U.S. trade tariff’s unlikely to directly translate into more jobs

One of the more significant reasons why Trump’s tariffs will not translate into more U.S. jobs is that consumers are not willing to pay a premium for ‘Made in USA’ goods when goods of the same quality is available for much lower price points. Cash is king.

U.S. President Donald Trump’s trade war with China may not directly translate to more U.S. jobs.

In the United States, in a town which had been synonymous with a U.S. furniture industry and where currently a 30-feet tall chair is the chief landmark, years of imports from China has decimated the industry. As a result many here greet the possibility of tariffs on Chinese goods with a shrug.

Trump has threatened to levy tariffs of up to 25% on $500 billion Chinese goods exported to the U.S. as a way to bring back hundreds of thousands of manufacturing jobs back to the States.

However, the transformation of U.S. industries since China’s emergence as the world’s low-cost producer, nearly two decades ago, means many U.S. companies no longer directly compete with Chinese imports; Trump’s tariffs may not really translate into more U.S. manufacturing jobs.

According to executives from family-owned Bernhardt Furniture in Lenoir, it would take around $30 million in capital investment to resurrect standard wood furniture lines which are now mainly manufactured in low-cost countries such as Vietnam and China.

This 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 manufacture the kind of furniture that is currently imported, said Alex Bernhardt Jr., CEO of the company.

What the company needs, say executives, is open markets and a steady economy. They opine, this will allow them to grow and enable them to increase their workforce.

A matured market

According to economists the same applies to U.S. manufacturing as well. In order to invest and hire more workers, U.S. companies need consumers who prefer U.S.-made goods and are willing to shell out a premium for it.

Since they are the ones who will be investing the money, U.S. companies also want that tariffs should last beyond Trump’s years in office and that production should not be shifted to other more competitive countries.

Irrespective of how feasible meeting this demand is, there is very little incentive for U.S. businesses, to go back to old production lines since much has changed due to globalization.

The transformation is evident across the Rust Belt. Former factory towns in the south which earlier used to house steel mills now feature solar panel factories; retail goods manufacturer now houses an office and restaurant park. In Cleveland, a closed-down GM plant has reopened with a Chinese-ownership; the former auto plant now makes glass panes for automobiles.

Abandoned factories throughout North Carolina have landed on the Environmental Protection Agency’s list of “brownfield” sites that need cleanup.

While a few companies are mulling the options of moving back production from China as a result of the tariffs, jobs though are unlikely to head home.

Case in point: CCTY Bearing stated, it plans on moving its U.S.-bound production from Zhenjiang, China, to a new plant near Mumbai, India in order to keep labor costs low.

Although JLab Audio’s China-manufactured Bluetooth products are not on the tariff list, yet, Win Cramer, its CEO is already scouting for suppliers in Mexico and Vietnam.

“I would love to build products onshore, but consumers have proven time and time again that “Made in America” isn’t as valuable a statement as it once was,” said Cramer. “They make decisions based on the cost.”

If JLab Audio were to make its Bluetooth earbuds in the U.S., its price would jump from its current $20 to $50, said Cramer. This is far more than what tariffs would add to the cost of imports.

In effect, as a result of the escalating trade war, low-cost countries such as India and Vietnam may be the ultimate winners of Trump’s tariffs.

LG Electronics and Samsung Electronics are considering moving parts of their U.S.-bound refrigerator and air conditioner production either back home or to Mexico, said sources within the companies as well as the local media.

The need for skilled workforce

So far Trump has imposed tariffs on $250 billion of Chinese goods imported to the U.S. and has threatened to impose tariffs on all Chinese goods imported to the U.S., just like China has imposed tariffs on all U.S. goods imported by it.

Many economists opine, these new tariffs would either balance or slow down the rate of hiring in the manufacturing sector where employment has grown by 10% over the last 8 years without special protection.

The furniture industry, among the hardest hit by Chinese imports, has added 43,000 jobs since its employment hit a low of 350,000 in 2011; it was helped by a recovering housing market and strong consumer demand.

However, echoing the Federal Reserve’s concern on the shortage of workers, industry officials says, skilled upholsterers and other workers are hard to find.

In Thomasville, few residents expect that tariffs will bring furniture manufacturing back to its heyday and the community does not also feel a need for it, said city manager Kelly Craver.

After the recession, Thomasville has become a residential hub for growing nearby cities including Charlotte and Greensboro. It has a mix of manufacturing and white collar jobs.

“We, for the very first time in this city’s existence, are going to have a diversified economy,” said Craver.

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Categories: Creativity, Economy & Finance, Entrepreneurship, Geopolitics, HR & Organization, Regulations & Legal, Strategy

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