Promises Trump Can’t Keep

US President-elect Donald Trump made big promises on trade and jobs that will be tough to keep without wrecking key industries along with the global economy. Essentially, he suggested that he could restore US manufacturing jobs by blocking new trade deals like the Tans-Pacific Partnership and walking back on old deals like the North Atlantic Free Trade Agreement. The plan has problems. Such trade deals, economists suggest, created more jobs than they destroyed. Companies organized around supply chains; US wages are high, and disruptions in supply chains would increase costs of consumer goods. Many US firms have more foreign than domestic sales. During the campaign Trump targeted a relocation plan of Carrier, the world’s largest manufacturer of air conditioners, now owned by defense contractor United Technologies, but failed to mention that 40 percent of the company’s revenues are from foreign sales. Job losses are increasingly linked with automation and increased productivity; stories abound of one employee improving skills and doing the work of two or three. As a businessman, Trump was proud of taking advantage of all legal and financial opportunities, but wants to deny US corporations the same. Chanda concludes, “even the US president cannot alter the trajectory of business and technology.” – YaleGlobal

Promises Trump Can’t Keep

US President-elect will struggle to come good on rhetoric against offshoring and free trade agreements and can't do much about automation and productivity
Nayan Chanda
Monday, November 28, 2016

Bombastic billionaire Donald Trump did not infuse his presidential campaign with the sunny style of Ronald Reagan, who promised voters “morning in America”. But large segments of the American electorate clearly believed that Trump could bring back the achche din [slogan of the Bharatiya Janata Party (BJP) for the 2014 Indian general election], with traditionally Democratic voters in the depressed Rust Belt gravitating to his message of industrial job creation. He promised to achieve this by shredding free trade agreements and punishing US companies that moved their factories abroad.


The first tests of his credibility on this pledge are coming soon. During the poll campaign Trump repeatedly criticised the likes of Carrier, the air conditioner manufacturer, which is shuttering its Indiana factory and shifting production to Mexico. While its workers cheered his combative stance, there is no indication that United Technologies, Carrier’s parent company, intends to revisit its decision to relocate the company. On the contrary, they could justifiably tell the President-elect that the decision to shift operations to low-cost Mexico was no different from then businessman Trump employing immigrant workers on his construction projects. Both are commercially driven decisions to reduce production costs and increase profit margins.


As a businessman who built a reputation for adeptly cutting corners and finding legal loopholes to grow his earnings, Trump will struggle to persuade companies to bring back jobs from countries where workers earn a fraction of US wages. Even more problematic will be bringing back jobs that have been eliminated through automation and technological streamlining. In fact, Trump may not even be aware that the latest trend in US business is not offshoring but reshoring. Many companies have brought their operations back to the US not out of patriotic feelings, but because of the same cost calculations. US-based robots can produce the same goods for the domestic market, and companies need not worry about labour unions, bonuses or benefits.


Trump’s vilification of free trade agreements as the main cause of unemployment in the manufacturing sector is not, however, based on facts. While some jobs did indeed move to Mexico after the signing of NAFTA, the data shows that 80-90 per cent of the manufacturing jobs lost since the mid-70s have been due to productivity gains brought about by automation. The downward trend in manufacturing has continued irrespective of trade deals or creation of WTO.


In fact, the shrinking of manual labour in manufacturing has been proceeding apace worldwide, even faster in developing countries. According to a recent UNCTAD report titled “Robots and Industrialization in Developing Countries”, some two-thirds of all jobs including agriculture, industry and service “could experience significant automation.” The rising role of automation spells slow growth in labour demand and that too for skilled workers.


The latest presidential election campaign was not encumbered by nuanced debates on economic policy, let alone facts. Even so, Trump took the rhetoric to new heights by promising to unleash the power of the Oval Office on recalcitrant businessmen who dared to ship jobs abroad. At one of his numerous rallies, Trump assured workers at Carrier that once in the White House, he anticipated a phone call from their senior executives saying, “Sir, we’ve decided to stay in the United States.” Now that Trump is indeed packing his bags to move to the White House on January 20, all of those Carrier employees who enthusiastically voted for him are awaiting news of that momentous phone call.


In reality, that call from Carrier will probably never come. But the silence of US companies in the same position would send a clear message: even the US president cannot alter the trajectory of business and technology.   

Nayan Chanda is the author of Bound Together: How Traders, Preachers, Adventurers and Warriors Shaped Globalization and is consulting editor of YaleGlobal Online, published by the MacMillan Center, Yale University.

 

Copyright BW BUSINESSWORLD 2016. All Rights Reserved.

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