Pandemic isn’t bringing back factory jobs yet
WASHINGTON — For companies with supply chains that snake around the globe, the crises have just kept coming: first the prolonged and painful U.S.-China trade war, then a pandemic that snarled shipments, stalled international travel and shut factory doors.
President Donald Trump and his advisers have seized on the disruptions to make a familiar case to manufacturers: Come back home.
“The global pandemic has proven once and for all that to be a strong nation, America must be a manufacturing nation,” Trump said at a Ford factory in Ypsilanti, Mich., on May 21. “We’re bringing it back.”
Trump has spent much of his presidency trying to coax manufacturers to return to the U.S. through tough talk and policies such as tariffs. His advisers have pointed to the trade war and the pandemic as evidence that it is too risky for multinational companies to rely on other countries, particularly China, to make their goods.
But those arguments have yet to result in a wave of factories returning. Foreign direct investment in the U.S., which measures spending from internationally owned companies to start, expand or acquire American businesses, sank drastically last year, to its lowest recorded level since 2006.
Foreign-owned companies invested about half as much in the U.S. in 2019 as they did in 2016, the year before Trump took office. After increasing in the first two years of Trump’s presidency, the number of manufacturing jobs flatlined last year and fell sharply with the pandemic. As of June, there were nearly 300,000 fewer factory jobs in the U.S. than there were when
Trump was inaugurated.
For all the president’s criticisms of global supply chains, the economic incentive to outsource still prevails. While his trade policy has made doing business abroad, particularly in China, more uncertain and costly, higher wages in the U.S. and the lure of foreign markets mean that most global businesses are choosing to remain global. Most companies that shifted out of China to avoid the crossfire of the trade war moved to other low-cost countries, such as Vietnam and Mexico. Other companies say China is a growth market they cannot afford to lose.
And while the pandemic has prompted a broader reassessment of the risks of global supply chains, it has also brought about the deepest economic contraction in generations, battering companies’ finances and forcing them to cut back on workers. Executives are uncertain what demand for their products will look like in the coming months and years — hardly the environment to encourage big investments in new U.S. factories.
Furniture maker La-Z-Boy is one example. The company shifted its production out of China to Vietnam last year to bypass Trump’s tariffs on $360 billion worth of Chinese goods, according to tracking by Panjiva, a research company. But on a June 24 earnings call, La-Z-Boy CEO Kurt Darrow announced that the pandemic’s economic effects would force the company to make steep cuts to its workforce, including in the U.S.
“While we were pleased to have brought back some 6,000 furloughed workers, we made the decision to permanently close our Newton, Miss., La-Z-Boy branded manufacturing facility and reduce our global workforce by approximately 10 percent,” Darrow said.
Under the pressure of the trade war, some multinational companies have opened new facilities in the U.S., including Williams Sonoma and Stanley Black & Decker. Taiwan Semiconductor Manufacturing Co. announced in May that it would set up a new facility in Arizona, pending funding. And makers of masks and protective gear, such as Honeywell and 3M, are expanding domestic production during the pandemic.
Politicians from both parties are offering proposals to encourage more manufacturing in the U.S., such as more funding for industries like semiconductors and pharmaceutical production.
The Trump administration’s newly created U.S. International Development Finance Corp. may offer tens of billions of dollars to help reshore manufacturing of protective equipment and generic drugs. The administration is also considering other tax incentives and “reshoring subsidies” to try to lure factories home.
But there is little data to support claims by administration officials that their trade and tax policies have encouraged significant reshoring of manufacturing or created a “blue-collar boom.”
U.S. factory output declined throughout 2019, as Trump’s trade war intensified, and it has dropped further this year, suggesting that there is no boom in new American factories. Since peaking in mid-2019, corporate investment has declined for three consecutive quarters. Total foreign direct investment in manufacturing was nearly one-third lower in the first three years of Trump’s tenure than it was in the final three years of President Barack Obama’s.
Trump ostensibly fought his trade war on behalf of U.S. manufacturing. But economists say it has actually been a drag on most U.S. factories, by increasing prices for components and inciting foreign retaliation. It has also coincided with a plunge in Chinese investment in the U.S. to $5 billion in 2019, the lowest level since 2009, according to Rhodium Group, a research firm.
Some Trump officials and their supporters blame a broader global economic malaise that has dragged down factories around the world. And they point to imports having fallen last year and now accounting for a slightly smaller share of the goods consumed by Americans as a sign of their success.