No, the Pandemic Will Not Bring Jobs Back From China

No idea has been more central to U.S. President Donald Trump’s philosophy of “America first” than bringing jobs back home. In his 2017 inaugural address, he lamented that “one by one, the factories shuttered and left our shores, with not even a thought about the millions upon millions of American workers left behind.” Under his presidency, a newly elected Trump promised, “we will bring back our jobs.”Lighthizer cast the pandemic as an overdue comeuppance for U.S. companies that had offshored production to lower-wage countries.

More than three years later and in the most unlikely of scenarios—a pandemic that has killed 100,000 Americans and destroyed more U.S. jobs than any time since the Great Depression—the Trump administration finally believes its opportunity has come. The disruption caused by the coronavirus pandemic, U.S. Trade Representative Robert Lighthizer wrote earlier this month, has left U.S. companies with no choice but to “bring the jobs back to America.” Lighthizer cast the pandemic as an overdue comeuppance for U.S. companies that had offshored production to lower-wage countries in a “lemming-like desire for ‘efficiency.’” Lighthizer was echoing another top official, Commerce Secretary Wilbur Ross, who had said in January—when the new coronavirus still appeared to be confined to China—that it would “help to accelerate the return of jobs to North America.”

The administration seems to have been working overtime to make prophets out of these two men, and it has landed some big fish. Last week, Taiwan Semiconductor Manufacturing announced it would build a new chip fabrication plant in Arizona that will partially reduce U.S. dependence on Asia for advanced semiconductors that are critical for defense and industry. The federal government has also awarded $354 million to a Virginia start-up that will produce generic drugs and their ingredients, including those used to treat COVID-19, in the United States. Peter Navarro, the third member of Trump’s nationalist trade triumvirate, touted the production decision as “a great day for America. This has all of the elements of the Trump strategy. It’s made in the USA. It’s innovation that will allow American workers to compete with the pollution havens, sweatshops, and tax havens of the world.”

The concern over manufacturing jobs lost to China and other countries certainly has merit. U.S. leaders, especially after China’s admission to the World Trade Organization in 2001, had long been inexcusably dismissive of job losses caused by offshoring and imports. Whether one blames Chinese imports for roughly half of the 5 million manufacturing jobs lost in the past two decades, or for fewer (there are still furious debates among economists), the social costs have been enormous. Lighthizer has tied the loss of good jobs to the breakdown of families and rising opioid addiction, and he was right to do so.

Whether one blames Trump or Chinese President Xi Jinping for the deterioration in U.S.-China relations, a fundamental reassessment of U.S. supply-chain vulnerabilities is long overdue.

Whether one blames Trump or Chinese President Xi Jinping for the deterioration in U.S.-China relations, a fundamental reassessment of U.S. supply-chain vulnerabilities is long overdue.

The administration’s signature actions on trade—imposing tariffs on steel and aluminum, renegotiating the North American Free Trade Agreement with Canada and Mexico, pursuing a trade war with China—were all crafted with an eye toward forcing U.S. companies to bring production back to the United States. Since January 2018, the average tariff rate on U.S. imports of Chinese goods has risen from just 3.1 percent to nearly 20 percent.

Whether one blames Trump or Chinese President Xi Jinping for the deterioration in U.S.-China relations, a fundamental reassessment of U.S. supply-chain vulnerabilities is long overdue.

But will any of these efforts to bring production back work in the way Trump and his men are hoping? Putting aside the damaging foreign-policy consequences of an “America first” trade policy, the effort is flawed in two major ways. First, the combination of trade war and the pandemic is unlikely to force companies to bring manufacturing operations back to the United States on a significant scale. And second, with the advances in automation, any such reshoring is unlikely to bring the promised benefits in terms of well-paying employment for Americans.

Three years into the trade war, those tariffs should already have forced many U.S. companies to relocate production from China. Yet there is no evidence of any coronavirus-induced rush by companies to return operations to the United States. Prior to the pandemic, many companies had already been reconfiguring supply chains to try to escape the tariff burden, but they had returned little production to the United States. The most comprehensive data has been collected by Panjiva, an arm of S&P Global that closely tracks supply-chain movements, and it shows the winner of the trade war has been Southeast Asia—especially Vietnam. Production of Google’s new Pixel 4A smartphone has largely been shifted from China to Vietnam, while Microsoft is now making the Surface tablet there as well. Google is also expanding manufacturing of smart-home products in neighboring Thailand. Foxconn, the Taiwanese company that assembles Apple’s iPhones in China, has increasingly been moving to Vietnam as the new base for its consumer electronics exports to the United States. Telecommunications products such as smartphones now account for more than 20 percent of Vietnam’s exports to the United States, double the share in 2015. The data shows no trend of companies moving production back to the United States.

The data shows no trend of companies moving production back to the United States.

The data shows no trend of companies moving production back to the United States.

Nor is there any indication of a U.S. manufacturing resurgence in the most recent Reshoring Index published by the management consultancy Kearney, which Lighthizer cited as proof that Trump’s policies have been successful. Instead, Kearney found that the trade war had significantly reduced imports from China, which dropped by 17 percent between 2018 and 2019. Half of that hole was filled by other Asian countries and by Mexico. Overall, manufacturing imports from China dropped by $90 billion, while imports rose by $13 billion from Mexico and by $31 billion from Asian countries that offer low-cost sourcing such as Vietnam. U.S. manufacturing output stayed flat, with higher domestic sales offset by lower exports. That performance is even more underwhelming given the generous tax cuts and aggressive deregulation the Trump administration has gifted companies in an attempt to entice them to raise their U.S. investments.

Could the pandemic accelerate these shifts? In all likelihood, yes. Chris Rogers, who heads global trade and logistics analysis for Panjiva, says the trade war has been a cost issue; companies can choose to pass the tariff costs on to consumers or relocate production to escape those costs. But the pandemic, he says, is a risk issue—border closures, transport shutdowns, and the growing use of export restraints will likely force companies to diversify sources of supply to guard against such disruptions. The Kearney report similarly anticipates that “the threat of future crises will compel companies to restructure their global supply chains with an eye toward increased resilience, as well as lower risks and costs, as resilience is the key to operating profitably in the face of ongoing disruptions.” Could the United States be the winner from this second wave of relocations? “It seems unlikely,” Kearney concludes. “The limitations that held U.S. manufacturing to flat growth in 2019, even as the trade war put Chinese manufacturing at a decided disadvantage, will continue to work against a U.S. manufacturing revival.”

Even if the pandemic somehow succeeds where the trade war has failed in bringing U.S. manufacturing home, would that truly help Americans by bringing back the days of generous wages and stable employment? The evidence suggests this is wishful thinking based on “Make America Great Again” nostalgia.

Manufacturing simply does not determine the conditions for the U.S. workforce the way it once did. In 1970, one in four Americans worked in manufacturing; today it is fewer than one in 10. Where companies are choosing to expand U.S. manufacturing operations, their new factories are heavily automated. For example, LG Electronics, the South Korean company, recently built a new 1 million-square-foot plant in Clarksville, Tennessee, partly in response to the threat of tariffs the Trump administration slapped on imported South Korean washing machines in 2018. But inside the plant, most of the work is being done by industrial robots made by LG’s own Robostar affiliate in South Korea.

If anything, the pandemic is likely to accelerate the trend toward automation. As Mark Muro and his colleagues at the Brookings Institution argue, automation happens in bursts, and the virus is likely to trigger a fresh round. In economic shocks such as the one the world is currently experiencing, Muro and his co-authors write, “humans become relatively more expensive as firms’ revenues rapidly decline. At these moments, employers shed less-skilled workers and replace them with technology and higher-skilled workers, which increases labor productivity as a recession tapers off.”

In short, while some manufacturing may return to the United States due to the pandemic, the employment gains are likely to be modest at best. Even small gains should not be dismissed. The 600 or so jobs that LG is creating in Clarksville will be a boost to the city and its 160,000 residents. And there are certainly sectors where the United States should be ensuring some level of domestic production for national security reasons. The Reagan administration did similar things in the 1980s when it created the Sematech consortium and imposed tariffs to respond to the competitive challenge from Japanese chipmakers. But none of this will transform the lives of American workers. Trump’s trade advisors are trapped behind glasses that are every bit as rose-colored as their boss’s—a desperate longing for the good old days in which men (and they were mostly men) supported families by working on assembly lines and bending metal, and passed that legacy on to their sons. But a 21st-century economy that provides good jobs for more Americans and protects vital public health and security interests will not remotely resemble the manufacturing economy of the 1950s.

Consider for a moment the big corporate winner from the pandemic, Amazon. It has built the most efficient distribution chain on the planet, which of course has left in its wake thousands of smaller retailers and their employees. But in the current coronavirus lockdown, it feels like a blessing to be able to have the things we need miraculously dropped on our doorsteps the next day. U.S. companies such as Zoom, Facebook, Microsoft, and Google are keeping most of us connected, enabling the continued education of our children (admittedly inferior but certain to improve with time), and allowing contact with colleagues, friends, and family. The pandemic has only accelerated the shift to the digital economy of the future, an economy in which the United States leads the world.

The pandemic has only accelerated the shift to the digital economy of the future, an economy in which the United States leads the world.

The pandemic has only accelerated the shift to the digital economy of the future, an economy in which the United States leads the world.

The real questions should be about how to spread the benefits of that success—to the Amazon distribution workers, the grocery cashiers, the meatpackers, the sanitary workers, the millions of others who are keeping the economy going during the shutdown, and the millions more who will return to low-wage service jobs when it starts back up. There are many ideas on the table for how to reconstruct the social compact for the 21st century—from more progressive taxation to free college to lifelong learning to universal basic income—but none of them is being championed by the Trump administration.

For an administration that decries its opponents as “socialists,” Lighthizer and his comrades show a deep distrust of the underlying dynamism of the U.S. economy. What is capitalism, after all, if not a lemming-like desire for efficiency? The secret of U.S. economic success is Americans’ endlessly restless pursuit to find better, more efficient ways to invent, produce, and deliver the goods and services people want. To distrust that impulse is to distrust the motor force that built the greatest economy in the world.