On November 8th, the American people and people the world over experienced a surprise of historic proportions, as Donald Trump defied the polls and bucked the popular narrative to defeat Hillary Clinton and secure his place in the Oval Office. In the run-up to the historic election, Trump’s overarching message with regard to the economy was centered on the need for the United States to start “winning” again on the global stage, with a particular emphasis on the trade deals that he believes have victimized Americans. However, his proposed plans for righting the ship have left economists with questions about the road ahead, and how his plans will look in practice is anybody’s guess. In this article, we will examine Trump’s trade solutions against the backdrop of trends in the manufacturing industry in the United States in order to shed some light on what we can expect in this new political era.
The State of the Industry
In the 2000s, American manufacturing experienced the steepest losses in employment in American history as well as a serious decline in output. These were caused in no small part by a significant worsening of the manufacturing goods trade deficit, which was $458 billion in 2013. However, since the recession ended in 2009, output and employment in manufacturing in the United States have risen steadily, with output up 38%, and have surpassed even pre-recession peaks. The United States Department of Commerce estimate that about a quarter of that post-recession growth has been fuelled by exports, and the transportation, chemical and machinery manufacturing industries have benefitted the most. However, in other industries, like computers and electronics, despite a growth in demand within the US market, a trend towards global trade and importation has meant that growth in domestic manufacturing has remained flat.
The issue of the rising trade deficits with China and, to a much smaller degree, Mexico, was a major talking point for President-Elect Trump. Take the steel industry for example. Before China’s admittance to the World Trade Organization in 2001, they accounted for 5% of the world’s crude steel to America’s 14%. As of 2014, America’s output dropped to 5% while China rose to nearly 50%. There are estimates that import competition from China has been responsible for between one-quarter to one‐half of the lost American manufacturing jobs in the 2000s. A study by the Federal Reserve supports this conclusion, finding that Chinese exports accounted for between 750,000 and 3.5 million lost manufacturing jobs in the 2000s.
Trump’s Trade Solution
Trump has proposed taking some rather extreme measures in his campaign to “Make America Wealthy Again”. He has floated the idea of imposing double-digit tariffs on goods from China and Mexico in order to discourage American companies from sending their jobs abroad and to stimulate the domestic manufacturing industry. The underlying reasoning behind this makes some sense, as it will allow American companies to be more competitive and create more jobs. In fact, it is estimated that if the trade deficit could be reduced by even one percent of GDP it could help to create 500,000 to 1 million new manufacturing jobs. This type of growth could serve to revitalize the industry and bring new life to areas that have been hurt by globalization. GRANTED, there are many risks and drawbacks to the proposed tariffs, including higher costs of goods, both to the population and the manufacturing companies themselves as well as the negative response from China that could damage American exports. Although whether the positive impact of a tariff is questionable, it seems likely that a well-structured deal would boost the industry, at least in the short-term.
“The outcome of this election is a huge, triple-crown win for American manufacturing and business growth”.
Israel Ellis, AdvancePro CEO
If Trump does implement his stated plan, the effects could be felt very quickly. His power as president will allow him to make trade decisions with little need for approval, and once the change is made consumers will be looking for domestic goods to fill their demand. In this respect, of the biggest winners could be the small businesses (less than 20 employees) that comprise three quarters of all manufacturing firms in the US. Because of a small firm’s potential for agility, they would be well suited to position themselves to take advantage of the early ramifications of the Trump presidency. They need to be able to grow quickly, produce rapidly and adjust on the fly. An inventory management software like AdvancePro is perfectly suited to a business that finds itself in such an area of opportunity.
AdvancePro is a full-scale ERP software, loaded with resources and functionality, that integrates with QuickBooks to track your inventory and materials at every stage of the manufacturing process, reducing your need to manually track stock and gives you control of your enterprise. AdvancePro works with traditional build to stock, build on demand or outsourcing manufacturing business models, and it’s flexibility and price set it apart from other products in its class. Complete the form below to arrange a demo and find out how you can be running AdvancePro in time for the manufacturing boom!
Michael Vodianoi is AdvancePro’s Director of Marketing & Communications
Israel Ellis is AdvancePro’s CEO