Opinion

How to bring manufacturing jobs back from China

Focus on the costs of labor and energy, not trade wars

A huge part of Donald Trump's appeal is the sense that good jobs, particularly manufacturing jobs, have been outsourced to China. It's an open question whether globalization and free trade have been the total winner that some claimed it would be and the death of factory jobs has affected some communities deeply.

The problem is that every cure seems worse than the malady. Sparking a trade war would destroy people's paychecks by raising the price of consumer goods. Industrial policy has seemed hitherto incapable of producing more than make-work jobs.

Is there nothing we can do?

Actually, there are two good things we could do.

The first is so obvious that I don't understand why it wasn't passed 20 years ago. Instead it's an idea that remains relatively outside the mainstream in political debates. It's called wage subsidies.

The cost of labor is one very element in whether jobs go some place or another. So how about lowering the cost of work? Today the United States government levies an important tax on work, through the payroll tax. It artificially increases the price of American jobs. What if it lowered them instead?

This is basically the idea of wage subsidies. It's like the payroll tax, except with a negative rate. If an employer needs to pay someone $10 an hour, instead of asking him to fork over $1.5 on top, the government will instead pay $1.50 out of that. Or $.50, or whatever. That would be a progressive system where the higher the wage the lower the subsidy would be. Perhaps the tax would kick in again for top incomes to make up for it.

Most of the job loss due to globalization and automation is at the bottom of the income and skill scale. Many of the workers who have been laid off or are in danger of being laid off are marginal workers — for their employers, whether or not to hire them is a decision where a dollar an hour could make the difference.

There's already a rough approximation of the wage subsidy: It's called the earned income tax credit. This Ford-era policy has probably been one of the most successful, innovative pro-work and anti-poverty policies in the past 40 years. But it's still inefficient. Many people don't claim the EITC, because they don't know they're eligible or because it's too much paperwork. Because it's a tax credit, the effect doesn't kick in until after a year, and it doesn't affect employers' calculus. But policy could fold the EITC into an expanded wage subsidy program. It's a simple and powerful idea that could create lots of new jobs. It's too bad it doesn't get enough play. With the exception of Marco Rubio, few prominent politicians have taken up the idea.

Another very useful policy, albeit a much more complicated one to set up, would be to build more nuclear power plants. Nuclear power is green, surprisingly safe today, and although it costs a lot of money to set up, it's very cheap to run. It's simply the best form of power out there. And energy prices matter a lot to manufacturing. A Federal Reserve study suggested that the drop in oil prices due to fracking and natural gas boosted manufacturing activity. And it makes sense. The other big cost input to manufacturing, alongside labor, is energy. If you make energy cheaper, you'll make manufacturing cheaper, and you'll get more of it.

The country would also reap the many other gains of a good energy policy: less carbon emissions, energy independence, and cheaper energy prices for consumers.

The bottom line is: We don't need a trade war with China to bring good jobs back. But we do need smart policies. And those are thin on the ground.

More From...

Picture of Pascal-Emmanuel GobryPascal-Emmanuel Gobry
Read All
Liberals' Medicaid hypocrisy
The Democratic caucus.
Opinion

Liberals' Medicaid hypocrisy

The quiet intellectual push behind conservatives' court coup
If a conservative justice joins the Supreme Court, Antonin Scalia would be proud.
Opinion

The quiet intellectual push behind conservatives' court coup

What the Bible really says about government
A Bible and the Capitol Building.
Analysis

What the Bible really says about government

Vladimir Putin's own goal
Vladimir Putin.
Opinion

Vladimir Putin's own goal

Recommended

The Kennedy solution to the Ukraine crisis
President Biden.
Picture of Joel MathisJoel Mathis

The Kennedy solution to the Ukraine crisis

U.K. official Allegra Stratton resigns
U.K. government spokesperson Allegra Stratton.
'profound apologies'

U.K. official Allegra Stratton resigns

U.K. joins U.S. in Olympics diplomatic boycott
U.K. Prime Minister Boris Johnson.
Winter Olympics 2022

U.K. joins U.S. in Olympics diplomatic boycott

Britain's government is teetering over an alleged 2020 Christmas party
Boris Johnson
'it was cheese and wine'

Britain's government is teetering over an alleged 2020 Christmas party

Most Popular

Kathy Griffin slams CNN for firing her but not Jeffrey Toobin
Kathy Griffin
'I loved that gig'

Kathy Griffin slams CNN for firing her but not Jeffrey Toobin

Mace vs. Greene is the fight for the future of the GOP
Mace and Greene.
Picture of W. James Antle IIIW. James Antle III

Mace vs. Greene is the fight for the future of the GOP

What a Roe reversal would mean for Trump
The Supreme Court.
Picture of W. James Antle IIIW. James Antle III

What a Roe reversal would mean for Trump