Is there a Need to Reinvigorate American Manufacturing?
By Michael J. Gravier
Editor’s note: To coincide with the inauguration, Supply Chain World is running a series of articles from industry experts about how they expect the policies of the Trump administration to impact the supply chain. Read Part 1, Part 2, Part 4 and Part 5.
President Trump lead his campaign on making bold statements, specifically when it came to both foreign and domestic policy. In the weeks between the election and the inauguration, we’ve seen him put a heavy emphasis on reinvigorating American manufacturing and seen companies such as Carrier and Ford change course and keep manufacturing in the United States. The question on many people’s minds, including supply chain managers, is how President Trump’s policies will impact supply chain operations, especially in light of his stated promise to reinvigorate American manufacturing.
- American Manufacturing Doesn’t Need Protection: Much ado has been made of “protecting” American manufacturing – despite the fact that it is already ranked No. 2 and on-track to be the world’s No. 1 manufacturing nation by 2020 in terms of competitiveness, according to a Deloitte survey. China has exceeded the United State’s manufacturing value added since 2010, but the Congressional Research Service indicates that much of this is due to currency exchange rate changes and it isn’t likely China will hold onto this position for long. Protectionist policies would be redundant at best, and potentially disastrous if companies perceive they no longer need to invest in the technology, research and skilled labor that comprise the real enablers of manufacturing success.
- Increased Globalization: A protectionist stance would, perversely, increase globalization – although perhaps not the way that most people think. Protectionism can slow the flow of physical goods; what cannot be stopped is the flow of ideas, and those ideas drive what’s made, its design and its ability to fulfill customer needs well. Competitive advantage will increasingly shift away from large corporate owners of capital toward innovators who understand markets well, especially as production capacity becomes more flexible and universal. The advent of “remote” workers – people who control production technology and robots from anywhere in the world – will give access to skilled craftsmen without the need to locate either worker or expensive capital investments on the other side of the world. These technological advancements are going to accelerate globalization at an even greater pace, regardless of policies.
- Economic Success Depends on Education Policy: Cheap overseas labor wasn’t what cost Americans their jobs in the past. Take a look at Honda and Toyota who both decided to make cars in America at a time when a lot of naysayers said Japan’s competitive advantage was laborers prepared to work long hours to produce higher quality for lower wages. Japan’s real competitive advantage was its willingness to invest in an educated, motivated workforce and to support it with the right organizational culture. Modern manufacturing jobs pay well because they are advanced and require a lot of technical savvy. We have left the era when technology changes more slowly than social and economic policies, and competitive advantage will depend on labor’s access to lifelong education on new technology as it comes out.
- Labor Relations Will Come to the Fore: The theme of how to share the benefits of automation will be a huge issue for the next century because technology gives us the ability to provide for 100 people with the labor of only a few dozen. The new president has built social pressure for companies to “stay in America,” but wage pressures and a strong dollar mean that companies will have to invest more in automation and robotics. The ILWA and other unions have a history of trying to slow automation. Unions know automation is inevitable but workers need jobs, and unions work their hardest to keep a living wage for as many people as possible because that’s the right thing for them to do. Simple, standardized products will increasingly be automated, like the automated kiosks that take orders in some McDonald’s. One area where manufacturing jobs may increase will be retail manufacturing because increasing customization will require human workers to function as the interface that interprets lay customer needs into programming for advanced 3-D printing and other technologies. This will cause a shift of labor skills from doing one thing efficiently to coordinating many capabilities effectively, and government, labor, and management have yet to embrace this new reality.
- Ultimately, Trump may cast a light on the U.S. government’s need for modernization since government is now the nation’s number one employer, with government bureaucracy equaling 36 percent of U.S. gross domestic product (GDP), about two-thirds of which would be considered overhead in the private sector. For comparison, we spend less than 9 percent GDP on all supply chain costs and 8 percent GDP on energy. These expenses act as enablers for every transaction – like overhead, the fewer of these resources spent in relation to value produced the better. Chao has already indicated the need to engage with private sector investment for America’s tired transportation infrastructure – an implicit recognition that streamlining entrenched bureaucratic ways of doing things will be the new president’s greatest challenge.
The president has made some strong assertions regarding protecting American manufacturing jobs from foreign competition and getting rid of legislation. Certainly many developed and developing countries play unfairly with exchange rates, intellectual property theft, cheating on environmental compliance and cutting corners on labor and safety. Before making drastic changes to our policies, let’s hope the new president and his advisors remind themselves that America has maintained supremacy as a manufacturer and supply chain giant despite crumbling infrastructure and the shortcuts of rivals. Based on past performance, the new president would best serve his country by postponing some of his policies until after talking to the nation’s corps of supply chain managers.
Michael Gravier is an associate professor of Marketing and Global Supply Chain Management at Bryant University with a focus on logistics, supply chain management and strategy and international trade. Follow him on Twitter at @Michael_Gravier. Follow Bryant University on Facebook and Twitter.