DOHA: Despite the ongoing economic blockade imposed by some of Qatar’s neighbouring states, the number of real estate transactions signed in June 2018
Are USA companies moving back to the States as Trump says?
Yes – they are, and it will accelerate from here.
In 2017 job announcements due to reshoring and FDI grew at the fastest rate in history. The cumulative return of over half a million jobs since 2010 equals over 50% of the total increase in U.S. manufacturing jobs during that period.
In 2017 the combined reshoring and related foreign direct investment (FDI ) announcements surged, adding over 171,000 jobs in 2017, with an additional 67,000 in revisions to the years 2010 through 2016. This brings the total number of manufacturing jobs brought to the U.S. from offshore to over 576,000 since the manufacturing employment low of 2010. The 171,000 reshoring and FDI job announcements equal 90% of the 189,000 total manufacturing jobs added in 2017.
In 2017 announcements of combined Reshoring and FDI jobs were up 122% compared to unrevised 2016 totals and 52% compared to revised 2016 totals. We believe the huge increases were largely based on anticipation of greater U.S. competitiveness due to expected corporate tax and regulatory cuts following the 2016 election. Similar to the previous few years, FDI continued to exceed reshoring in terms of total jobs added, but reshoring has closed most of the gap since 2015.
This report contains data on trends in U.S. reshoring announcements by U.S. headquartered companies and FDI by foreign companies that have shifted production or sourcing from offshore to the U.S. The data is cumulative 2010 through 2017 and is for the U.S. only, unless otherwise noted.
We observe from our, combined with , that:
• It is now clear that U.S. manufacturing, including foreign-owned plants, can be started up or grown to support a substantial flow of work back to the U.S.
• U.S. and foreign companies increasingly recognize that it is in their interest to supply more of the U.S. market by local production and sourcing.
• Based on timing of announcements, much of the surge was due to the anticipation of lower taxes and regulations and higher tariffs. To bring back more than about 10% of the five million offshored jobs will require more U.S. competitiveness, more leveling of the playing field—including some combination of lower USD, stronger skilled workforce training, still lower corporate tax rates, and a VAT (Value Added Tax).
• Bringing so many jobs from offshore disproves thethat only 4 to 13% of the decline in manufacturing jobs has been due to offshoring, with the rest to automation. If so few had been lost to offshoring, so many could not be recovered in one year.
See also BCG report on US manufacturing renaissance from 2011. Also the update here. And the book on US manufacturing renaissance is very well worth reading.
Here’s the Boston Consulting Company’s press:
Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world, according to a new analysis by The Boston Consulting Group (BCG).
With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.
“All over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor,” said Harold L. Sirkin, a BCG senior partner. “We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”
After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely, Sirkin said.
Products that require less labor and are churned out in modest volumes, such as household appliances and construction equipment, are most likely to shift to U.S. production. Goods that are labor-intensive and produced in high volumes, such as textiles, apparel, and TVs, will likely continue to be made overseas.
“Executives who are planning a new factory in China to make exports for sale in the U.S. should take a hard look at the total costs. They’re increasingly likely to get a good wage deal and substantial incentives in the U.S., so the cost advantage of China might not be large enough to bother—and that’s before taking into account the added expense, time, and complexity of logistics,” said Sirkin, whose most recent book, GLOBALITY: Competing with Everyone from Everywhere for Everything, deals with globalization and emerging markets.
Indeed, a number of companies, especially U.S.-based ones, are already rethinking their production locations and supply chains for goods destined to be sold in the U.S. For some, the economics have already reached a tipping point.
Caterpillar Inc., for example, announced last year the expansion of its U.S. operations with the construction of a new 600,000-square-foot hydraulic excavator manufacturing facility in Victoria, Texas. Once fully operational, the plant is expected to employ more than 500 people and will triple the company’s U.S.-based excavator capacity. “Victoria’s proximity to our supply base, access to ports and other transportation, as well as the positive business climate in Texas made this the ideal site for this project,” said Gary Stampanato, a Caterpillar vice president.
NCR Corp. announced in late 2009 that it was bringing back production of its ATMs to Columbus, Georgia, in order to decrease the time to market, increase internal collaboration, and lower operating costs. And toy manufacturer Wham-O Inc. last year returned 50 percent of its Frisbee production and its Hula Hoop production from China and Mexico to the U.S.
“Workers and unions are more willing to accept concessions to bring jobs back to the U.S.,” noted Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “Support from state and local governments can tip the balance.”
Zinser noted that executives should not make the mistake of comparing the average labor costs for production workers in China and the U.S. when making investment decisions. The costs of Chinese workers are still much cheaper, on average, than comparable U.S. workers, and some managers may assume that China is a better location. But averages can be deceiving.
“If you’re just comparing average wages in China against those in the United States, you’re looking at the problem in the wrong way,” Zinser cautioned. “Average wages don’t reflect the real decisions that companies have to make. Averages are historical and based on the country as a whole, not on where you would go today.”
“In the U.S., we have highly skilled workers in many of our lower-cost states. By contrast, in the lower-cost regions in China it’s actually very hard to find the skilled workers you need to run an effective plant,” added Doug Hohner, another BCG partner who focuses on manufacturing.
Even as companies reduce their investment in China to make goods for sale in the U.S., it is clear that China will remain a large and important manufacturing location. First, investments to supply the huge domestic market in that nation will continue. Second, in the absence of trade barriers that prevent offshoring, Western Europe will continue to rely on China’s relatively lower labor rates since the region lacks the flexibility in wages and benefits that the U.S. enjoys.
Third, even though other low-cost countries—such as Vietnam, Thailand, and Indonesia—will benefit from companies seeking wage rates that are lower than China’s, only a portion of the demand for manufacturing will shift from China. Smaller low-cost countries simply lack the supply chain, infrastructure, and labor skills to absorb all of it, Hohner noted.
Here is the book:
I’m not just talking about this after it happened either. It was a core theme of my macro fund (now defunct) back in July 2012. Most entertaining to visit investors and counterparties in New York and tell them “America is a great country”, because for most of my life before that the situation was reversed. Now I was the bull on the US and the people who lived there had lost all confidence.
It’s not because of Trump exactly, but at the same time it’s not got nothing to do with him either.
What happened is the following.
I’ve personally been very negative on the US since I first visited as a teenager paying my own way in 1989. It was a society that got some very basic things completely wrong, and seemed to have broken the normal feedback loops (everyone has problems, but what matters is what you do once you encounter problems) because of the dominance of the socially-constructed world over reality.
Simple example of this. My father – an immigrant to Britain without any special financial resources or contacts – took us off sugar in 1979/1980ish for essentially the same reasons that would motivate people to do that today (against strong medical advice to the contrary). Ken Griffin sent out an email to Citadel people around about 2004/2005 pointing out the massive flaws with the standard dietary advice. And it’s only post 2008 that this really started to gain traction in the broader media. Something is broken with a society that takes thirty years to close a loop like that!
I’ve been becoming more positive on the US since about 2011. The US quietly started on a path to becoming very competitive from 2009 onwards and started fixing its problems. Anatole Kaletsky said before the crisis in a debate with Marc Faber that ‘a problem deferred is a problem solved’. What a contemptible attitude! I believe that a problem recognised is on its way to being solved.
Thus the media cascade of negative information about the US should not be cause for gloom but for rejoicing! Finally – people start to wake up to all those things that have been broken forever.
So BCG wrote this report in 2011 saying that within five years there would be a US manufacturing renaissance. The US started to become very competitive in some areas but was seriously held back in others.
I believe – as does John Taylor, creator of the Taylor Rule in monetary policy – that the US economy is a caged lion. Take off the muzzle and the economy will roar! And indeed that’s what’s happening now.
I have argued for some time that a change in policy could transform the not-so-great recovery into a great one of the kind experienced following earlier financials crises. But many now say it’s too late: if you missed the fast growth of a V-shaped recovery at the start, you’re not going to get it now. In several respects, however, the current position of the economy is like the bottom of a recession. The labor force participation is lower than at the bottom of the recession and productivity growth is down. From this position a change in policy could generate a post-recession-like boom for several years and a higher steady state growth rate thereafter, just as in the graphs. At the least it is an issue for debate, and it looks like I’ll have a good one at the upcoming session on this topic at the AEA meetings in January with Blanchard, Feldstein, Fischer and Stiglitz.
Donald Trump is not my cup of tea as the sort of person who should lead a great nation. (Neither were Hillary Clinton and Bernie Sanders). But the sort of person I think should be a leader simply could not be elected in the current year, and so it’s an exercise in futility to will the world to be something other than what it is right now. (Longer term dreaming plus action can change everything of course).
As a philosophical anarcho-capitalist with some sympathy for monarchy, I’m much more concerned about understanding reality than cheering for a political side. Thus the question isn’t whether I like the guy, but what are likely to be the consequences of policy? We’re in the domain of positive, value-free, economics (given current and likely future policy, what is likely to happen), not in the domain of assessing policy from an ethical perspective. The latter is an interesting question, but it has nothing to do with what will happen – people ought to be able to separate the two ways of looking at the world, but it’s very difficult.
Back in the 1990s people like Bill Clinton used to talk about national competitiveness – one State of the Union address was even devoted to that topic. Well, I think competitiveness is the wrong framing, but for the present purpose it will do.
Clinton was a more graceful speechwriter than Trump, and the problems he faced were not the same and nor were his solutions. But what’s similar is quite interesting. Clinton actually cut spending, by the way. I wonder if that might still be possible today.
For too long we have drifted without a strong sense of purpose or responsibility or community.
And our political system so often has seemed paralyzed by special interest groups, by partisan bickering, and by the sheer complexity of our problems. I believe we can do better because we remain the greatest nation on Earth, the world’s strongest economy, the world’s only military superpower. If we have the vision, the will, and the heart to make the changes we must, we can still enter the 21st century with possibilities our parents could not even have imagined and enter it having secured the American dream for ourselves and for future generations.
I well remember 12 years ago President Reagan stood at this very podium and told you and the American people that if our national debt were stacked in thousand-dollar bills, the stack would reach 67 miles into space. Well, today that stack would reach 267 miles. I tell you this not to assign blame for this problem. There is plenty of blame to go around in both branches of the Government and both parties. The time has come for the blame to end. I did not seek this office to place blame. I come here tonight to accept responsibility, and I want you to accept responsibility with me. And if we do right by this country, I do not care who gets the credit for it.
Tonight I want to talk with you about what Government can do because I believe Government must do more. But let me say first that the real engine of economic growth in this country is the private sector, and second, that each of us must be an engine of growth and change. The truth is that as Government creates more opportunity in this new and different time, we must also demand more responsibility in turn.
Our immediate priority must be to create jobs, create jobs now. Some people say, “Well, we’re in a recovery, and we don’t have to do that.” Well, we all hope we’re in a recovery, but we’re sure not creating new jobs. And there’s no recovery worth its salt that doesn’t put the American people back to work.
Second, our plan looks beyond today’s business cycle because our aspirations extend into the next century. The heart of this plan deals with the long term. It is an investment program designed to increase public and private investment in areas critical to our economic future.
Over the long run, all this will bring us a higher rate of economic growth, improved productivity, more high-quality jobs, and an improved economic competitive position in the world.
Because small business has created such a high percentage of all the new jobs in our Nation over the last 10 or 15 years, our plan includes the boldest targeted incentives for small business in history. We propose a permanent investment tax credit for the smallest firms in this country, with revenues of under $5 million. That’s about 90 percent of the firms in America, employing about 40 percent of the work force but creating a big majority of the net new jobs for more than a decade. And we propose new rewards for entrepreneurs who take new risks. We propose to give small business access to all the new technologies of our time.
Economy: Have Donald Trump’s policies had a big impact on the U.S. economy and its competitiveness? The answer, we think, is an obvious yes. Now comes a new report, based mainly on “hard” data, that confirms that.
The report comes from the IMD Competitiveness Center in Switzerland. Each year it ranks countries by 256 different variables to come up with its global competitiveness rankings.
For 2018, there was a surprise: The U.S.to take over the top spot in global competitiveness — just ahead of Hong Kong, Singapore, the Netherlands and Switzerland. That jump was based on its “strength in economic performance and infrastructure,” ranking first in both areas.
That this is so shouldn’t shock anyone with any knowledge of what’s going on in the economy.
Meanwhile, Trump continues to slash away at the thicket of regulations that strangles the U.S. economy, costing us collectively nearly $2 trillion a year. All of this has helped to fuel an economic renaissance of sorts. U.S. households are $7.1 trillion richer since Trump entered office, thanks to rising share prices and strong real estate markets.
Just to be clear, we’re not citing this one report as a be-all and end-all for competitiveness or even for the fate of the economy. Nor are we in the forecasting business.
But others are, and among them have been some of Trump’s fiercest critics. To read what they wrote and said, the U.S. returning to No. 1 in competitiveness wouldn’t just be unlikely — it would be impossible.
Just last November, for instance, a blog post on theinformed us that “Republican tax plan will reduce American competitiveness.” That was, to be kind, wide of the mark.
Similarly, the liberal Brookings Institutionthat “Trump’s ‘America First’ budget will leave the economy running behind.” Didn’t happen.
“We are probably looking at a global recession, with no end in sight,” said New York Times columnist and Nobelist Paul Krugman, just one day after Trump won the election.
“Under Trump, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States,” said Larry Summers, the former top economist for Presidents Bill Clinton and Barack Obama, speaking in the summer of 2016.
“If the unlikely event happens and Trump wins you will see a market crash of historic proportions,” agreed MSNBC’s Steve Rattner, a former Obama administration official, speaking in October of 2016.
The US has been held back by bad courts and bad policy. This is not a matter about which any opinion can be arbitrarily held because there is a burgeoning literature on economic policy uncertainty, and policy uncertainty after 2009 was unusually elevated. Seeas one place to start.
We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency. Several types of evidence – including human readings of 12,000 newspaper articles – indicate that our index proxies for movements in policy-related economic uncertainty. Our US index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy. Using firm-level data, we find that policy uncertainty raises stock price volatility and reduces investment and employment in policy-sensitive sectors like defense, healthcare, and infrastructure construction. At the macro level, policy uncertainty innovations foreshadow declines in investment, output, and employment in the United States and, in a panel VAR setting, for 12 major economies. Extending our US index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upwards since the 1960s.
This is not even a new insight – it certainly precedes the notorious alt-right thinker Lord Keynes who wrote in the General Theory:
Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits — of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole, is it based on an exact calculation of benefits to come. Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die; — though fears of loss may have a basis no more reasonable than hopes of profit had before.
It is safe to say that enterprise which depends on hopes stretching into the future benefits the community as a whole. But individual initiative will only be adequate when reasonable calculation is supplemented and supported by animal spirits, so that the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death.
This means, unfortunately, not only that slumps and depressions are exaggerated in degree, but that economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man. If the fear of a Labour Government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or of a plot with political intent; — it is the mere consequence of upsetting the delicate balance of spontaneous optimism. In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends.
Since the midterm elections in 2014, and most notably since the presidential elections of 2016 there hasbeen a drop in average policy uncertainty and a stunning revival in animal spirits – particularly that of small businesses. Small businesses create more than 100% of all the jobs.
You can see that policy uncertainty in the US has been unusually elevated for a prolonged period of time since 2009. The highest spike was actually higher than after 9/11! That kind of environment, as Lord Keynes observed, is the sort of thing that will depress enterprise.
It’s not a partisan thing either.
So it’s not that surprising that as policy uncertainty has diminished, optimism has sky-rocketed.
You can see that after 2009 regulation became the single biggest problem for small business and that since 2014 it started to become much less important.
Problem today is that you just can’t get the staff.
A vibrant democracy depends on a strong, free, private sector. The Administration and Congress have implemented important policy changes that strengthen the private sector. The new tax code is returning money to the private sector where history makes clear it will be better invested than by a government bureaucracy. Regulatory costs, as significant as taxes, are being reduced.
The private sector must not be deprived of its right to manage its economic affairs. History has proven that governments cannot deliver the success that a free economy can. There is much more work to be done. Rising healthcare costs have not been addressed and tax code complexity continues to burden small business owners, but we are on the right path.
These “big picture” developments are supporting a Main Street economy that is on fire. Hiring is proceeding as fast as labor supply issues allow, compensation is at record high levels, and capital spending the strongest in decades as owners feel it is once again a good time to expand their firms.
Sales are historically strong and positive profit trends at the best level in the survey’s history. Accounting for about half of the economy, Main Street is definitely driving economic growth and employment to higher levels.
Did Trump really deregulate? Let’s see what the conservative Heritage Foundation had to say.
One year after taking office, President Donald Trump and his administration have embraced nearly two-thirds of the policy recommendations from The Heritage Foundation’s “Mandate for Leadership.”
The “Mandate for Leadership” series includes five individual publications, totaling approximately 334 unique policy recommendations. Analysis completed by Heritage determined that 64 percent of the policy prescriptions were included in Trump’s budget, implemented through regulatory guidance, or under consideration for action in accordance with The Heritage Foundation’s original proposals.
Heritage Foundation research analysts began developing the policy recommendations in 2016 during the presidential campaign with the following principles in mind: free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.
With approximately 70 former Heritage employees working for the Trump transition team or as part of the administration, the policy recommendations have served as guidelines for reducing the size and scope of the federal government through specific and detailed actions.
The first “Mandate for Leadership” was released in January 1981, containing policy proposals of reform that would make government more efficient and effective. President Ronald Reagan distributed Heritage’s book at his first Cabinet meeting.
“As President Reagan did in the 1980s,” Binion said, “President Trump has embraced the comprehensive recommendations made in the ‘Mandate for Leadership.’ These achievements have led to economic growth, a stronger national defense, and a restoration of the rule of law.”
So the US was held back by high corporate taxes, an unfriendly attitude towards free markets and business (visible in the chart above of regulation being the single biggest problem) and to some extent bad courts. Corporate taxes are now very very favourable for expansion at home. The new administration has done a copy paste of proposals written by the Heritage Foundation as regards regulation, and behold above the results. We will also have a business-friendly Supreme Court for decades and that has similarly had a supportive impact on animal spirits.
One interesting question remains. At Cambridge my first year Director of Studies was Lord Eatwell, Labour spokesman in the House of Lords. Now and then he would still be on the phone to Gordon Brown at the beginning of our supervision. He was known for his book “Whatever Happened to Britain”, which in 1979 advocated erecting a tariff walk around the UK to revive manufacturing. That would have been a terrible idea. But I do wonder if he might not have been somewhat right about the importance of Kaldor-Verdoon’s Law.
Verdoorn’s law differs from “the usual hypothesis … that the growth of productivity is mainly to be explained by the progress of knowledge in science and technology”, as it typically is in neoclassical models of growth (e.g. the Solow model). Verdoorn’s law is usually associated with cumulative causation models of growth, in which demand rather than supply determine the pace of accumulation.
Nicholas Kaldor and Anthony Thirlwall developed models of export-led growth based on Verdoorn’s law. For a given country an expansion of the export sector may cause specialisation in the production of export products, which increase the productivity level, and increase the level of skills in the export sector. This may then lead to a reallocation of resources from the less efficient non-trade sector to the more productive export sector, lower prices for traded goods and higher competitiveness. This productivity change may then lead expanded exports and to output growth.
If you read the Trump plan the motivation for policy is clearly spelled out. Reading it took me back to Cambridge days because many of the manufacturing points fell out of fashion in subsequent years. But it might be that the Keynesians had a point on this one thing. The other points are not Keynesian at all but rather post neoclassical endogenous growth theory (what we used to call common sense).
Marc Faber has been talking for years (like the late Kurt Richebacher) about how due to monetary inflation the productive economy was depressed versus money shuffling, leisure, education, healthcare and government. Okay – and I agree. But what does the productive sector look like? It’s not just manufacturing, but quite a lot of it is that plus primary industries like extraction and agriculture.
The share of manufacturing in output appeared stable for decades. Employment collapsed implying it was productivity gains and so the jobs won’t come back. But I don’t believe it, some Fed researchers don’t believe it, and the administration doesn’t believe it. There were serious measurement problems and I think in fact output wasn’t stable as a share of GDP.
Trump is a funny kind of conservative if he is one at all. This emphasis on manufacturing is something I haven’t seen since Cambridge. (You have to understand that Cambridge is a place where not that many years before Joan Robinson lectured in a Maoist uniform – it’s a far left kind of place, on the whole). And the corporate tax cuts and deregulation bit since I worked for a while at the Cato Institute (a free market think tank in Washington DC).
Back to the main track.
The basic point – thank you for taking off (half of) the muzzle; now the economy is roaring. This time around that will accompany a likely acceleration in reshoring. If the old socialists were right then perhaps some productivity growth too.
I guess a few million jobs could come back to manufacturing and businesses servicing manufacturing in some years – maybe by the end of a second term. That would be a brave call, but I don’t see why it’s not possible. BCG spoke about two to three million jobs, and thought that a conservative number.
Manufacturers say every dollar of manufacturing creates another $3.60 of value added elsewhere. Could be.
This answer is quite long. It’s not a simple topic. But you should also read GE (especially the work of Marco Annunziata) and Siemens on the impact of the industrial internet of things and associated technologies. They tend also to encourage the relocalisation of production.
Manufacturing final demand is booming. A revival of US production won’t come at the expense of others.
It’s a new Industrial Revolution ahead!