Comment by yibg
2 days ago
Using people for manufacturing fundamentally will never be cost competitive compared to cheaper markets. There are really only a few ways to resolve this in my view:
1. Give up and just outsource manufacturing and be ok with it
2. Invest heavily in automation, technology etc so we remove cost of labor from the equation. Or at least heavily minimize it
3. Put up trade barriers to artificially raise the cost of imported goods, which is what the current admin is trying to do, at least officially
1. leaves us dependent on other potentially adversarial countries, 3. increases the cost of goods sold so puts a burden on the population. So seems like 2. is the only way to go, if the country can get behind it. But it also inherently won't add a lot of jobs.
1. Ok then what do you make? 2. A bit too late for that given that China is also highly automated. 3. You would have to be serious for this to work.
As for your responses. 1 who is "us" 3. I mean some would be automated etc. There is actually data on how little the cost of labor adds to different parts of manufacturing. 2. You at least have a sustainable economy (I dont mean that in an environmental sense)
Typically as economies advance there is a shift to services and higher value add / higher skill manufacturing anyways. That can be the explicit strategy for the US as well. Focus on renewables, high tech, aerospace etc instead of the lower margin / lower skill manufacturing.
They're not mutually exclusive of course. There can be some national protection via tariffs on some types of manufacturing, while investing in automating some other types and just completely ignoring others and keeping those offshore. Problem currently is there doesn't seem to be a much of a strategy.
The USA and the west in general is 40 years deep into this crisis and recent developments have not actually made a shift in that trajectory.
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US manufacturing keeps going up in dollar terms (see first graph https://en.wikipedia.org/wiki/Manufacturing_in_the_United_St...)
but employs less people as it automates.
# 3 is not a solution because it will only make American production more expensive and impoverish the population. It's a full disaster.
Japan used that strategy very successfully for at least a century. The high cost of imported goods encouraged consumers to buy domestic at prices that were also high, which subsidized exports at competitive prices. The Japanese public is less docile now, but this is one example where import restrictions worked well. I believe you can find other examples from the 20th century, but I'm not sure whether they would work well in the current global environment.
Import substitution can only work when you have a government that is investing in labor and industrial infrastructure, while keeping the local currency cheap. This is not a combination of factors you don't have in the US.
They also became experts at automation and at producing high quality goods.