America may not get back it's manufacturing!
In the last 40 years manufacturing & blue-collar jobs away from American shores. Now it won’t be able to bring it back without a lot of pain.
The movement of industries across the world is more or less a feature. But in its true sense, it is accompanied by competitive advantages that are earned. In the last 40 years, manufacturing and blue-collar jobs moved away from the US for other reasons.1 That has hollowed out the economy. Now America wants its jobs back. But it will be pretty challenging to pull it off for many reasons.
The “tinkering mindset” is missing.
The present-day products are unsuitable for tinkering. Most are created with a black-box approach. Manufacturers do not want you to open and tinker with them.
The development of cars was only part of the skill development in the US. The skill deepening of the labour force happened when the automobile shops and garages started tinkering with the cars and trucks.
Skill deepening of the tech labour force started with microprocessor-based minicomputers, and the subsequent development of the computer hardware industry allowed people to build computers themselves from parts. This laid the foundation for companies like Microsoft, Dell, etc.
The Internet also allowed its own set of “software” tinkerers. They were housed in website development, e-commerce, and (for mobile) app development.
However, most of the hardware tinkering has all but disappeared. Most modern machines (cars, trucks, computers, phones) do not lend to tinkering. Tinkering has also become a lot more specialised (e.g. apple uses custom screws), and there are higher barriers to entry than earlier.
American labour is priced out.
What prices American consumer is used to paying will not pay the bills of the American labour required to make it. This means US inflation will increase, and so will wages. This means the corresponding cost of capital will also increase. Or the US will end up importing from somewhere else.
Other rich consumer countries (like the EU) will not want to support American wages. They would rather make those products locally and subsidise local labour than American labour. This implies a trade breakdown between the EU and the US. (This sort of makes Brexit make sense but not quite!)
The global consumer will NOT pay the price American labour demands to meet basic livelihood levels. Frankly, the poor cannot afford to employ the rich in these jobs. Countries will either try to source the product from the cheapest source or follow the China+1 strategy at best.
So, US manufacturing will be mostly automated manufacturing.
The low cost of capital for more than two decades has allowed technology to catch up to an extent where the labour intensity of manufacturing can be reduced drastically. It means it will not create the tinkering middle-class workforce that can create future innovations. It benefits the few patent owners and, thus, increases inequality rather than reducing it.
In its most successful form, where the US is the hub of global manufacturing, it will still not be able to employ labour in large numbers. It will look more like the colonial model (check here), with tech and Patent holding elites as the ruling class and the rest as the serving class. This model does not work in America.
Don’t give me a US Employment statistics argument.
The US labour force is more talented than its current employment profile. It is just priced out. When we think of a country and the jobs it has, we need to look at the Effort-Skill-Knowledge (ESK) profile2. The ESK profile of the labour force and jobs available should match.
The US workforce is under-employed and overpriced. It is able to work only in areas that cannot be automated or outsourced. Their skills have withered because of the hollowing out of middle America by Chinese manufacturing.
In Sum
Getting manufacturing jobs back to the US is going to be difficult. It is not impossible. If any country can do it, it is the US. The US may innovate into distributed manufacturing in such a manner that its labour force benefits.
The US can also screw the global system that is leeching off the US consumer. US Finance Secretary John Connally once said, “My view is that the foreigners are out to screw us, and therefore, it's our job to screw them first"!
Either way, it is difficult we are heading into.
I explained the different growth models used by different countries in this post titled India needs a new growth model.
I have explained the Effort-Skill-Knowledge profile in my book Understanding Firms: A Managers model of the Firm.