A Drop In the Bucket

Globalization does have its limits. Although it is too early to call it a trend, many American manufacturers have begun to return some of their production from overseas in a process known as “reshoring”. Notable companies planning reshoring include Ford, General Electric, Otis, and several others. Executives for these corporations are quick to point out that while creating American manufacturing jobs is a source of pride, these decisions were unemotional and based only on the numbers.

And the numbers don’t lie. Despite all the valid talk about Chinese currency devaluation, the yuan has still appreciated 28% against the dollar since 2005. Chinese wages have risen around 15% a year over the past decade. Factor in a faulty electrical grid, oversight difficulties, ballooning shipping costs, and an overextended supply line, and it’s no wonder many manufacturers calculate that China simply doesn’t have the comparative advantage of previous decades.

The U.S. has also done little to become more attractive to large manufacturers. Notably, many of the returning manufacturing jobs, as well as new domestic manufacturing jobs that never left, are gravitating towards right-to-work states. Now numbering over thirty, these states (primarily red ones) have made compulsory union membership illegal. Manufacturers do not fear overly influential unions such as the UAW, whose scorched-earth negotiating tactics were key to the collapse of the Big Three automakers in recent years.

But even the UAW is learning. Recent negotiations with Ford, General Motors, and Chrysler showed a union commitment to preserving the competitiveness of its employers. Apparently, a few years of recession soul-searching has convinced the UAW that bankrupting  their employers for exorbitant health benefits and pensions didn’t bode well for long-term employment. Burning your own house down rarely ends well.

Leave it to the Obama administration to strangle the manufacturing rebirth in the delivery room. The problems faced by U.S. manufacturers are demonstrated clearly by the ongoing National Labor Relations Board vs. Boeing fiasco. After attempting to build a new factory in South Carolina for its 787 Dreamliner, Boeing was sued by the NLRB for trying to move to South Carolina, a right-to-work state, “as retaliation for past International Association of Machinists and Aerospace Workers (IAM) strikes against its Washington state facilities.”

In fact, Boeing does not plan to cut any jobs in its Washington state facilities, despite costly strikes in recent years that have nearly cost the aerospace giant lucrative contracts. In 2009, Sir Richard Branson, chairman of Virgin Airlines, warned, “If union leaders and management can’t get their act together to avoid strikes, we’re not going to come back here again. We’re already thinking, ‘Would we ever risk putting another order with Boeing?’ It’s that serious.”

Boeing listened to its customers and thought twice as to where it would locate its new Dreamliner facility. One would assume that a major new factory in a state whose unemployment rate exceeds the national average would be cause for celebration and ribbon-cutting ceremonies. Apparently not in the Obama administration. The president and his union-influenced appointees have instead attempted everything in their power to prevent the plant from being built. For President Obama, a non-union job doesn’t really count as a job. He won’t bother trying to explain that to the hordes of unemployed South Carolinians though, because, after all, they didn’t vote for him anyway.

A real jobs plan involves much more than renewed unemployment insurance and the creation of an infrastructure bank, which is little more than a warmed-over redux of 2009’s failed stimulus package. Bringing back manufacturing jobs from overseas and encouraging businesses to hire domestically will require a cut in the corporate tax rate, the highest in the world, along with a predictable regulatory regime that does not continue to heap costly new regulations on already battered businesses. Attracting capital requires attractive options for businesses, not insurmountable barriers to entry. While the “reshoring” trickle is encouraging, one can’t help but worry that it’s only a matter of time before the president realizes he didn’t completely shut the tap off.