Then there was the episode involving Foxconn, a Taiwanese company that assembles products by Apple — its biggest customer — that decided to set up an assembly plant in the United States, a decision that Trump then brandished as a personal victory. Foxconn already owns production units in the US. If the company decides to invest in the US, it is because it has good reasons to do so.
Among these are expectations about the growth of the US market, the trade obstacles that Trump is threatening to erect and the pressure that its main client Apple might bring to bear.
Finally, Trump has tackled the automotive industry. On 3 January , the company decided to cancel its USD 1. Was this a turnaround by the company? The car maker is nevertheless confirming its decision to shift its production capacity for the Focus model from Wayne, Michigan to Hermosillo, Mexico The Economist, Wheel Spin, These decisions therefore reflect more a repositioning by the company rather than a relocation.
Car makers have every interest in showing clean hands in order to obtain other benefits, such as the relaxation of emission regulations. Trump is going through all the manufacturers and suspects that any production overseas represents a raid on American jobs. It is not by chance that he is focusing on the automotive industry, as this sector is emblematic of the American way of life, a symbol of US industrial power at a time when the rust belt was still glitzy. But the sector is now highly globalized, and one wonders how at this point Trump can ignore or deny the way the industry is organized and go on deceiving his supporters.
Globalization can affect the way companies organize production in two ways. First, in combination with technical progress, it can lead to the disappearance of manufacturing following complete outsourcing, while maintaining control over the chains where profits are realized. This is for instance the case of Apple, which does not have its own plants abroad. Apple cannot be compelled to bring back what it has not taken away!
If tariffs increase, Apple will import more expensive components, the State will recover part of the rent from innovation and consumers will pay part of the tax.
Second, globalization may also result in outsourcing production, and in this case the company does own production sites abroad, such as in the automotive sector as well as in textiles and toys, like Mattel. Jobs have indeed been displaced, but sometimes the skills as well, which it is not necessarily easy to find again in the home country.
The same is true for the cost in China. The relocation of this type of employment would entail a sharp drop in wages, unless higher customs duties which raise foreign wages , lower energy and tax costs and higher productivity which reduce American wages led to a new trade-off. But this would require major changes that would inevitably impact the rest of the non-manufacturing economy, i. Moreover, a large portion of imports fuel exports: in other words, a major part of Chinese and Mexican jobs activate American jobs whose output is sold abroad because the development of the emerging countries has led to the solvency of demand.
There is such interdependence today that no one knows what the consequences of a new employment equilibrium would be for future prices, profits, investments and jobs. Consider again the case of Foxconn. If this company invests, it would be to serve the US market. Since production costs are higher there, this implies three possible non-mutually exclusive strategies. The company cuts its margins Apple too in order not to reduce its market share: Foxconn and Apple accept this reduction in margins in order to offset the negative impact on sales due to the stigma cast by Trump on the company.
The second strategy would be to increase the prices of products on the US market: this would mean consumers are financing the few jobs created. The third strategy: the company develops different production processes, including intensive automation that cuts the labour costs while also reducing logistics costs to serve the US market. The Trump effect figures in this mix in so far as it requires Apple to justify its strategy of localization. In the case of manufacturers, the multiplication of investments, if confirmed, will inflate both the supply of labour as well as supply of domestic production.
This would increase competition among businesses. Not only would wages increase, but margins would be reduced due to higher production costs, higher prices for imported components and heightened competition in the domestic market. It is far from certain that it is US manufacturers who would come out on top.
At that point, if it came to accepting the Chinese taking holdings in their capital, they would be hoisted on their own petard!
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The investment decisions taken by the car makers as a whole could even result in labour shortages — the US job market is close to full employment — leading to higher wages and hence production costs , resulting in turn in either accelerating robotization or bringing in foreign workers.
So ultimately, if we ask ourselves what would be the impact of additional investments on America, it all depends on what incentives they are responding to.
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If they are responding to expectations of an increase in demand, then Trump will need to stick to his promises of a recovery. Finally, if investment is made in exchange for fiscal expenditure lower taxes, investment subsidies, financial support , then the cost to the public purse will result in lower present or future expenditure.
In short, the investment will take place if it benefits the company: whether it locates in the country of origin or abroad, it is always conditional on the promise of future income. Proponents of protectionist measures respond: 1 what does it matter if firms produce less in total, if the distribution of their output is more advantageous to the domestic territory; 2 what does it matter if they make less profit, as these multinationals already make so much!
This neglects that companies also have integrated strategies — that is, global strategies — and that if they earn less profits, they will invest less, which will eventually impact their future growth. It neglects that trade, while not balanced, is bilateral, that is, if we reduce the incomes of our partners by reducing their exports, we reduce our own exports.
In other words, if the income of Mexicans falls substantially, they will buy a lot less American goods. Furthermore, protectionism — which always winds up being bilateral retaliation requires it — protects not the weak, but the profiteers. Some argue that protectionist measures are a means of relocating production sites to consumption sites in order to avoid barriers , and hence to recover activities that have been outsourced.
Note: Citations are based on reference standards.
Reindustrializing New York State: Strategies, Implications, Challenges
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