Walmart is such a huge player in the U.S. economy that any evidence of the retail giant markedly shifting its sourcing strategy toward buying American-made goods could be significant positive for domestic manufacturing. And an article in the excellent publication Manufacturing & Technology News reports signs that such a shift is in the making.
At the same time, there’s a big cautionary note included in the piece indicating that whatever manufacturing gains result from more Walmart domestic sourcing would represent a decidedly pyrrhic victory.
Among the encouraging facts presented in the August 31 article: According to the company’s website, its Made in the USA manufactured offerings have increased from 500 to 15,000, and the number of domestic manufacturers selling it goods has quadrupled. Moreover, in the 18 months since Walmart announced its intention to purchase $250 billion in additional American-made goods by 2023, the company says that suppliers have begun moving production back state-side.
Some caveats must be kept in mind here. For example, by “goods,” Walmart could also mean not only manufactures, but farm products sold by its grocery operations. Also, Walmart’s claim that it’s now selling American-made television sets shows that its definition of Made in the USA also includes “assembled in the USA” – which adds much less value to the U.S. economy.
But there’s a much bigger problem. Walmart execs keep telegraphing to reporters that they now understand the importance of U.S. job creation – especially for working class Americans – because without adequate incomes, these folks increasingly can’t afford to shop robustly even at low-price stores like Walmart. That dawning realization is of course not only encouraging, but also hugely ironic, since Walmart’s massive overseas sourcing over the years has pushed so much manufacturing output and so many industrial jobs abroad to begin with.
At the same time, Walmart CEO insists that the company “will not change its strategy of generating low margins on high volume,” and the article made clear that “the China price” (and other third world prices) will remain the standard governing Walmart procurement policy.
That would be fine if U.S.-based manufacturers could meet this challenge overwhelmingly by improving their productivity. Trouble is, although manufacturing still leads the American economy in productivity by a wide margin, there’s no evidence showing any acceleration recently in the sector’s efficiency gains when measured by the broadest productivity indicator – multifactor productivity. In fact, according to the latest available Labor Department data, multifactor productivity in manufacturing has been improving at a slower rate since the Great Recession began (0.4 percent compounded annually through 2012) than before the downturn 1.9 percent from 2000 to 2007).
Moreover, other Labor Department figures make a strong case that, rather than taking that productivity-enhancing “high road” to maintaining and improving efficiency and therefore competitiveness, U.S.-based manufacturers are taking the “low road” of cutting wages. These data show that inflation-adjusted wages in American manufacturing have fallen nearly 13 times faster than wages for the entire American private sector during the dreary recovery that ostensibly began in mid-2009.
Worse, as long as Walmart and the rest of American business retain the option of overseas sourcing, they’ll have strong incentives to stay on the low road even if they use more domestic suppliers – by holding a totally credible offshoring threat over their heads. As a result, even if firms such as Walmart deserve considerable credit for good intentions, there’s still no reasonable denying that a genuine U.S. manufacturing renaissance will remain impossible until the offshoring option is eliminated – which will require a top-to-bottom transformation of U.S. trade policy.