In a U.S. Manufacturing Hub, No Illusions About Tariffs and Jobs

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In trade deals between countries, once they are signed there are two quick stages. The first is rationalization – who makes it faster, better, cheaper. The second is displacement of jobs and production. This article argues that there is no third stage – replacement. The capital requirement and high uncertainty of politics makes reinvestment highly risky. This is a good article.

In a U.S. manufacturing hub, no illusions about tariffs and jobs
Reuters, Sep 26, 2018

THOMASVILLE, N.C. (Reuters) – In a town where a 30-feet tall chair is the chief landmark, and which is synonymous with a U.S. furniture industry decimated over the years by imports from China, many greet the possibility of tariffs on Chinese goods with a shrug.

No wonder. Of three once bustling Thomasville furniture plants in the city limits, one is being demolished and cleared for parkland, another may become the site of a new police station, and a third is being converted into apartments.

President Donald Trump is threatening to levy tariffs of up to 25 percent on $500 billion of goods imported from China each year, including roughly $20 billion of furniture, as a way to bring back hundreds of thousands of manufacturing jobs lost to China and other low-cost competitors.

Yet, the transformation of U.S. industries since China’s emergence as the world’s low-cost producer almost two decades ago means many no longer directly compete with Chinese imports, so tariffs may not translate so easily into more U.S. jobs.

At family-owned Bernhardt Furniture in Lenoir, some 90 miles west of Thomasville, executives say it would take about $30 million in capital investment – some 10 percent of annual sales – to resurrect standard wood furniture lines now mainly made in countries like China and Vietnam.

That is too much to commit based on a policy that a future administration could reverse.

“The theory is you turn (imports) off, the jobs come back. That’s not really true… The buildings don’t exist. The people don’t exist. The machinery does not exist,” to make the sorts of furniture that now gets imported, said Alex Bernhardt Jr., chief executive and the company founder’s great grandson.

What the company needs now, executives say, is the open markets and steady economy that have allowed it to grow its workforce from below 800 at the end of the 2007-2009 recession to almost 1,500 today – partly on the basis of exports to China.

DIFFERENT COMPANY
That growth has been largely driven by demand for more customized, higher-end furniture. In expanding, the 129-year-old company has been hiring not only factory workers, but also designers, marketing experts and other professionals. In all, it is a different firm from what it was three decades ago when it first began dividing product lines between the United States and Asia.

Economists say the same is true across much of U.S. manufacturing. To invest and hire more workers, executives would need certainty, for example, that consumers would prefer U.S.-made products at a potentially higher price. They would need confidence that tariffs would last beyond the Trump administration and that production could not be shifted to other more cost-competitive countries.

Even then, there may be little incentive to go back to old product lines for industries that have changed dramatically because of globalization.

Across the Rust Belt and the former factory towns of the south, the transformation is apparent. In Buffalo, an old steel mill is now a solar panel factory, and a retail goods manufacturer now houses an office and restaurant park.

In Cleveland, a shuttered GM plant has reopened as a Chinese-owned auto glass company. Abandoned factories throughout North Carolina have landed on the Environmental Protection Agency’s list of “brownfield” sites that need cleanup. Read More 

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