WHY MANUFACTURING IS NOT COMING BACK TO AMERICA

Written by Michael Thervil

Photographer unknown

With all the rhetoric coming from the Trump Administration about putting “America first” and essentially using methods of corrosion to force manufactures from around the world to make and build their products in America; it seems that the Trump Administration has either failed to understand and/or ignore the 5 basic principles of economics. The5  basic principles of economics consist of supply and demand, marginal cost and benefits, incentives, trade, and scarcity. Without the understanding and application of these 5 principles, the notion of manufacturing coming back to America is nothing more than empty rhetoric that has no weight, like the talking points coming out of the Trump Administration.

The first reason why manufacturing is not coming back to America is because the cost of living is too high. What we mean by this is that since the cost of living in America is amongst the highest in the world, so must the wages be to compensate and satisfy the wage expectations of American  workers. And since the wage expectations of workers must be met, this means that the cost of production will be significantly higher than that of America's rivals such as China. 

Argo, since the cost of production is high,  the cost of selling the product will be higher. When this happens, an economic chain reaction occurs which ultimately widens the already astronomically widened gap between the rich and the poor, with the few that are left in the middle class of American society struggling to the point of breaking to pay the bill in the form of increased taxes.

The second reason why manufacturing is not back to America is because American workers are not willing under any circumstances to subject themselves to working for lower wages. Currently the minimum wage in America is $7.25 an hour and has been since the 1990’s with no correction for the increased inflation over the decades of it being signed into law. Consequently, there's where in America you can afford to live with a full-time (40-week) job that pays $7.25 per hour. Again, for manufacturing to come back to America, not only would manufacturers have to pay exponentially less than they currently do, but there would also be another adverse chain reaction that will occur, and this time it would be in the real estate market.

For manufacturing to come back to America, Americans would have to work for exponentially  less. The reason for this is because instead of people working for the supposed average wage in 2025 of $61,984 ($32.38 per hour), they would have to work for $10-$12 above the minimum wage of $7.25 in order to make it not only attractive for manufacturers to come back for America but they would  have to work for $10-$12 in order for manufacturing to be profitable in America. 

It should be noted that the supposed average wage of a Chinese worker in China's biggest and most lucrative cities earns roughly $36,600 per year which translates into $3,050 per month, 1,525 bi-weekly, $19.06 per hour (USD). The incentive for manufacturers to come back to America is that the Americans would have to earn less than the Chinese to be seen as a viable competitor. America must not only change but place wage caps on all American workers to the tune of $30,000 - $35,000 a year.

The third reason why manufacturing is not coming back to America is because the American government is unable to effectively and successfully subsidize American manufacturing companies. We can say this because of the amount of debt America holds and owes. The more debt America creates and borrows from the Federal Reserve, the deeper in the negative (deficits) the American government will find itself in. Currently the American government is $36.21 trillion, there's no way that the American government can pay that debt off while subsidizing its manufacturing base; at least not without getting deeper in debt which defeats the purpose of the Trump Administration's goals.

The Chinese government was able to subsidize its manufacturing base because they kept their borrowing in check and trade deficits low. Their strategy led to American [title] Janet Yellen to accuse the Chinese government of “over capacity” which was not over capacity at all, but the right application of economics by China. While America took the short-sighted approach and  thought it could borrow its way out of debt, China played the long game and steered clear for the most part of getting into more debt.

Another thing to consider is that the markets outside of America are and have been growing two to three times more than those in America. This is primarily due to many countries “playing catch up” with America in terms of goods, products, and services.  This is not to say that America was on top because there was a level playing field, because there wasn’t a level playing field in a long time and still isn’t one. Level playing field or not, as developing countries were “contained” or pigeonholed for decades, these same nations today are experiencing significant growth. This is why in terms of growth, developing countries are the best place for manufacturing. Low wages, lost production cost, high profits and return.

This is why we at VEDA Communications hold the position that President Trump is a dollar short and days late when it comes to competing on the global stage with China. Manufacturing will not come back to America in any significant form unless America cuts its cost of living, stops borrowing, subsidizes its manufacturing base, and its citizens agree to exponential wage cuts across the board.