4

Yes it's what everyone is talking about but bear with me. In the following question I'm not trying to start an argument, I'm not even from the US. This is a question and not a kick-starter to a debate.

  • Donald Trump claims he'll create a load of jobs in the US by bringing back factories that US based TNCs (trans national corporations) have built in China, Bangladesh, India etc.
  • It appears people think that because of his success in business he'll help repair the national debt.

So these may not look like two contradicting points but here's how they are: So FDI (foreign direct investment) is the driving force of globalisation and since the 1920s a global shift of manufacturing from the US to China. So all this outsourcing by TNCs is in effect, saving the US a lot of money. Here's why:

  1. It costs less to build a factory in China than it does in the US
  2. Due to the large amount of the population in poverty, minimum wage is lower and therefore less money has to be paid for a same amount of work
  3. Operating overseas spreads the brand name. Ford for example is made and used all over the world.
  4. Having a factory in another nation allows the host country to take advantage of a trade bloc the invested nation may be part of, decreasing the money spent on trade tariffs.

So the basic advantage of investing in other countries is creating a vast network of hubs that utilise (take advantage of) trade blocs, cheap labour, spreading of brand, bigger market, less building/safety restrictions. All of these save a big corporation a lot of money. This is money that is eventually making it to the US. (if the corporation is from the US) Therefore rebuilding, renovating and re equipping derelict factories in the US is going to create jobs, but because the minimum wage is higher and stricter rules around working environment. This sets the corporation back a lot of money spent of higher wages and newer factories. Yes they can sell the factories in China but that wouldn't cover the costs.

So my question is:

How would Donald Trump go about bringing back industry to the US without making all the TNCs go bankrupt?

  • 2
    Not to sound rude, but why are you asking us instead of asking Trump campaign? :) – user4012 Nov 9 '16 at 0:58
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    @user4012 how would I ask the trump campaign. And don't worry it's not rude – jan macbean Nov 9 '16 at 8:09
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    There is an implicit assumption that he wants to avoid bankrupting TNCs. Has he said that? – JimmyJames Nov 9 '16 at 15:01
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    Some of TNCs would go bankrupt in the process - if they will not manage to adapt to new rules. But besides obvious price increases it would lead to other effects. E.g. industrial worker families were postponing their spending on house repairs. If they would be more confident in job prospect they would do spend more on this very expensive projects with borrowed money. The magnitude can be huge and by itself it can cause some growth in economic activity. In combination with market protection against sub- standard materials import from china it may start other activities... – lowtech Nov 9 '16 at 17:32
  • @janmacbean - I'm pretty sure there is contact info on campaign website (admittedly, i didn't actually check) - not certain if they are likely to reply. Maybe if you present yourself as a journalist. – user4012 Nov 10 '16 at 2:51
8

The short answer is import tariffs. If you want to buy a car and buying a US made car is cheaper than buying an equivalent foreign made car, then you'll probably buy the US car (I'm assuming the 'you' here is an American).

You can make the US car cheaper by making the cost of manufacturing cheaper, making less profit or artificially inflating the price of the import with asymmetric taxes aka tariffs.

Obviously, tariffs aren't a silver bullet. The main problem is that it will almost definitely make the cost of the car you buy go up. This both means you'll be out of pocket but also likely to push inflationary pressure on the economy as a whole.

The general consensus for a while has been that low tariff world trade is net beneficial to the world economy. Trump's position seems to be that it must not be detrimental to American jobs and prosperity. I guess we'll now see what he does about it.

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    The main problem with tariffs is they may be reciprocated. A lot of the better US jobs are in export industries. Other countries would jump at the opportunity to have those jobs and markets. – Keith McClary Dec 31 '16 at 19:52
5

He has many many options (I'll leave aside efficacy considerations of them).

  • Fees/fines/taxes. A company gets fined/feed/taxed-more if they manufacture abroad.

  • As another answer by @Alex mentioned, tariffs - you make imported product more expensive and thus less competitive with domestic product

  • Public pressure.

    You can mount publicity campaigns against a company, which can sway consumers against it or otherwise harm its business. Granted, it's a shakedown business mostly owned by Trump opponents at the moment, but nobody said a populist leader can't steal from the same playbook

  • Ownership pressure (activist investment).

    You can pressure boards of directors. Unions own tons of shares. So do other domestic actors. Trump can sick them on BoDs (and get buy-side companies to do the same, though those guys are through and through Trump haters from my experience, so a long shot). Activist investing is a Big Deal and getting bigger (Witness all the ESG investing that ostensibly is bad for bottom line but gets more and more widespread).

  • Government contracts

    Depending on the industry, a very powerful tool of leverage.

4

I think the simplest answer is: He will not. Most of what he has promised is stuff he can never make true. It is just too expensive and even as a president he doesn't have the means.

For example his promise to build a wall and make Mexico pay for it. The wall would be very expensive and too long to be guarded in a meaningful way (and without guards one could just walk up to it with a ladder to get over). And the trickiest part would be making Mexico pay for it. You can't just build something and hand another sovereign nation the bill. Or you can but that would be little more than a show move.

If Trump tries to enforce what he promised about bringing back jobs to America and of protecting the US market from cheap foreign products China, whose products he wants to tax with 25%, could just use their US treasuries to put him and the US economy under pressure.

Quoted from here:

In total, China owns about 10% of publicly held U.S. debt. Of all the holders of U.S. debt China is the third-largest, behind only the Social Security Trust Fund's holdings of nearly $3 trillion and the Federal Reserve's nearly $2 trillion holdings in Treasury investments, purchased as part of its quantitative easing program to boost the economy.

The current $1.24 trillion in U.S. debt is actually slightly less than the record $1.317 trillion held by China in 2013.

  • 1
    Welcome to Politics.SE! Although this thought may be a good seed for an answer, we prefer more expanded answers based on facts. One-liners are often discouraged and subsequently deleted. Consider expanding your answer by adding further details and references. – bytebuster Nov 9 '16 at 9:31
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    @bytebuster I expanded the my answer and I hope it now fits better to what is expected. – Umbranus Nov 9 '16 at 10:10
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    I thought Trump proposed a 45% tariff not just 25% - did he change his mind? – RedGrittyBrick Nov 9 '16 at 12:25
  • Might be he changed the numbers along the way or it is 25% in addition to existing taxes or whatever. You can find both values online and in such cases I use the lower value when quoting. – Umbranus Nov 9 '16 at 12:49
  • I agree with the conclusion but Trump has addressed your two main points: "ladder over the wall": Trump specifically said that the wall would be really tall. He also said he will pay for it by cutting off remittances to Mexico. A proper answer to this needs to address both of these. – JimmyJames Nov 9 '16 at 14:56

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