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November 26, 2018

Sorry Steve Bannon: Manufacturing Jobs Won't Return to America

With GM's announcement on Monday to shut plants and eliminate thousands of jobs, Bannons quest to bring manufacturing jobs back to America is again a hot topic.

Love him or hate him, you have to admit that Steve Bannon is no dummy. His biggest downfall is his connection to Trump, in my opinion. Bannon became the chief executive of Donald Trump’s 2016 election campaign and subsequently served as White House Chief Strategist from the inauguration until August 2017. Had he aligned himself to a more respectable person he may actually be more well-liked.

Despite that, Steve Bannon makes some very interesting points about the rise of populism, the growing cold war with China and endless US imperialism.

He argues he is fighting for the American middle class and the working class, bringing them together regardless of ethnicity or religion. These classes of people have latched on to his dogma as they were left behind during the recovery from the Global Financial Crisis. Yet, this goes back even further. The American middle class has eroded as real median wages stagnated for about 30 years.

Why? While it's true many manufacturing jobs were shipped abroad to countries with cheaper labour it is false to believe those jobs can be brought back to America and it is false to believe offshoring is the only reason for middle class stagnation. Here's the truth: American labour is simply too expensive to compete.

If factories do return to America, they won't be staffed by people making $25/hr. Instead they will be manned by robots. Automation is the biggest culprit behind the erosion of working class jobs in America. So I'm afraid Bannon's quest will ultimately fail.

Even if - by some draconian regulatory measures - factories return to America and are forced to hire American labour at the going unionized rate, Bannon's plan will fail. This is because the economics will destroy the operating margins of these factories, inflate the prices of manufactured goods and/or erode the quality of goods produced. Something has to give and it's probably the American standard of living.

The good 'ol days of American manufacturing occurred at a time when the rest of the world was recovering from a world war. America had to be the world's manufacturing floor, just as China is today. America had the resources, the means of production, the capital and the labour to build what the world needed. So it did. And it got complacent. Meanwhile, over the course of decades, the rest of the world transformed from war-torn disasters to mercantile manufacturing powerhouses.

Today, the world is very different from that of America's manufacturing primacy. There are plenty of places for the world to cheaply produce goods - China, Vietnam, India, and so on. The world doesn't need American-made goods for the same reason Americans no longer need Sears.

 

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