Hey, everyone. It’s Cardiff. This is THE INDICATOR FROM PLANET MONEY. Today is, of course, Election Day. And here on THE INDICATOR, we have already examined the big differences in the economic policy agendas of the two candidates, Donald Trump and Joe Biden. So today on the show, we’re going to actually look at a goal that the two candidates actually agree on. Specifically, they both want to compel U.S. manufacturing companies to move their operations out of foreign countries, most of all out of China, and back to the U.S., back to U.S. shores so that they end up hiring U.S. workers into those manufacturing jobs. Both candidates want to reshore, as it’s called, those jobs.
Now, there’s a very contentious debate within economics about whether getting companies to reshore jobs is actually a good idea. But that’s not what today’s show is about. Today’s show is about the different approaches to achieving that goal that each candidate wants to pursue and about what’s at stake for the U.S. economy, U.S. companies and U.S. workers.
And to tell us all about that, I’m going to be speaking today with Matt Klein. He’s the author of a book called “Trade Wars Are Class Wars”, and he’s an economics commentator at Barron’s. Matt has a new article in Barron’s that looks at the economics of reshoring jobs, and our chat about that topic is coming up right after a quick break.
GARCIA: Matt Klein, welcome back to THE INDICATOR.
MATT KLEIN: Thanks very much for having me.
GARCIA: Matt, let me start with this. U.S. companies have invested an awful lot in building factories in China, setting up their operations in China. Give us a sense of just how much is at stake for those companies if they were to feel compelled to leave China and move their operations back to the U.S.
KLEIN: So it’s a lot of money. According to analysis from the Rhodium Group, American companies have, since the early 1990s, invested about $260 billion in Chinese operations. And if they were to, you know, abandon China and set up somewhere else, all of those assets would be worthless. So they would have lost $260 billion. And then on top of that, they’d have to spend a lot of money replacing those assets somewhere else. And on top of that, chances are wherever they moved operations, their profit margins wouldn’t be as good as they were in China because otherwise, they would have already been there and not been in China. So they’re going to be perpetually losing money on that from being less profitable. So it would be a very expensive proposition.
GARCIA: I would imagine, then, U.S. companies are extremely reluctant to start voluntarily moving those jobs back to the U.S., where they would have to rebuild all of these things that they’ve already invested in building in China.
KLEIN: That’s right. So there was a survey that was published over the summer by the U.S. Chamber of Commerce in Shanghai. And they found that of U.S. manufacturers with operations in China, 71% had no plans to move production at all. And of the remainder, you know, only 4% said they’re going to move to the U.S. And even then, of those that were planning to move, you know, usually it was to places like Vietnam or Mexico or what have you. They weren’t going to move all of their Chinese production. Most were just saying they were going to move, you know, sort of 10- to 30% of their Chinese production, so there is just very little appetite among U.S. businesses to move anything out of China.
GARCIA: So it seems like, given the expense for U.S. companies in moving their operations out of China and back to the U.S., they would probably need some kind of a monetary or a financial incentive from the government itself, right? Is that a fair way to characterize this, that somebody else needs to provide the carrot or the stick to get these companies to come back?
KLEIN: I think that’s absolutely right. I mean, I guess the simplest way of thinking about this is, they spent a very long time setting up their operations to be the way they are. And so they have to have a very good reason to change them. And that reason is ultimately going to be money, one way or another.
GARCIA: OK, so now let’s go through each of the two candidates’ plans for reshoring jobs back to the U.S. from China. Why don’t you start with Joe Biden?
KLEIN: So there are a lot of moving parts here. But basically, the key things, as I understand them, is on the one hand, the government will just spend a lot more money on U.S.-made manufactured goods, just explicitly saying we want to, you know, procure hundreds of billions of dollars of stuff. And we’re going to make sure that we get them from American manufacturers. There’s also going to be subsidies for research and development in the U.S., and there are going to be changes to regulations and taxes to essentially discourage companies from moving jobs offshore and, in particular, if the federal government is buying something, to make sure that there’s a certain amount of whatever it is they’re buying that actually comes from American suppliers.
GARCIA: OK. And the Trump plan, which, I imagine, includes maybe a bigger role for the stick than the carrot…
KLEIN: Yeah. I mean, again, there’s certainly a mix on both sides. But the thing that’s been most prominent has been, you know, the idea of tariffs. And we’ve seen this particularly in the case of China, where essentially, you are just saying, if you’re importing anything from China or some other countries that have been hit with tariffs, then you’ll – you know, the government is just going to add on some surcharge, whether it’s, you know, 10%, 25%, 30%, what have you. And that, obviously, is going to change the – sort of the relative cost of goods, so that’s definitely sort of on the stick side.
GARCIA: Yeah. And, Matt, your piece makes kind of this interesting point, which is that these approaches to reshoring or bringing back U.S. jobs are not just about the jobs themselves. They’re also about getting the U.S. back into high-tech manufacturing, which appears to have stagnated for, you know, maybe one or two decades, even.
KLEIN: Yeah. It’s really striking, actually, that even with the growth of the U.S. semiconductor industry, which is still among the top in the world, overall manufacturing output in the U.S. has essentially been flat over the past 20 years. Manufacturing capacity in the U.S. has been flat over the past 20 years. Even though the U.S. economy has grown a lot, even though the global economy has grown a tremendous amount, the manufacturing sector has been stagnant. And you see that in all sorts of things.
And, in fact, as you mentioned, with, you know, high-tech, with semiconductors or with pharmaceuticals, that production has actually really, you know, been hit in a lot of ways, that sort of – the U.S.-made chips are no longer the leaders, that it’s actually, you know, Taiwan Semiconductor or Samsung that are at the cutting edge there. With pharma, U.S. manufacturing production peaked in 2006. It’s fallen 20% since then. You’ve seen that’s basically been displaced by imports from elsewhere. So you can see plausibly that, to the extent that there’s research showing the connection between, you know, being close to production and actually being at the technological frontier of research, that – you know, that could be a real problem longer term.
GARCIA: Yeah. And, Matt, I could imagine somebody listening to this conversation saying, you know what? I understand that. And I’m on board with, like, U.S. high-tech, well-paying manufacturing jobs but that the way to get those jobs is to change domestic policies, like regulations or tax policies, and that those might be just as effective as an approach that says, hey, let’s get the jobs out of China and back to the U.S. What do you think about that argument?
KLEIN: Well, I think, you know, in many ways, both of the presidential candidates would agree with that. You know, you can see, if sort of you look at their policies as a whole, there are elements of that on both sides, whether it’s supporting, you know, subsidizing research or saying, you know, the government’s going to support demand or, you know, various tax incentives for investment and changes in expensing, changes in regulation. You know, they both have ideas that, in principle, would make it more attractive to, you know, create jobs and invest in the United States.
GARCIA: Yeah. And, Matt, do we have a sense of how to think about which of these approaches from Biden and Trump would be the most likely to succeed in actually bringing jobs back to the U.S.?
KLEIN: Well, to the extent that we’ve had a couple of years to see the Trump strategy in action and that it hasn’t really had a major impact on manufacturing employment or manufacturing production, I think we can reasonably rule out it being, you know, tremendously effective. Maybe compared to the alternative, it was helpful, but it wasn’t, you know, dramatically effective. So I think compared to that, commitments to spend, you know, hundreds of billions of dollars additionally on U.S. manufacturers when, you know, total manufactured goods sales in the U.S. are sort of in the order of $6 trillion – I mean, that’s a significant, you know, percentage. And so you could imagine that being – you know, having a real impact there.
GARCIA: Matt Klein, author of “Trade Wars Are Class Wars”, thanks so much, man.
KLEIN: Thank you for having me.
GARCIA: This episode of THE INDICATOR was produced by Jamila Huxtable and fact-checked by Sean Saldana. Our editor is Paddy Hirsch, and THE INDICATOR is a production of NPR.
(SOUNDBITE OF DROP ELECTRIC SONG, “WAKING UP TO THE FIRE”)