During an election, politicians make promises. But after the election, we find out what truly matters. Their track record gives us clues, but, as pundits have pointed out, President-Elect Trump lacks a track record. He’s never been elected or worked in government. But he was a very public businessman for decades. He even wrote a book. (Well, 20, but “wrote” may be an exaggeration.)
Trump’s promised to bring jobs back to America. We already know that he is offering business incentives to create jobs and guidelines to reign in outsourcing. But how exactly will this work? Let’s break down the issues...
Where are we today:
Millennials are leaving college with graduate degrees, but working in Starbucks. Coal miners want America to reopen mines in this economically devastated region. But American’s don’t want to burn coal. Besides, in areas like Kentucky, coal is just the crisis that followed the collapse of the Tobacco industry, years earlier. Manufacturing has shrunk to just 8% of the economy, as work moved to offshore factories offering cheap labor.
The problem that Trump will face is that today’s employment problem was yesterday’s employment solution. Tobacco farms and Coal mines have closed because both industries produced damaging, dangerous products. Tobacco use is way down, and so too is lung cancer. Fewer coal mines mean fewer coal mine collapses and deal coal miners. But that doesn’t compare to the deaths from “black lung disease” in coal workers, and other ailments from the pollution caused by coal use. Most people complain when someone smokes next to them. Imagine having a coal powered electric plant opening down the block from your home.
Problem or solution:
Outsourcing cost American jobs, but it also lowered the cost of… everything. Walmart once led the charge for offshoring, reducing costs by introducing America to products that were made in China and elsewhere. Back in 2010, an analysis of Walmart concluded that all of these outsourced products saved the average American family $2,500 to $3,000 every year. In the poorest areas in America, Walmart has replaced the hardware store, department store and local grocer. “Un-outsourcing” Walmart be hurt all consumers but will be devastating to small towns in poor states, where Walmart has the highest sales.
By the 1980’s America had moved from a nation of factories to a nation of service providers. The service industry has both low paying (fast food, taxi drivers, hotel clerks) and well-paying jobs (financial analysts, lawyers, doctors, accountants). Graduating students want the high paying jobs. Or should I say need, if they ever want to pay off their student loans? Yet, these graduates are also consumers, who want more efficient, more digital services. Look at the apps on your phone. You can scan checks, pay for purchases, book vacations, etc. These functions were once jobs. As apps become more powerful and more connected, more jobs disappear. Automation and Artificial Intelligence have replaced more jobs than outsourcing.
How will “Art of the Deal” Trump fix the problem? Apparently, the President-Elect is... making deals. Before the Election, Ford Motor Company announced the move of some manufacturing from Kentucky to Mexico. After Trump spoke with the Chairman of Ford, the work will remain in Kentucky. It’s hard to say how many jobs this saves or if it is only a temporary fix, but it creates credibility for Trump, which will fuel more dealmaking.
Apple Inc., for example, has been making noises about being open to moving iPhone manufacturing to the USA. Does Trump have an app for “opportunity knocking”? Apple could start reshoring (moving work back onshore) the iPhone tomorrow if they want to. But there will be a cost. Literally.
The onshore difference:
Foxconn assembles iPhones in China, and pays workers $4 per hour. If we add benefits and other costs, it could be $6 per hour. A comparable US worker is paid $26.50 per hour, $34.45 with benefits. An iPhone costs $700 and takes 23 hours to assemble. Assembly in the US raises costs by $650, making it a total of $1,350 (not including the cost of building a new factory). Of course, every part in that phone is manufactured offshore. Reshoring that would cost hundreds or thousands of dollars more.
The onshore price won’t sell any iPhones. You could build a factory in Georgia where the minimum wage is $7.25 an hour, but not many workers will be interested. Higher costs could be offset if the onshore factory was highly automated, reducing assembly time to less than 4 hours. But if you build factories with that much automation, you move work back to the US, but you don’t create a lot of new jobs.
Adidas recently followed this model. For decades, running shoes were made almost entirely offshore. But Adidas built a factory in Germany in 2015, and is building a second factory is Georgia for 2017. Reebok and Nike are discussing factories of their own. Placing factories near major consumer markets will slash transportation costs. However, to make the factory financially viable, most of the jobs are performed by robots. Worked moved, without moving jobs.
Trump has been America’s most social-media enabled candidate… EVER. Even if he scales way back on Twitter, he will still be the “social media” President. As head of Trump inc., Trump relied on the power of the executive to mandate a lot of changes. As the President, he will do the same, but Congress tends to react negatively when executive powers are used too often, and the power of Congress are bypassed.
Successfully combining executive power with social media would give Trump an enormous advantage. Instead of speaking to citizens in just one or two State of the Union speeches, Trump would have immediate communication. For example, citizens can tell him if outsourcing firms brought offshore workers to the US to replace onshore workers. It’s legal to do this IF there was a search for local workers, IF the worker was paid at local rates, and IF that worker has an H-1B visa. Trump can issue executive orders to limit the number of new and renewed H-1B visas (currently over 300,000). Trump can use Twitter and other tools to prep businesses about upcoming changes and ask citizens to report violations. Likewise, when money is allocated for fixing roads and bridges, social media can gather citizen opinions about government priorities, and see how they align with citizen priorities.
Any lasting changes will require new laws and regulations, but that’s probably not going to be one of Trump’s strengths. Long detailed arguments over points that everyone’s been chewing on for decades? No, not Trump’s specialty. This is where we’re going to see Trump throw out a few key points and wait for something to show up for him to sign into law.
What’s the score:
Trump has some easy wins early on that can show his commitment to returning jobs to America. However, as time goes on Trump will have more issues and the occasional global crises to manage. Employment issues are just going to get more difficult. Self-driving taxis and trucks will eliminate driving jobs, and fast food and cashier jobs will be taken over by technology. On the high end, professional jobs will at first be supported by Artificial Intelligence, and later replaced. Will Trump be able to remain focused for four years? Only time will tell!