 those workers who kept their jobs did not see their income rise in step with rising overall US productivity. The gap between rich, middle class, and poor widened dramatically, creating large welfare problems.
Also uncounted has been the cost of the supply chain in terms of greenhouse gas emissions. The Environment and Energy Study Institute estimates that air and sea freight account for 4 to 5 percent of greenhouse gas emissions. Moreover, China’s factories emit far more pollution than those of the United States. Thus, China produces half the world’s steel in plants that emit 25 percent more gases than American or European factories. Ironically, the United States, Europe, and Japan are contributing to a net increase in greenhouse gas emissions by sourcing products from China.
Recently, overseas assembly operations have become automated, thereby canceling out most of the original labor cost advantage. With costs being similar worldwide, as well as the environmental cost and the uncertainty of having a single-supply location, there is no longer a strong argument for depending on far-flung centers for supplies.
Indeed, the argument is now swinging in the opposite direction because of the dynamics of innovation, which occurs most often in environments containing a variety of skills and industries. People with widely different skills run into each other and produce more innovation than those isolated in monocultures. Thus, the global supply chain based on China has tended to generate innovation there while retarding it elsewhere.
That the China-centered global supply chain is no longer appropriate (if it ever was) has recently been demonstrated by the multinational toolmaker Stanley Black and Decker. It shifted production of its Craftsman tools from China back to Fort Worth, Texas, a year ago. It reports no increase in costs and much less impact from the coronavirus than would have been the case if it had remained in China. Video editing equipment maker Avid Technologies moved operations from China to Mexico about a year ago and reports a 1 percent boost in profit margins.
As he wrestled with the Great Depression in 1933, economist John Maynard Keynes argued that ideas and arts should be international, but added: “Let the goods be homespun.” Stanley Black and Decker CEO John Loree agrees. “We have a philosophy of ‘make where you sell.’”
Clyde Prestowitz served as vice chairman of President Clinton’s Commission on Trade and Investment in Asia, and as a US trade negotiator with China, Japan, Korea, and the EU. Jeff Ferry is chief economist of the Coalition for a Prosperous America.
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