U.S. Factories Depend on Chinese Materials

Earlier posts have discussed supply-chain networks that bind U.S. manufacturers with Chinese and Mexican factories producing intermediate goods and materials. “Trump’s Tough Trade Talk Could Damage American Factories,” (New York Times, December 2, 2016) examines the US/China trade debate, looking first at a successful and growing manufacturing firm in Michigan:

But many existing American manufacturing jobs depend heavily on access to a broad array of goods drawn from a global supply chain — fabrics, chemicals, electronics and other parts. Many of them come from China. At Mr. Reid’s factory, imports account for roughly two-thirds of the cost of making a recliner chair.

In short, Mr. Trump’s signature trade promise, one ostensibly aimed at protecting American jobs, may well deliver the reverse: It risks making successful American manufacturers more vulnerable by raising their costs. It would unleash havoc on the global supply chain, prompting some multinationals to leave the United States and shift manufacturing to countries where they can be assured of buying components at the lowest prices.

The article emphasizes that in addition to fabrics imported from China, Mr. Reid’s firm, First Class Seating, uses U.S. materials as well as employing US workers:

Mr. Reid takes pride in using American products. His designers here in Michigan dreamed up his sleek recliner. Local hands construct the frames using American-made steel, then affix molded foam from a factory in nearby Grand Rapids. They staple upholstery to hunks of wood harvested by timber operations in Wisconsin. They do all this inside a former heating and cooling equipment factory that shut down a decade ago when the work shifted to Mexico.

New and higher tariffs on materials imported from China would raise costs for First Class Seating, likely leading to lost sales to competitors still able to access Chinese made goods and materials.

In “Globalization isn’t killing factory jobs. Trade is actually why manufacturing is up 40%,” (LA Times, August 1, 2016), Daniel Griswold also emphasized the key role of imports for US manufacturing:

Imports also play a critical role in the success of U.S. manufacturing. Measured in terms of value, more than half of what Americans import each year is not for consumption but for production. Being integrated into global supply chains allows U.S. manufacturers to source more affordable parts, components, raw materials and production equipment, making their final products more competitive.