It’s about more than learning how to screw in little screws.
The hard reset of global trade relations initiated by the US is aimed, at least in large part, at addressing something even critics of tariffs might agree merits attention: imbalances that have left many countries producing far fewer things than they used to, relying on imports to fill the void, and feeling less stable and secure as a result.
For now, economists generally don’t see much likelihood of a mass reshoring of manufacturing jobs in response to tariffs. But Labour Day, which is being celebrated in much of world next week, serves as an annual reminder of the difficult realities that sent so many of those jobs overseas in the first place. It’s also an opportunity to imagine what reindustrialization in a rewired global economy might look like – a world where efforts made over the past half-century to source new workers in far-flung places are effectively reversed.
America’s biggest blue-jeans brand shuttered its last US-based plants roughly two decades ago. At that point Lesotho, a small country of 2.3 million people encompassed by South Africa, was ramping up its own denim production to serve the US market. The results: a $235 million trade deficit in Lesotho’s favour, and a recent US plan to hit imports from Lesotho with 50% tariffs (the set of levies that includes this measure is currently paused).
Making jeans in the US again would mean hiring in a country where the average hourly manufacturing wage is slightly more than $35, compared with about $14 in Lesotho’s capital. Winning that job in a re-opened iconic former jeans factory in central San Francisco could mean earning even five dollars more per hour than the national average.
But candidates would have to live at least commuting distance away from one of the most expensive places in the world to rent an apartment. Buying a used car to make that daily commute would cost about 22% more than it did when the factory closed.
There may also be fewer colleagues around than in the past. Automation has surged in the US, as the cost of industrial robots has declined. Which may call for technical skills; if someone is transitioning from a lower-paid job at a big-box store or a restaurant, specialized training would almost certainly have to come with that pay bump.
All of which means that people, often overlooked in the process of shifting jobs overseas, would have to come back into sharp focus as a priority in order to bring those jobs back home.
Maximizing advantage, prioritizing people
Who would foot the bill for that refocus?
In the past, the cost of artificially increasing domestic manufacturing employment through protectionism has fallen to taxpayers. Modern economies aren’t well-configured for contortions like that. They’re designed to maximize comparative advantage, which dictates that some places are able to do certain things a lot more cost-effectively than others. It can function a bit like the law of gravity; disregarding it may mean getting crushed.
America’s last mass-production boom resulted from a need to fight a war and an increase in middle-class spending that followed. It wouldn’t last. By March 2025, the number of people in the country employed in manufacturing would recede to almost exactly what it had been in December 1941, when the US officially entered World War II. During the same period, the overall US population more than doubled.
Europe is now committing to military spending increases of its own. Tariff considerations may encourage European governments to end their historical reliance on American-made weapons, however, and start producing more domestically. It’s been suggested that in Germany, someone working in the ailing auto industry could make a relatively smooth transition to defense manufacturing. From an assembly line making car components, to one producing gun barrels.
Other attempted transitions have been less smooth. A German maker of athletic shoes and other sportswear, with traditional offshore production locations in East Asia, located a pair of souped-up factories at home and in the US in 2017. The effort lasted about two years before it, too, was transferred to Asia. Comparative advantage wins again.
People tend to be in favor of attempts to create a wider variety of jobs where they live. One study found they often like the idea of reshoring, as long as it doesn’t make things too expensive, or take jobs from countries deemed less “foreign” than others.
The US actually saw a surge of domestic investment in new factories in the very recent past, triggered by incentives for green-technology production in the Inflation Reduction Act. Proponents called it a crown jewel of industrial policy; critics didn’t like the legislation’s own methods of market distortion – not as blunt as tariffs, but also designed to favour US-based production. Much of it has now been put on ice.
A desire to produce more at home is a natural response to full-tilt globalization and intercontinental crises. The sudden lack of easy access to many things during COVID-19 drove that point home. A few months into the pandemic, a report published in Australia noted that the country ranked last among OECD members in terms of manufacturing self-sufficiency, and that the number of domestic manufacturers employing more than 200 people had slipped by more than a third since 2007. Plans to “make more things here” were subsequently unveiled.
Australia’s economic profile was formed by comparative advantage. It has certain resources in abundance that can be used to make things elsewhere, like coal and iron ore, and it sells them in quantities that few other countries (sometimes no other countries) can match. It’s not just Australia; global trade has never really been balanced, and probably never will be.
Attempts to expand footprints within that skewed structure will also be constant. One predicted long-term impact of prohibitive tariffs is the emergence of India as the new factory to the world. That could mean a future where an average day’s work for much of the labour force there will start to look a lot more like it does currently in China.
Labour Day is an occasion to consider the people who would be tasked with actually doing that day’s work, smack in the middle of a global inflection point that may be as filled with uncertainty as it is with promise.
Some jobs from a more protectionist future are already here. A semiconductor plant built in the US by a company from Taiwan, China that’s so advanced it has no real equivalent in the country – the result of a desire in pre-tariff-war America to become more self-sufficient in the technology, and a long and costly development cycle – is hiring.
Source: World Economic Forum
