Not coming home

“Tariffs are…most importantly a powerful way to get companies to come to the USA and to get companies that have left us for other lands to COME BACK HOME,” President Trump tweeted last Friday (his caps). The facts have yet to bear him out, but if they ever do, it is unlikely to be in ways that reopen the shuttered mills of the rust belt or provide much succour for his base.

As of now, reports the business consultancy AT Kearney, Trump’s trade war with China is indeed causing US companies to diversify their supply chains. But not home. They are turning to  other Asian countries, many of which enjoy preferential access to the US market as developing nations (at least for the time being). Mexico is also getting extra business.

But let us say that over time Trump’s vision pans out, US manufacturers reshore and foreign firms locate factories in the US to avoid tariffs . It is still hard to see how his approach promotes the return of well-paid manufacturing jobs he promised on the campaign trail.

One sector that does stand to benefit from Trumponomics is robotics, Brian Gahsman, portfolio manager of the Alphacentric Global Innovations Fund, tells CNBC. His contention: to remain competitive if Trump’s tariffs persuade them to relocate production to the US, firms will replace cheap foreign workers not with expensive American ones but with machines. Firms looking to export to the US will face the same imperative to automate.

The authors of a paper, “Robots, Reshoring and the Lot of Low-Skill Workers”, presented at the Royal Economic Society’s annual conference earlier this year, report that reshoring has been on the rise since 2000, well before the new protectionism was a factor, driven by a combination of rising labour costs in China and advances in automation. 

They cite the example of Adidas which relocated production back to the US and Germany from China and India, with robots taking over all phases of production other than the lacing of shoes (which is apparently still too difficult for a robot). Work performed by more than 1000 in Asia is now done by 160. The latter are much better paid, obviously, but they are much more skilled — engineers rather than production line workers.

“Reshoring,” the paper concludes, “is positively associated with labor market conditions for high-skilled labour but not for low-skilled labor, which means it is associated with increasing inequality…Renegotiating trade deals will not be a highly effective tool if the goal is to raise wages and employment of industrial workers at home.”

Reshoring may not be such a wonderful thing for Africa, either, if Trump gets his way, not that that would bother him in the least.

Ian Goldin, former CEO of the Development Bank of South Africa, warned in an arresting documentary broadcast by the BBC World Service in April that the rise of robotics and artificial intelligence in advanced economies “could mean that the age of outsourcing production to developing countries is coming to an end” — short-circuiting Africa’s hopes of Asian-style export-driven industrialisation that initiatives like America’s African Growth and Opportunity Act were intended to promote.

“The politics of protectionism will promote this”, Goldin cites the head of the UN’s International Labour Organisation as saying. “The demand to repatriate manufacturing to advanced countries has never been higher, although it is not jobs but AI and robotic processes that are coming home.”

Goldin’s colleague at the Oxford Martin School, Carl Benedikt Frey, has a different take in his new book, The Technology Trap: Capital, Labour and Power in the Age of Automation. He does not rule out that the industrial West may be headed for a Luddite backlash against labour-replacing technology — hard on the heels of the heels of the populist backlash against globalisation that gave us Trump. 

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