Here I was all set to start rethinking my skepticism about American manufacturing reshoring after reading Jeffrey Rothfelder’s thoughtful, detailed Washington Post piece claiming that globalization is “unraveling.” And then I remembered all the facts that the author has overlooked.
Reshoring isn’t Rothfelder’s main point. But it’s one important trend he cites on behalf of his contention that “hardly any of the promised returns from globalization have materialized, and what was until recently a taboo topic inside multinationals — to wit, should we reconsider, even rein in, our global growth strategy? — has become an urgent, if still hushed, discussion.”
According to the author, “Given the failures of globalization, virtually every major company is struggling to find the most productive international business model. Several approaches have emerged. Reshoring — or relocating manufacturing operations back to Western factories from emerging nations — is one option.”
I can’t comment knowledgeably about reshoring by multinationals from other countries. But I do know that anyone believing that reshoring by American multinationals is much more than “a drop in the bucket” needs to explain why:
>The American business establishment, which, as Rothfelder writes, has been enamored with offshoring for at least two decades, is lobbying so hard for passage of President Obama’s proposed Pacific Rim trade deal. Just as important, why are these companies lobbying so hard to keep out of the agreement and the legislation that would fast track it through Congress requirements to punish currency manipulation? The reason: This practice artificially under-prices – and advantages – foreign products made by offshored U.S.-owned or affiliated factories, to the detriment of domestic American products, as surely as it under-prices foreign products made by foreign-owned factories;
>U.S. manufacturing’s output during the current recovery has exceeded its rebound during past recoveries only if you ignore the growing likelihood that mis-measurement of price changes has produced a significant over-count of real manufacturing production for nearly two decades;
>Americans should take any satisfaction from a manufacturing rebound during this recovery that’s been driven significantly by falling real wages. Since the recession technically ended in mid-2009, these wages after inflation are down 0.75 percent – even though such pay throughout the private sector is up 2.23 percent during this period.
Another problem with the evidence presented on behalf of robust reshoring: Manufacturing imports during this recovery are not lagging their pace during previous expansions. For example, it’s true that these imports have risen more slowly during the current recovery than during the previous decade’s. In full-year terms (which aren’t 100 percent accurate because economic cycles don’t start and finish at the beginning or end of calendar years – but which are close enough), such imports were up 54.92 percent during this expansion between 2009 and 2014. That is indeed slower than their 62.90 percent growth during the 2001-2007 six-year economic recovery. (All figures in this and the following paragraph are in pre-inflation terms.)
But the reason is that growth (and therefore demand for all manufactures) during this recovery has been historically weak: 20.80 percent versus 36.30 percent during the previous decade’s recovery. Obviously, the year’s worth of difference between the two isn’t even close to the explanation. Indeed, if anything, adjusted for overall growth, manufactures imports are rising ever faster.
The Rothfelder article makes some great points about how expanded world trade and investment haven’t even remotely produced miraculous returns for the offshoring businesses that predicted them, much less for the U.S. economy as a whole. His discussions of underwhelming consumer market growth in China and elsewhere in the developing world, and of the continuing challenges from foreign state-owned or controlled enterprises, deserve particular attention – especially by American legislators considering those new Obama trade deals and a blank negotiating check for the president.
But the kind of high road manufacturing comeback he describes, and that America urgently needs, couldn’t possibly take place even if the globalization unraveling he portrays proceeds exponentially further. Instead, policies of strategic reversal will be required – starting with Congress’ rejection of new trade pacts modeled on past exemplars of globalization hype.