On June 1, 2016 at a town hall sponsored by PBS, Eric Cottonham, a steel workers’ union member from Indiana, asked President Barack Obama about manufacturing jobs creation, saying, “All of our jobs have left, or are in the process of leaving.”01:07
In response, Obama noted that some jobs have gone overseas and that “I’ve been trying to negotiate trade deals …” so overseas competitors “aren’t undercutting us.” Notably, Obama said that some jobs “are just not going to come back” while criticizing then-candidate Donald Trump for promising to “negotiate a better deal” and mocking him by claiming Trump would need a “magic wand” to fulfill his job promises.
In the 17 months prior to Obama’s town hall (January 2015 to May 2016), the U.S. Department of Labor calculated that 40,000 manufacturing jobs (seasonally adjusted) had been created for a total of 12,336,000 jobs, anemic growth of about 0.3% over the period. By December 2016, Obama’s last full month in office, manufacturing employment was up 55,000 jobs from January 2015.
On October 5, 2018, the Department of Labor released its national jobs report for September, showing unemployment had hit a 49-year-low at 3.7% with 134,000 jobs added last month of which 18,000 were in manufacturing.
Of note, in the 21 months since his inauguration, President Trump’s deregulatory policies and historic tax cuts have led to a manufacturing resurgence, with 396,000 jobs added. In fact, the pace of manufacturing job growth over the past 21 months of President Trump’s leadership is more than 10 times that of President Obama’s last 21 months in office.
A significant part of America’s manufacturing boom may also be attributable to a key change in the tax code signed into law in December 2017. The new law encouraged U.S. companies with corporate earnings sitting overseas avoiding high U.S. corporate taxes to bring that cash back to American shores. Some $300 billion out of what the Federal Reserve estimated is $1 trillion in multinational enterprises’ profit was sent home in the first quarter of 2018.
Beyond jobs, a buoyant market and upbeat Americans, a strong economy is vital for another reason: national defense. Roman statesman Cicero observed that “The sinews of war are infinite money.” More recently, the father of China’s economic modernization, Deng Xiaoping, ruler of China for 11 transformative years from 1978 to 1989, saw economic development as a necessary precursor for a modern and powerful military. Deng’s successors followed through on this philosophy, with China’s economy now vying with America’s for the world’s largest.
An important distinction between the two leading economies is their principle of organization.
China Vs. U.S.
The founders created America as a commercial republic where liberty, an “unalienable” right, fosters economic vitality. This vitality, in turn, creates the resources and innovative tools that enable America’s armed forces to be highly effective.
In China, on the other hand, a strong economy exists to support the state, specifically, the Chinese Communist Party. As well, the People’s Liberation Army also serves the Chinese Communist Party and its paramount leader, Xi Jinping, the general secretary of the Communist Party of China, president of the People’s Republic of China, and chairman of the Central Military Commission.
The developing Chinese spy chip scandal is an example. It appears that in 2015 the Chinese military pressured and bribed some manufacturers in its burgeoning computer component manufacturing industry to place a spy chip on motherboards due for export to targeted American corporate and government entities. This action showed that China was willing to compromise its international trade position in exchange for improving its ability to steal American intellectual property and spy on the U.S. government.
In addition to placing China’s national advantage ahead of the profitability of domestic industries, for years China has relentlessly pursued a mercantilist trade strategy designed to bolster is defense industrial base while weakening its opponents’, especially America’s.
Now when America’s defense firms fill orders for the U.S. military, significant portions of their supply chain use commercial components or alloys made, in some cases, exclusively in China. This foreign dependence, while resulting in lower cost systems, threatens America’s ability to defend itself in a major conflict.
The Trump administration has come to recognize that this dangerous dependence on China presents a serious threat to the American defense industrial base. In response, the President directed an assessment of the defense industrial base in July of last year. The resulting report found almost 300 discrete risks to the national defense related to its industrial and manufacturing base. To remedy the risk, the administration is using existing authority to expand direct investment in the industrial base to reduce supply bottlenecks, bolster certain key suppliers, and create supply chain redundancy.
While needed to correct decades of neglect in the face of a rising China, this effort is not without risks. Some will seek to leverage added profit from urgent national defense needs. Long term sustainability is key when faced with a competitor who traditionally thinks in decades, not quarters. For that, additional changes to the tax code might be necessary to incentivize domestic manufacturers to consider contributing to the nation’s defense.
The Trump administration’s policies have ignited a manufacturing boom. A dynamic manufacturing sector is a necessary precondition for a strong national defense, but it is not the sole requirement — the ability to create and produce sufficient quantities of war materiel during a major conflict must remain viable in the face of overseas supply disruption.