A Manufacturing Renaissance (in the US)

A recent article in the US discusses the considerable investment in new manufacturing facilities currently taking place. Read the article here. The article cites US manufacturing experiencing its 21st consecutive month of growth, industrial vacancy rates of 3.8% (well below the 10-year average of 7.3%) and the challenges of this growth in a low unemployment environment. Other reports have cited industrial facilities achieving the same yield as commercial property (something virtually unheard of). All in all, very good news, really.

From discussions I have had with former colleagues in the US, there is one reason for this resurgence in manufacturing…its Donald Trump. His trade policies have driven considerable investment into the US (and are continuing to), particularly in manufacturing, and it started even before he won the election. Former colleagues in the US reported to me that during the election companies starting calling again on expansion and relocation projects that went silent five years ago. The surge in corporate investment activity in the manufacturing sector was (and has remained) palpable and real. While it is difficult to acknowledge that this rebirth in manufacturing has been created singularly through inward looking trade policy and more specifically Donald Trump, it doesn’t detract from the reality.

According to free trade (and basic sense), this US trade policy is bad. While over the short run, there will be investment and jobs, soon there will be significant increases in costs for businesses and consumers alike. Until then, we have to admit that the protectionist policy is having the immediate desired effect, more investment and more jobs.

Local manufacturing in Australia suffers more than the US from free trade policy, given our relatively small market size. As we open ourselves to global competition, it forces us to get better or get out, an economic process known as ‘creative destruction’. Protectionism is bad, as at the end of the day, it artificially weakens the economy rather than strengthening it (over the long-term). The current political climate in Australia is not strong and some key policy decision makers may be temped to move towards protectionism, particularly after the good results that US is currently seeing (red sirens and warning flags should be going off). Let's see what happens...

If you want to argue about free trade, drop us a line (info@lucideconomics.com.au or 1-800-940-990).