Wednesday, March 17, 2010


The Wall Street Journal reported last weekend that Caterpillar is the latest American producer to shift production from abroad back to the United States. Cat’s new US plant -- at a location still to be decided --.will manufacture excavators formally produced in Japan and an older plant in Aurora, Illinois. The result could be a tripling of domestic production, while the Japan plant would have extra capacity to ship to Asian markets.

Cat is not alone. The Journal reminded us that General Electric had announced last year it was moving production of water heaters from China to Louisville, Kentucky and that U.S. Block Windows had decided to move all its China production to Pensacola, Florida.

From our own experience, we know of other cases of precision parts work coming back home for quality reasons. Even some woolen apparel production is being “on-shored.” Surely there are scores of other examples that have received less attention.

The Journal drew the following conclusion: “After a decade of rapid globalization, economists say companies are seeing disadvantages of offshore production, including shipping costs, complicated logistics, and quality issues. Political unrest and theft of intellectual property pose additional risks.”

These encouraging signs for American manufacturing are driven essentially by market forces and the shortcomings of regulatory systems abroad. Certainly, they are far too limited to constitute a reversal of the disastrous exodus of manufacturing output that has helped to drive the trade deficit and the accompanying foreign debt. Moreover, there’s no reason to believe that these trends will continue long enough to achieve that result without a disastrous fall in the dollar against floating currencies with the attendant inflation and destruction of wealth.

Imagine what could be done if the United States of America could get its collective act together and define a national economic policy that favored domestic production and a radical increase in net exports. The key elements would include: decisive action to counteract the protracted undervaluation of foreign currencies against the dollar; a tax system that rewarded investors for building new plant and equipment in the US; an ambitious program to build a national infrastructure – roads, bridges, waterways, broadband, and power distribution – worthy of a global leader; and the vigorous enforcement of our rights under international agreements and domestic statutes to achieve “free and fair trade with free and fair traders” as Ronald Reagan once defined his trade policy of reciprocity.

The growing list of on-shoring operations underscores the basic truth that American industry is fundamentally competitive. We have few obsolete or high-cost producers; they have long since been driven out by competition both international and domestic. What ails us is our public policy. That can and should be fixed without further delay.

Charles Blum

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