How Free Trade, Protectionism and Automation Affect the Manufacturing Economy
It is well known that appeals to the manufacturing industry, especially in the areas of coal mining and steel production, were a cornerstone of Donald Trump’s successful presidential campaign. The general manufacturing decline in the United States is well documented. Though more than 12 million Americans still work in manufacturing today, the country hemorrhaged employment in the sector, losing 5 million manufacturing jobs since 2000. This starkly contrasts from America in 1960, where one in four Americans, not one in 10, had a job in manufacturing. Both Trump and the former Democratic presidential hopeful Bernie Sanders notably pointed fingers at globalization and free trade, particularly with Mexico and China, on manufacturing’s struggles. It’s worth analyzing, then, what free trade and protectionist policies, not to mention the force of automation, mean for manufacturing (and metal fabrication) in the present day.
Trumponomics: The President’s Approach to Trade
Early signs of Trump’s rhetoric and actions since taking the presidency have indicated a move towards protectionist policies intended, of course, to help revive manufacturing employment domestically. Though the proposed TPP (Trans-Pacific Partnership) — a 12-nation trade agreement including the U.S., Japan, Vietnam and others — was arguably already dead in the water before the election, Trump’s executive order to properly withdraw from the trade agreement indicates a sharp change of direction from his predecessor, Barack Obama, and even former Republicans, such as Ronald Reagan. His dispute with Mexico over the proposed border wall also raised the possibility of instituting a 20 percent tax on imported goods from the Mexicans to pay for it, a move that would make ripples in the U.S. economy.
Protectionism Gone Wrong
In small or large scales, imposing protectionist policies is certainly not unique to Trump. As much of an advocate as they were for free trade, even Reagan and George H. W. Bush enacted steel tariffs to protect the domestic steel industry, especially in the Rust Belt. One of the more notable tariffs was an eight to 30 percent tax imposed on foreign steel by George W. Bush in 2002, a move that would be cancelled by late 2003 despite plans to keep the tariff in place until 2005. A report by the CITAC foundation was particularly damning, finding that an estimated 200,000 Americans lost their jobs to higher steel prices, including 50,000 in the metal fabrication sector. Though crafted as a political move directed specifically at the swing states of the Rust Belt, Ohio (10,553 jobs lost), Michigan (9,829 jobs lost) and Pennsylvania (8,400 jobs lost) were among the hardest hit.
How Fair is Free Trade?
President Trump has indicated he’s considering imposing a tariff of five percent or more on all imports, not just steel. Paul Ryan, the Speaker of the House of Representatives, said recently that Congress would not be raising tariffs and instead rely on tax reform to help domestic manufacturers.
That’s not to say that “free trade” has always been fair or positive for the global manufacturing economy. China famously saturated the global steel market, accounting for roughly half of all the steel produced around the world in 2014. In order to keep China in check, the Department of Commerce, in a move that was mirrored by the European Union, imposed a 265.79 percent tariff on cold-rolled steel. While skeptics expect this tariff to hardly help a domestic steel industry suffering from other factors at play, such as the decline of the Oil and Gas industry, the tariffs influenced negotiations with China to lower its superfluous outpouring of steel into the global market.
The Elephant in the Room — Automation
As manufacturing goes, unfortunately for President Trump and Senator Sanders, trade policy is hardly at the heart of job losses in the industry. As the MIT Technology Review demonstrates, manufacturing jobs aren’t coming back while those that believe they can are ignoring the realities of advanced manufacturing. A dip in real output during the 2009 financial crisis notwithstanding, overall real output in the manufacturing sector continues to increase to unprecedented heights while employment steadily drops. The reality remains that the automation of jobs that once paid workers $25 an hour with benefits are now done by increasingly more efficient machines. According to a Boston Study Group report, the globally installed base for robots has been growing at around two to three percent each year for a decade, which correlates directly with global manufacturing output. Exacerbating the issue is that not only are robotics and machines becoming more efficient (to the point that they are performing work well below regular working wages), but the costs of purchasing them continue to drop.
Where Does the Metal Fabrication Industry Go Now?
While the markets are actively trying to predict which industries will benefit from a Trump presidency, the metal fabrication industry is still — like everyone else — entering the unknown. Fortunately for metal fabrication, when one serviced industry declines, another is sure to rise. In a 2017 metal fabrication forecast by The Fabricator, the automotive industry looks to maintain its recently high levels of production with more than 17 million vehicles expected to be sold this year while metal fabricators are working at a healthy 80 percent capacity.
Another industry on the watch list for growth includes construction, especially as Caterpillar’s stocks soared in anticipation of more infrastructure projects under Trump’s presidency (which is despite the company posting a record 49 consecutive months of declining retail sales). Two of the major cash cows for metal fabrication, agriculture and Oil and Gas, are still in slumps but could see a rise, or potentially further stagnation, depending on market forces.
As technology and automation spending is concerned, Chris Kuehl, an economic analyst at FMA, suggested manufacturers might make a sprint for overseas capital equipment before Trump implements any potential tariffs.
“When Trump is in office, that urgency may accelerate,” Kuehl said.
What doesn’t change, regardless of the presidency or the ebbs and flows of the economy, is the importance of customer diversification. Just as fabricators learned as the Oil and Gas industry began its decline, those with the most diverse customer bases will always continue to reap the rewards of their relationships. Those that put their eggs in few baskets, on the other hand, will likely suffer a tumultuous four years.