes on there. I’ll bet there are lots of old-timers in Detroit who know how to build a carburetor, but even they would need to be retrained on fuel-injectors. We will need thousands of vocational academies, and no, people on food-stamps can’t afford to pay for retraining.
How many countries tolerate a U.S. military presence only because we allow them a free hand to export to our domestic market? Probably quite a few, so we need to plan for the loss of such “allies.”
When imports undermine a domestic monopoly, that’s a good thing. But why don’t we just break up the monopolies ourselves? If we go back to making things ourselves, this is going to become a bigger issue. If Trump wants a legacy of creating jobs for the people, he would tarnish it by allowing monopolies to gouge people at the cash register.
In places like Mexico, union organizers are shot in the head and buried in shallow graves. That’s pretty much a requirement for becoming a U.S. trade partner. Trump is an anti-union guy, and started out preaching against the minimum wage. Recently, when speaking to crowds in Oho and Pennsylvania, two pro-union states, Trump told them (paraphrasing): “I will bring the factories back from Mexico, but I can’t promise that they will come here. They might go to other states.” So, he was urging Ohio and Pennsylvania to become “Right to Work” states, which really means “Get Rid of Unions” states. Is that a good strategy for winning the votes of mostly-Democratic union members? Maybe; maybe not. But he seems willing to bet the election on it.
The Gaping Hole in the U.S. Constitution
Re-Industrializing with lax environmental regulations, low pay, and harsh working conditions hardly seems worth the effort. Going back to the age-old struggle between unions and robber-barons is not inspiring. So, why don’t we try for something better? The word “capitalism” does not appear anywhere in the U.S. Constitution. Back then, we were an agrarian nation, not to mention a barbaric slave state. So, it is not surprising that the founding fathers had nothing to say on the subject of labor relations.
If we are going to embark upon a second revolution, why not see if we can’t achieve a grand bargain of labor relations and incorporate it as a constitutional amendment? At first glance, this sounds like tilting at windmills; an impossible task. But in reality, it might be very easy. After all, the Germans have already solved it. It wouldn’t take long to copy their Betriebsrat system. When it comes to industrial success, you can’t do much better than the German approach.
Not Just an Industrial Revolution
Not only will the Second Industrial Revolution be physically huge, it will also constitute a huge political revolution. If you are thinking: “We are the USA; we are a large, powerful sovereign nation, and we can adjust our trade policies as we see fit” then you just haven’t been paying attention. The policies that we have now were written by corporate lobbyists, and rubber-stamped by a bought-and-paid-for Congress & White House.
So, while the multi-national corporations that run this country, and the world, like to keep a low profile, that doesn’t mean that they are not there, and it doesn’t mean that they won’t fight back. Consequently, this isn’t just a second industrial revolution, but a second War of Independence.
The probability is very high that Trump will be Farage’d – or worse.
In other words, don’t be surprised if things turn ugly. Establishing sovereignty the first time wasn’t easy. It’s not likely to be easy the second time either.