Time to revisit what happens when 20th century trade strategies are deployed in the 21st century world 
Three questions:
- Will US tariffs lead manufacturing stages to be rebundled? (i.e. will tariffs undo global value chains?)
- Will the rebundling take place in US or abroad?
- Will the rebundling inside the US create jobs for US workers or US robots?
- Will US tariffs lead manufacturing stages to be rebundled? (i.e. will tariffs undo global value chains?)
- Will the rebundling take place in US or abroad?
- Will the rebundling inside the US create jobs for US workers or US robots?
Two points:
1) Raising US trade barriers will NOT stop offshoring of US knowhow by US companies seeking to combine high-tech with low wages in China and elsewhere.
- This is what enable the global value chains in the first place, and tariffs won’t undo it.
1) Raising US trade barriers will NOT stop offshoring of US knowhow by US companies seeking to combine high-tech with low wages in China and elsewhere.
- This is what enable the global value chains in the first place, and tariffs won’t undo it.
2) Trump tariffs would make US a high-cost island for manufacturing, but not change the cost of manufacturing in Japan, Europe, Korea, Canada, Mexico, etc
Since China is a critical supplier of industrial components to all manufacturing nations (they are the OPEC of industrial inputs), trade war with China would make the US a “high-cost island” for manufacturing – just like the steel tariffs hurt US manufacturers but much more so.
If US tariffs on final goods too, higher prices can keep US manuf competitive inside US, but not outside
Thus:
–Some manuf shifts to US for sales to US market;
–Some US manuf shifts to US foreign affiliates for non-US sales.
Thus:
–Some manuf shifts to US for sales to US market;
–Some US manuf shifts to US foreign affiliates for non-US sales.
Chinese retaliation against US exports would exaggerate the trend since only exports from US would be hit by Chinese tariffs.
This would be an unintended gift to Japanese & German companies competing with US autos, trucks, airplanes, and capital equipment in third markets, and it would increase incentive for US companies to offshore production to 3rd markets.
Conclusion: Some manufacturing for US might rebundle inside the US, but it would rebundle outside the US for export sales.
BTW, this is what happened with US tried to fight Japan on semiconductors in 1980s & 1990s – most memory chip production shifted to Korea.
BTW, this is what happened with US tried to fight Japan on semiconductors in 1980s & 1990s – most memory chip production shifted to Korea.
And manufacturing Jobs?
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US workers are competing with robots at home & China abroad. The fight is not going well for them, but US situation is not unusual (see chart).
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US workers are competing with robots at home & China abroad. The fight is not going well for them, but US situation is not unusual (see chart).
•The offshored jobs were typically low-skill and routine, thus prone to automation.
•Economic logic lots of jobs for robots, few jobs for US workers (try to spot the workers in the photos of these 21st century factories).
•Economic logic lots of jobs for robots, few jobs for US workers (try to spot the workers in the photos of these 21st century factories).
For details, see my 2016 book
