[robomartin]

> The companies shifted production abroad because they didn't want to pay for US labor.

That's not true. Reality is far more nuanced than that. Sadly, it is the equivalent of a bunch of Dodo birds falling off a cliff. And this applies to every industry, not just automobiles.

The simplified version goes something like this:

Three companies manufacture forks and knives in the US. They share the market equally. Each has 1/3 market share.

One of them decides they can be clever, manufacture in China, reduce the price of their products and get more than 1/3 share.

Their plan succeeds. Their market share goes up to 1/2 and the other two companies down to 1/4 each

Try as they might to compete, they cannot, the cost basis in the US is higher.

One of them decides "We can be just as clever" and they start manufacturing in China.

Now two of the companies, on account of their lower prices, have 2/5 of the market each. The third company is down to 1/5 share.

The last company has no choice at all, they have to manufacture in China or shut their doors.

With all three companies manufacturing in China, we are now back to each having 1/3 of the market again. Except that, due to the price war, they are now selling the same product they were selling before the transition for half the price. And, of course, their margins are no better, maybe even worse.

And now, the grand finale: The industrial development all three companies effectively funded in China has taught one or more factories how to make these products. Now the Chinese companies enter the market directly, compete with their customers and drop the prices even more. All three companies go out of business. One of the companies is acquired in bankruptcy by one of the Chinese factories who sell the same product for less under the same brand.

Ironically, the reason (one of them) consumers are at the breaking point is because this chain reaction --which required consumers to prefer cheaper goods from abroad-- managed to destroy untold number of industries everywhere. This destroyed jobs by the millions. And here we are.

In some ways this is no different from the race for higher minimum wage. The huge sucking sound you are hearing are the millions of jobs that are being lost because of it.

[pjc50]

.. and the consumers get cheaper goods.

This debate is as old as Adam Smith, or older. I think the examples he used were centered around textiles? Everyone was afraid of the new job-destroying looms.

> This destroyed jobs by the millions. And here we are.

US unemployment has been about 5% for a while. If you look back on the graph: https://www.bls.gov/charts/employment-situation/civilian-une... , there are two big outliers. One is the business cycle disaster of 2008, which blew up the property market. One is COVID.

Unemployment is basically a managed number. It can't go too far below 4% before inflation kicks in, which everyone absolutely hates, so interest rates are raised to reduce investment and consumption and thereby increase unemployment and reduce wage pressure. All of this is orthodox economics.

[robomartin]

> US unemployment has been about 5%

Anyone who has studied and actually used statistics beyond toy exercises understands how these single variable statements are 100% misplaced. I won't go into the details because it might be pointless and I have to get work done. The main point is that grabbing this magical single variable 5% unemployment number to explain 50 years of deindustrialization is, well, nonsensical.

It's like the old example about the fallacy of averages being applied to the entire sample: A billionaire and a minimum wage worker walk into a room. Someone comments that the average net worth in that room is half a billion dollars.

Right.

[intended]

How is this not a longer way of saying companies didn’t want to pay for American labour?

[robomartin]

It isn't.

The "didn't want to pay for American labour" idea is a false reality. Nobody makes decisions like that. This is preposterous.

Business decisions are made against the competitive landscape. In that chess game, if you can come up with a way to deliver the same goods for less --regardless of where they are made-- you could win greater market share, beat your competitors, etc. That's it. There is no "I don't want to pay for <insert city/state/province/country/continent> labor" in that decision.

Also, the mechanism I explained is one where once there's a first mover in an industry, it quickly becomes a chain reaction from there. There's no explicit plan or malice at all on the part of those who are facing a binary choice: do the same or shut down the business.

Here's an example that has nothing to do with China (at least now): Software manufacturing.

Companies are having to face competitors who, using AI, are able to manufacture software faster and with less people. We know this isn't smooth sailing yet, but it is happening and it is the way this is going to go.

If you run a software company and your competitors are using AI effectively with less people, all else being equal, you have a few options:

  1- Adopt AI and lower your head count
  2- Double (or more) your head count to be able to keep up
  3- Hire a large team at a region with lower costs
  4- Give up and shut down the company

On #3: Your competitors can do the same thing and still use AI to beat you. You are not playing the game against NPC's, they can make decisions and change the dynamic as much as you can.

Yeah, sure, you can add features, try to deliver a better product, etc. At the end of the day, a shop using AI well will be able to replicate everything you can throw at the market, do it quickly and at a lower cost.

So, that's it. It isn't that you are saying "I don't want to pay <insert region> software engineer wages". It's a competitive environment that forces decisions on you.

Someone once told me: A business is a living organism that tells you what you are going to do every day. You don't have the control you think you have.

I was young and stupid and did not understand what he said so many decades ago. Over time I would learn he was 100% correct.

Someone without the experience of running a non-trivial business likely isn't equipped to understand the hundreds of variables that drive the beast as you try to ride it and stay on top. From the context of someone with this experience, the single variable "don't want to pay <region> labor" idea is nothing less than, to be kind, completely inaccurate.

[NotGMan]

Tarfis seem to be the only way out.

Everyone laughed when Trump did it, now EU is doing the same.

[solumunus]

Everyone laughed at Trump because what he did was stupid. Selective tariffs have always made sense in certain contexts and have never been controversial.

[robomartin]

This is not political or even about Trump.

I manufacture products. I have been in manufacturing for decades. These are products with electronics, mechanical assemblies, software, etc.

I used to manufacture in the US. For a while, this worked out OK.

The competitors started to move production to China, one by one.

I continued to manufacture here, lowered my prices, which lowered my margins, but I accepted that against keeping people employed here.

At some point this was not sustainable and I had to layoff a few people. I bought subassemblies made in China for less and continued to assemble in the US.

That, too, became unsustainable.

Today, I have no choice but to manufacture in China. There is no way. None. No path. No way to manufacture in the US (or Europe). The supply chain is gone, it does not exist here. Our insistence in committing suicide by raising minimum wage instead of lowering our costs (lower taxes, investing in reindustrialization, etc.) has made it impossible to manufacture here. I can't pay someone $25/hour to put screws into holes or push cables into connectors. Not when everyone else is paying a very small fraction of that manufacturing in China and customers will not pay double or triple for the same product.

Do tariffs help?

I am sure that, in the mid term (a few years) they probably help a few industries. What they don't do and can't do is materially expand our industrial base. My opinion is that we have already gone too far and this is impossible to bring back.

What would we have to do to fix it?

In short, the impossible.

We would have to implement almost zero taxes, materially reduce or eliminate minimum wage, materially reduce or eliminate regulatory burden across the board, heavily subsidize a planned re-industrialization strategy and actually execute at scale and at speed.

Importantly, we would have to also create a large cultural change away from the crazy anti-business mentality that seems to prevail in certain circles and towards a maniacal entrepreneurial culture. We would have to put in systems, tools and funding to support entrepreneurship at levels that have never been seen in this country.

Again, the impossible.

And, if we actually did this we would have to sustain it for at least 25 years and, with luck, we could come out ahead.

My go-to example of just how bad things have gotten is the insanity of the California high speed train project. This is emblematic of just how badly this nation has degraded.