One of Trump’s signature obsessions is the trade deficit. He sees everything as win/lose, and despite the fact that most economists disagree with his position, he believes he can use tariffs to erase our trade deficit and bring back manufacturing jobs to America.
The loss of manufacturing jobs here has occurred over several decades. It is not difficult to understand why. Once global trade and relations offered the opportunity for developing nations to play in the game, their lower labor rates made the shift inevitable. The result was a loss of middle-class jobs here, but also the increased availability of less expensive goods.
The use of tariffs to ‘even the playing field’ will certainly make goods more expensive. But will it truly bring back manufacturing to our country? It seems that tariffs would have to be applied worldwide to avoid just having the manufacturing move from one low-cost labor country to another. And the investment and time necessary to create new factories here would require investors to believe that this is a long-term phenomenon and not just a Trumpian phase that will be gone in a year or two.
But there is an interesting question about the future of all manufacturing that plays a role here and makes Trump’s vision of an American factory renaissance even less likely. The question is this one: how will AI impact manufacturing in the next 20 years?
About 10 years ago I visited a brand-new diesel engine plant in Mississippi. Mississippi was no doubt chosen because of its low labor rates and the lower probability of union formation. The general manager of the plant told me that the starting salaries for workers were around $18-20/hour, much lower than traditional manufacturing salaries in years gone by. But more astounding was the fact that the total number of workers in the plant was around 400, in stark comparison to previous engine plants where the number was closer to 4000. The use of robotics and automation had reduced the number of workers by a factor of 10.
As the AI juggernaut accelerates, which no doubt will spur major improvements in manufacturing automation and robotics, how many jobs will future manufacturing plants actually have? It is highly likely that the great majority of these jobs will disappear. If so, then the location of a factory will become less dependent on the cost of local labor. It will probably be more dependent on the tax situation, the availability of materials, and the overall corporate strategy.
If manufacturing no longer employs significant numbers of workers, then it will have less impact on the country where it is located. It will no longer play a large role in solving the crisis of middle-class salary stagnation or unemployment. It will enrich the corporation and its stockholders, but not much else.
Rather than focus on the delusional nemesis of trade deficits, the real challenge for the future is understanding the very nature of work in an AI saturated world. In the revolutions of the past, new jobs have always replaced old jobs, and there is a temptation to believe that will be the case with the AI revolution. But the computer revolution has already demonstrated that new jobs are not always the equal of old jobs, and that allowing the market to take its course may not produce satisfactory results. Things are changing too fast to be complacent.
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