America Underestimates the Difficulty of Bringing Manufacturing Back

Guest post by a manufacturer

Labor, Tariffs, China, America addresses the issue of American factory labor.

I know what I’m talking about

I’ve been in the manufacturing industry for 15 years. I’ve manufactured in the USA and in China. I worked in a factory in China. I speak and read Chinese. I’ve purchased millions of dollars worth of goods from the US and China, but also Vietnam, Indonesia, Taiwan, and Cambodia. I’ve also visited many factories in Mexico and consider myself a student of how countries rise and fall.

In other words, unlike many who have voiced an opinion on this topic, I know what I am talking about. And that’s why I felt compelled to write this article. I had to do it. I’m a first generation American and I love my country and it pains me to see it hurtling at high speed towards an economic brick wall. This article is an attempt to hit the brakes.

The 14 Reasons Why the Tariffs Will Not Bring Manufacturing Back

1. They’re not high enough A tariff is a tax on an imported product. For example, when Apple imports an iPhone that was made in China it declares to the United States government what it paid to make that product overseas. Let’s say it’s $100. When there is a 54% tariff, Apple pays $100 to the manufacturer in China and $54 to the US government when importing. In this simplified example, an iPhone used to cost Apple $100, but it now costs $154. For every dollar Apple spends, Apple needs to make profit. So Apple sells iPhones to stores for double what it pays for them. And stores sell iPhones to consumers like you and me for double what it pays for them, as well. Before the tariffs, prices looked like this: Apple bought iPhones it designed for $100 Apple sold iPhones for $200 to stores Stores sold iPhones to you and me for $400 After the tariffs, prices look like this: Apple bought iPhones for $154 ($100 + $54 in import taxes) Apple sells those iPhones for $308 (double what it paid) Stores sell those iPhones to you and me for $616 (double what they paid) Now that you know what a tariff is, let me tell to you why they aren’t high enough to bring manufacturing back to the United States. In short, manufacturing in the United States is so expensive and our supply chain (we’ll explain that next) is so bad that making that iPhone in the United States without that 54% tariff, would still cost more than in China with 54% tariff. Since it still costs less to make the iPhone in China, both Apple and consumers would prefer it be made there, so it will, and not in the USA.

2. America’s industrial supply chain for many products is weak. Think of a supply chain as a company’s ability to get the components it needs to build a finished product. Suppose you wanted to build and sell wooden furniture. You’re going to need wood, nails, glue, etc. Otherwise you can’t do it. If you want to build an iPhone you need to procure a glass screen, shaped metal, and numerous internal electronic components. Now you might be thinking, “what do you mean America has a weak supply chain?” I’ve built furniture, I’ve assembled a computer. I can get everything I want at Home Depot and at Amazon. That’s because America has an amazing consumer supply chain, one of the best, if not the best in the world, but this is totally different from having an industrial supply chain. When you’re operating a furniture factory, you need an industrial quantity of wood, more wood than any Home Depot near you has in store. And you need it fast and cheap. It turns out that the United States has a good supply chain for wood, which is why, despite higher wages, we export chopsticks to China. We have abundant cheap wood in the forests of the Northern United States. But if you decided to move that chopstick factory to desert Saudi Arabia, you would not succeed, because their supply chain for wood is poor; there simply aren’t any trees for 1,000s of miles. When it comes to the iPhone, all the factories which make the needed components are in Asia, which is one reason why, even with a 54% tariff, it’s cheaper to assemble that iPhone in China than in the United States. It’s cheaper and faster to get those components from nearby factories in Asia than it is to get them from the US, which, because said factories no longer exist here, has to buy these components from Asia anyways. Supply chains sound complicated, but aren’t. If you can’t get the components you need at a reasonable price and timeline to build a finished product, it doesn’t matter what the tariffs are, you have to import it, because you can’t build it locally.

3. We don’t know how to make it Apple knows how to build an iPhone, but may not know how to make the individual components. It may seem trivial to make that glass that separates your finger from the electronic engineering that powers your ability to access the internet, but it’s difficult. The world buys semiconductors from Taiwan, not just because its relatively expensive (but more expensive than China) labor and excellent supply chain, but because they know how to make the best semiconductors in the world. Even with infinite money, we cannot duplicate that, because we lack the knowhow. A 54% tariff does not solve that problem. We still need to buy semiconductors from Taiwan, which is perhaps why the administration put in an exception for semiconductors, because we need them and because we can’t make them without their help. This is a problem which applies to more than just semiconductors. We have forgotten how to make products people wrongly consider to be basic, too. My company makes educational toys from plastic called Brain Flakes. To make Brain Flakes, you melt plastic and force it into shaped metal molds. Were we to import the machines and molds needed to do this, it would work for a little while, but as soon as one of those molds broke, we’d be in trouble, because there are almost no moldmakers left in the United States. The people who knew how to build and repair molds have either passed away or are long retired. In the event of a problem, we’d have to order a new mold from China or send ours back, shutting down production for months. People trivialize the complexity and difficulty of manufacturing when it’s really hard. And if we don’t know how to make something, it doesn’t matter what the tariff is. It won’t get made in America.

4. The effective cost of labor in the United States is higher than it looks Most people think that the reason why we make products in China instead of the United States is cheaper labor. That’s true, but it’s not the whole story. Frankly, the whole story is hard to read. People are not machines, they are not numbers on a spreadsheet or inputs into a manufacturing cost formula. I respect everyone who works hard and the people I have worked with over the years, and I want Americans to live better, happier lives. Chinese manufacturing labor isn’t just cheaper. It’s better. In China, there are no people who are too fat to work. The workers don’t storm off midshift, never to return to their job. You don’t have people who insist on being paid in cash so that they can keep their disability payments, while they do acrobatics on the factory floor that the non-disabled workers cannot do. Chinese workers much less likely to physically attack each other and their manager. They don’t take 30 minute bathroom breaks on company time. They don’t often quit because their out-of-state mother of their children discovered their new job and now receives 60% of their wages as child support. They don’t disappear because they’ve gone on meth benders. And they don’t fall asleep on a box midshift because their pay from yesterday got converted into pills. And they can do their times tables. To manufacture, you need to be able to consistently and accurately multiply 7 times 9 and read in English, and a disturbingly large portion of the American workforce cannot do that. Chinese workers work longer hours more happily and they’re physically faster with their hands; they can do things that American labor can’t. It’s years of accumulated skill, but it’s also a culture that is oriented around hard work and education that the United States no longer has. Sadly, what I describe above are not theoretical situations. These are things that I have experienced or seen with my own eyes. It’s fixable, but the American workforce needs great improvement in order to compete with the world’s, even with tariffs. So yes, Chinese wages are lower, but there many countries with wages lower than China’s. It’s the work ethic, knowhow, commitment, combined with top notch infrastructure, that makes China the most powerful manufacturing country in the world today.

5. We don’t have the infrastructure to manufacture The inputs to manufacturing are not just materials, labor, and knowhow. You need infrastructure like electricity and good roads for transportation, too. Since the year 2000, US electricity generation per person has been flat. In China, over the same time period, it has increased 400%. China generates over twice as much electricity person today as the United States. Why? Manufacturing. To run the machines which make the products we use, you need electricity, a lot of it. We already have electricity instability in this country. Without the construction of huge amounts of new energy infrastructure, like nuclear power plants, we cannot meaningfully increase our manufacturing output. And it would put huge stress on our roads and create lots more dangerous traffic. When we import finished goods from foreign countries, a truck delivers them from the port or the airport to distribution centers, stores, and where we live and work. When you start manufacturing, every single component, from factory to factory, needs to be moved, increasing the number of trucks on the road many times. Paving more roads, modernizing our seaports, improving our airports, speeding up our train terminals, and building power plants in the costliest nation in the world to build is a huge undertaking that people are not appreciating when they say “well, we’ll just make it in America”.

6. Made in America will take time. We placed a $50,000 order with our supplier overseas before the election in November 2024. At the time of ordering, there were no import taxes on the goods. By the time it arrived, a 20% tariff had been applied and we had a surprise bill for $10,000. It can easily take 180 days for many products to go from order, to on your doorstep and this tariff policy seems not to understand that. It takes at least, in the most favorable of jurisdictions, 2 years (if you can get the permits) to build a factory in the United States. I know because I’ve done it. From there, it can take 6 months to a year for it to become efficient. It can take months for products to come off the assembly lines. All this ignores all the infrastructure that will need to be built (new roads, new power plants, etc.) to service the new factory. By the time “made in America” has begun, we will be electing a new president.

7. Uncertainty and complexity around the tariffs To start manufacturing in the United States, a company needs to make a large investment. They will need to buy new machinery and if no existing building is suitable, they will need to construct a new building. These things cost money, a lot, in fact. And significantly more in the USA, than they do in other countries. In exchange for this risk, there must be some reward. If that reward is uncertain, no one will do it. Within the past month, the president put a 25% tariff on Mexico, and then got rid of it, only to apply it again, and then get rid of it a second time. Then, last week, he was expected to apply new tariffs to Mexico, but didn’t. If you’re building a new factory in the United States, your investment will alternate between maybe it will work, and catastrophic loss according to which way the tariffs and the wind blows. No one is building factories right now, and no one is renting them, because there is no certainty that any of these tariffs will last. How do I know? I built a factory in Austin, Texas in an industrial area. I cut its rent 40% two weeks ago and I can’t get a lick of interest from industrial renters. The tariffs have frozen business activity because no one wants to take a big risk dependent on a policy that may change next week. Even further, the tariffs are confusing, poorly communicated, and complex. Today, if you want to import something from China, you need to add the original import duty, plus a 20% “fentanyl tariff”, plus a 34% “reciprocal tariff”, and an additional 25% “Venezuelan oil” tariff, should it be determined that China is buying Venezualan oil. The problem is there is no list of countries which are importing Venezuelan oil provided by the White House, so you don’t know if you do or don’t need to add that 25% and you also don’t know when any of these tariffs will go into effect because of unclear language. As such, you can’t calculate your costs, either with certainty or accuracy, therefore, not only do you not build a factory in the United States, you cease all business activity, the type of thing that can cause a recession, if not worse. For the past month, as someone who runs a business in this industry, I have spent a huge portion of my time just trying to keep up with the constant changes, instead of running my business.

8. Most Americans are going to hate manufacturing Americans want less crime, good schools for their kids, and inexpensive healthcare. They don’t want to be sewing shirts. The people most excited about this new tariff policy tend to be those who’ve never actually made anything, because if you have, you’d know how hard the work is. When I first went to China as a naive 24 year old, I told my supplier I was going to “work a day in his factory!” I lasted 4 hours. It was freezing cold, middle of winter, I had to crouch on a small stool, hunched over, assembling little parts with my fingers at 1/4 the speed of the women next to me. My back hurt, my fingers hurt. It was horrible. That’s a lot of manufacturing. And enjoy the blackouts, the dangerous trucks on the road, the additional pollution, etc. Be careful what you wish for America. Doing office work and selling ideas and assets is a lot easier than making actual things.

9. The labor does not exist to make good products There are over a billion people in China making stuff. As of right now there are 12 million people looking for work in the United States (4% unemployment). Ignoring for a moment the comparative inefficiency of labor and the billions of people making products outside of China, where are the people that are going to do these jobs? Do you simply say “make America great again” 3 times and they will appear with the skills needed to do the work? And where are the managers to manage these people? One of the reasons why manufacturing has declined in the United States is a brain drain towards sectors that make more money. Are people who make money on the stock market, in real estate, in venture capital, and in startups going to start sewing shirts? It’s completely and totally unrealistic to assume that people will move from superficially high productivity sectors driven by US Dollar strength to products that are low on the value chain. The United States is trying to bring back the jobs that China doesn’t even want. They have policies to reduce low value manufacturing, yet we are applying tariffs to bring it back. It’s incomprehensible.

10. Automation will not save us. Most people think that the reason why American manufacturing is not competitive is labor costs. Most people think this can be solved by automation. They’re wrong. First, China, on a yearly basis installs 7x as many industrial robots as we do in the United States. Second, Chinese robots are cheaper. Third, most of today’s manufacturing done by people cannot be automated. If it could, it would have already been done so, by China, which, again, has increasingly high labor costs relative to the rest of the world. The robots you see on social media doing backflips are, today, mostly for show and unreliable off camera. They are not useful in industrial environments where, if a humanoid robot can do it, an industrial machine which is specialized in the task can do it even better. For example, instead of having a humanoid robot doing a repetitive task such as carrying a boxes from one station to another, you can simply set up a cheaper, faster conveyor belt. Said another way, the printer in your office, is cheaper and more efficient than both a human and a humanoid robot with a pen, hand drawing each letter. It’s unlikely that American ingenuity will be able to counter the flood of Chinese industrial robots which is coming. The first commercially electrical vehicle was designed and built in the United States, but today China is dominating electric vehicle manufacturing across the world. Industrial robots will likely be the same story.

11. Robots and overseas factory workers don’t file lawsuits, but Americans do I probably should not have written this article. Not only will I be attacked for being unpatriotic, but what I have written here makes me susceptible to employment lawsuits. For the record, I don’t use a person’s origin to determine whether or not they will do good work. I just look at the person and what they’re capable of. Doing otherwise is bad business because there are talented people everywhere. America has an extremely litigious business environment, both in terms of regulation and employment lawsuits. Excessive regulation and an inefficient court system will stifle those with the courage to make in this country.

12. Enforcement of the tariffs will be uneven and manipulated Imagine two companies which import goods into the United States. One is based in China, while the other is based in the United States. They both lie about the value of their goods so that they have to pay less tariffs. What happens to the China company? Perhaps they lose a shipment when it’s seized by the US government for cheating, but they won’t pay additional fines because they’re in China, where they’re impervious to the US legal system. What happens to the USA company? Owners go to prison. Who do you think is going to cheat more on tariffs, the China or the US company? Exactly. So, in other words, paradoxically, the policies which are designed to help Americans, will hurt them more than the competition these policies are designed to punish.

13. The tariff policies are structured in the wrong way Why didn’t the jobs come back in 2018 when we initiated our last trade war? We applied tariffs, why didn’t it work? Instead of making America great, we made Vietnam great. When the United States applied tariffs to China, it shifted huge amounts of manufacturing to Vietnam, which did not have tariffs applied to it. Vietnam, which has a labor force that is a lot more like China’s than the United States’, was able to use its proximity to China for its supply chain and over the past 7 or so years, slowly developed its own. With Vietnamese wages even lower than Chinese wages, instead of the jobs coming to the United States, they just went to Vietnam instead. We’re about to make the same mistake again, in a different way. Let’s go back to that last example, the China based and the US based companies which were importing goods into the United States. That US based importer could’ve been a manufacturer. Instead of finished iPhones, perhaps they were importing the glass screens because those could not be found in the USA, for final assembly. Our government applied tariffs to finished goods and components equally. I’ll say that again. They applied the same tax to the components that you need to make things in America that they did to finished goods that were made outside of America. Manufacturing works on a lag. To make and sell in America, first you must get the raw materials and components. These tariffs will bankrupt manufacturers before it multiplies them because they need to pay tariffs on the import components that they assemble into finished products. And it gets worse. They put tariffs on machines. So if you want to start a factory in the United States, all the machinery you need which is not made here, is now significantly more expensive. You may have heard that there is a chronic shortage of transformers needed for power transmission in the United States. Tariffed that too. It gets even worse. There is no duty drawback for exporting. In the past, even in the United States, if you imported something and then exported it, the tariff you paid on the import would be refunded to you. They got rid of that so we’re not even incentivizing exports to the countries that we are trying to achieve trade parity with. Tariffs are applied to the costs of the goods. The way we’ve structured these tariffs, factories in China which import into the United States will pay lower tariffs than American importers, because the Chinese factory will be able to declare the value of the goods at their cost, while the American importer will pay the cost the factory charges them, which is of course higher than the factory’s cost. Worse still. With a few exceptions like steel and semiconductors, the tariffs were applied to all products, ranging from things that we will never realistically make like our high labo to things that don’t even grow in the continental USA, like coffee. Call me crazy, but if we’re going to make products in America, we could use some really cheap coffee, but no, they tariffed it! Our educational engineering toy Brain Flakes, also got tariffed. How is the next generation supposed to build a manufacturing powerhouse if it cannot afford products that will develop its engineering ability? It’s like our goal was to make education and raising children more expensive. Not only did we put tariffs on the things that would help us make this transformation, we didn’t put higher tariffs on things that hurt us like processed food which makes us tired and fat or fentanyl precursors which kill us. The stated goal of many of our tariffs was to stop the import of fentanyl. 2 milligrams of fentanyl will kill an adult. A grain of rice is 65 milligrams. How do you stop that stuff from coming in? It’s basically microscopic. Maybe we could do what every other country has done and focus on the demand, instead of the supply, ideally starting with the fentanyl den near my house which keeps my children indoors or in our backyard instead of playing in the neighborhood. It’s frustrating to see our great country take on an unrealistic goal like transforming our economy, when so many basic problems should be fixed first.

14. Michael Jordan played baseball in his youth. When he switched from basketball to baseball he went from being an MVP champion to being a middling player in the minor leagues. 2 years later, he was back to playing basketball. And that’s exactly what’s going to happen to us.

My prediction for the tariffs

This is probably the worst economic policy I’ve ever seen. Maybe it’s just an opening negotiating position. Maybe it’s designed to crash the economy, lower interest rates, and then refinance the debt. I don’t know. But if you take it at face value, there is no way that this policy will bring manufacturing back to the United States and “make America wealthy again”. Again, if anything, it’ll do the opposite; it’ll make us much poorer. Many are saying that this tariff policy is the “end of globalization”. I don’t think so. Unless this policy is quickly changed, this is the end of America’s participation in globalization. If we had enacted these policies in 2017 or 2018, they stood a much stronger chance of being successful. That was before Covid. China was much weaker economically and militarily then. They’ve been preparing 8 years for this moment and they are ready. China trades much less with the United States as a percent of its total exports today than it did 8 years ago, and as such is much less susceptible to punishing tariffs from the United States today than it was back then. Chinese made cars, particularly electric vehicles, are taking the world by storm, without the United States.

Go to Mexico to Thailand to Germany and you will see Chinese made electric vehicles on the streets. And they’re good, sometimes even better than US made cars, and not just on a per dollar basis, but simply better quality. That is what is going to happen to the United States. Globalization will continue without us if these policies continue unchanged. That said, I think the tariffs will be changed. There’s no way we continue to place a 46% tariff on Vietnam when 8 years ago we nudged American companies to put all their production there. Most likely, this policy will continue another round of the same type of investment; rather than replacing made in China with made in the USA, we’ll replace it with made in Vietnam, Mexico, etc. Finally, in the process of doing this, regardless of whether or not we reverse the policies, we will have a recession. There isn’t time to build US factories, nor is it realistic or likely to occur, and American importers don’t have the money to pay for the goods they import. People are predicting inflation in the cost of goods, but we can just as easily have deflation from economic turmoil. The policy is a disaster, how could it be done better? And what’s the point of this anyways?

Three reasons to actually bring manufacturing back

1. It makes our country stronger. If a foreign country can cut off your supply of essentials such as food, semiconductors, or antibiotics you’re beholden to that country. The United States must have large flexible capacity in these areas.

2. It makes it easier to innovate. When the factory floor is down the hall, instead of 30 hours of travel away, it’s easier to make improvements and invent. We need to have manufacturing of high value goods, like drones, robots, and military equipment that are necessary for our economic future and safety. It will be difficult for us to apply artificial intelligence to manufacturing if we’re not doing it here.

3. People can simplistically be divided into three buckets: those of verbal intelligence, those of mathematical intelligence, and those of spatial intelligence. Without a vibrant manufacturing industry, those with the latter type of intelligence cannot fulfill their potential. This is one reason why so many men drop out, smoke weed, and play video games; they aren’t built for office jobs and would excel at manufacturing, but those jobs either don’t exist or pay poorly.

How to actually bring manufacturing back

Every country that has gone on a brilliant run of manufacturing first established the right conditions and then proceeded slowly. We’re doing the opposite right now, proceeding fast with the wrong conditions. First, the United States must fix basic problems which reduce the effectiveness of our labor. For example, everyone needs to be able to graduate with the ability to do basic mathematics. American healthcare is way too expensive and it needs to be fixed if the United States wants to be competitive with global labor. I’m not saying healthcare should be socialized or switched to a completely private system, but whatever we’re doing now clearly is not working, and it needs to be fixed. We need to make Americans healthy again. Many people are too obese to work. Crime and drugs. It needs to stop. And to sew, we must first repair the social fabric. From Covid lockdowns to the millions of people who streamed over our border, efforts must be made to repair society.

Manufacturing and economic transformations are hard, particularly the way in which we’re doing it. Patriotism and unity are required to tolerate hardship, and we seem to be at all-time lows for those right now. Let’s focus on America’s strengths in high end manufacturing, agriculture, and innovation instead of applying tariffs to all countries and products blindly. We should be taxing automated drones for agriculture at 300% to encourage their manufacture here, instead of applying the same blanket tariff of 54% to that that we apply to t-shirts. The changes in the policies needed are obvious. Tax finished products higher than components. Let exporters refund their import duties. Enforce the tariffs against foreign companies more strenuously than we do against US importers. If American companies want to sell in China, they must incorporate their, register capital, and name a person to be a legal representative. To sell in Europe, we must register for their tax system and nominate a legal representative. For Europeans and Chinese to sell in the United States, none of this is needed, nor do federal taxes need to be paid. We can level the playing field without causing massive harm to our economy by adopting policies like these which cause foreign companies to pay the taxes domestic ones pay. And if we want to apply tariffs, do it slowly. Instead of saying that products will be tariffed at 100% tomorrow, say they’ll be 25% next year, 50% after that, 75% after that, and 100% in year four. And then make it a law instead of a presidential decree so that there is certainty so people feel comfortable taking the risks necessary to make in America.

Sadly, a lot of the knowhow to make products is outside of this country. Grant manufacturing visas, not for labor, but for knowhow. Make it easy for foreign countries to teach us how they do waht they do best.

Conclusion and final thoughts

I care about this country and the people in it. I hope we change our mind on this policy before it’s too late. Because if we don’t, it might break the country. And, really, this country needs to be fixed. Molson_Hart