Matisyahu's Blog

Just watching this video over on YouTube and David Frum raised some interesting points particularly regarding the way in which the economy has changed resulting in a large number of people being ‘left behind’. The problem is that when you have underfunded education then combine that with desperation bought about by a failing to non-existent social safety net then it shouldn’t be surprising that it opens up an opportunity for a charlatan to offer simplistic solutions.

I’m sorry to be the bearer of bad news but tariffs aren’t going to result in manufacturing coming back to the United States resulting in the sort of large scale labour intensive industries employing millions in the rust belt. The labour cost structure is too high and assuming the best case scenario is what you’ll see is manufacturing coming back to the United States but with a minimal workforce with most of the production line if not all of it will be automated. What is being sold to the American voter is this myth that a few tariffs then magically large scale labour intensive manufacturing will come back to the United States – the simple fact of the matter is that the US is producing more but with less manpower. I understand the temptation to be attracted to simplistic solutions but the real solution is retraining, pay for the moving of people closer to where the job creating cities are and provide a decent social safety net so that there is a just transition rather than having a large underclass of people left to fend for themselves.

Another point is that no country can be 100% self sufficient which is where the other problem comes into play. I’ll give you an example, there was a confectionary factory that moved to Mexican over a decade ago, the number of people employed in this factory was minimal given how automated food manufacturing is. Did it have to do with the cost of labour? nope because as I noted the number of people employed were minimal – what drove them out of the United States and into Mexico was the cost of inputs particularly sugar and because Mexico has a huge number of free trade agreements it would allow the business to import sugar without tariffs and quotas getting in the way, turn the inputs it into a final product then import it back into the US.

What people forget or choose to forget (depending on how cynical you view the players involved) is that when you manufacture you need inputs and there isn’t a country out there that is completely self sufficient – at some point in the manufacturing process there will need to be inputs sourced that the home country (where it is being manufactured) lacks the domestic supply either because it isn’t in a sufficient enough quantity or can not be sourced at all. The Trump administration has made no differentiation between final products and inputs – the fact that it hasn’t even been talked about demonstrates just how out of his depth Trump and his administration is.

There were a few more topics raised in the video that I’ll address in the future but that was the one that stood out to be given the current context of what is going on.