Cleo Addams is an indie author. In her free time, she enjoys researching and writing articles on a wide variety of topics.
The election is right around the corner and the topic of eroding relations with China (a major manufacturing hub for most of the world's goods) is one that's discussed over and over again with both candidates touting their plans to bring back manufacturing to American soil. In fact, reshoring is an idea that's supported by the majority of Americans - at least the ones I've spoken with. As a matter of fact, I've yet to speak with someone that frowns on the idea.
But why did U.S. companies decide to offshore manufacturing jobs in the first place? Before I jump into the meat of the article, let's briefly look at how we got away from making most of our items here in the good ole’ U.S.A.
1950-2000: High Corporate Tax
Throughout the years, the U.S. corporate tax has fluctuated from 50% in 1950 to 35% in the year 2000. Even though 35% sounds better than the 50% corporate tax that companies shelled out previously, it was still higher than many other countries’ corporate tax rates. So this caused many American companies to relocate their manufacturing plants outside of the United States. (There were also tax deferrals and inversion, but I won’t get into those in this article. If you want to know more about tax deferrals and inversion, see the “Further Reading” section at the bottom for a link to an article by PBS explaining how these work.)
1980's: Japan Had Better Manufacturing Methods
In the 1980’s, the Japanese had perfected the manufacturing process leading to less downtime and improved product quality resulting in faster and more productive manufacturing plants. This gave the Japanese an edge on manufacturing and Americans began purchasing Japanese brands over American ones because they were higher quality. Unfortunately, this caused some American companies to go out of business and others to lay off workers as sales slowed. In fact, the RCA Corporation is one of the companies that became defunct in 1986 due to Americans preferring Japanese electronics.
1994: The North American Free Trade Agreement (NAFTA)
In the early 1990’s, the American government reached an agreement with Mexico and Canada to eliminate certain trade barriers and to allow economic growth between the three countries. This worked by eliminating most of the tariffs on goods being traded between the United States, Canada and Mexico.
While NAFTA worked in favor of big corporations and investors, it affected American workers negatively by creating a loss of some 700,000 jobs as companies relocated manufacturing to Mexico, lowered the average pay wage of American workers, and broke up worker unions.
2000: The U.S. China Relations Act
In 2000, the United States Congress passed the U.S.-China Relations Act. This act granted China normal trade relations as long as they agreed to comply with internationally recognized human rights laws, met labor standards, allowed religious freedom, and would not ship items made in labor camps or prisons to the United States. (Prior to the year 2000, the U.S. president had to perform an annual review and sign waivers to trade with China.) Also, China was not allowed to flood the American market with Chinese manufactured goods. This would assure that U.S. companies could stay in business.
We Did It to Ourselves
After reading the timeline, it’s simple to see why American companies decided to move manufacturing overseas. You could say that we did it to ourselves, or…that our elected officials did it to us. Nevertheless, there is a way to get it back; but it takes determination, persistence and voting in the right people that will work in America’s favor – not against it.
Below, I've outlined what measures the current presidential administration has taken to motivate companies to reshore and explain what we can do as every day Americans to encourage companies to follow through with the process.
Lower Corporate Tax
In 2018, the Tax Cuts and Job Act went into effect and lowered the corporate tax rate to 21%. This tax rate is now lower than the world’s major manufacturing hubs such as Japan (30.62%), Germany (30%), India (25.17%), China (25%) and South Korea (25%).
Implement & Raise Tariffs
Many American companies manufacture offshore and ship those goods to the United States. Companies pay taxes (called tariffs) to bring the goods into the U.S.
During the Trump administration, tariffs were implemented on billions of dollars of products. As of Jan 2020, there have been tariffs put on approximately 16.8% of goods imported.
Now with lower corporate tax as an incentive for reopening factories in America, there's really no reason that goods sold in the U.S. can't be manufactured right here in America.
Steps Americans Can Take to Help Bring Back Manufacturing
Vote in Politicians That Support America
The first thing that Americans can do to bring manufacturing back to the U.S. is to vote in politicians who propose ideas and legislation that put America first, not foreign countries. If a politician ever vows to put another country before their own, it’s a red flag – a huge red flag. Remember, people in high and powerful positions have been easily bribed by other countries in the past to act in their favor, and it’s something that will always be a threat to America’s free market and economic well-being.
Americans can boycott U.S. companies that choose to manufacture products overseas and then ship them to the U.S. Nothing sends a more impactful message than hurting a company’s bottom line.
Carefully Weigh All Options Before Unionizing
Unions can be both - a good and bad thing.
Unions are good for protecting workers rights, but are bad when they negatively impact business by urging their members to strike when they can’t come to an agreement with the company.
An example: After NAFTA went into effect in 1994, automotive companies chose to move their manufacturing overseas to avoid dealing with unions who demanded sometimes higher than average wages in the current job market leading to lower net profits. As a result, companies raised the price of goods to compensate which lead to fewer sales, less manufacturing and job loss. Companies saw moving overseas as the only option for them at the time.
When it comes to manufacturing unions, it's best to carefully weigh the options before deciding to join. Remember, when unions become too demanding and hinder productivity, factories will pack up and move out of the country. And, even though some companies are moving back to the U.S. from across the Atlantic because of the new lower corporate tax rate, they could easily pack up again and move manufacturing back offshore if it proved to be profitable.
Make Your Voice Heard
Americans can email U.S. companies that manufacture goods offshore and export them to the states. It's important to be respectful in your wording and state why you believe that they should reopen a factory in the United States. If companies get enough emails requesting goods sold in American, be made in America - they'll listen.
- Economic Policy Institute, “NAFTA’s Impact on U.S. Workers”, https://www.epi.org/blog/naftas-impact-workers/, Accessed 7/11/20
- Wikipedia, “United States-China Relations Act of 2000”, https://en.wikipedia.org/wiki/United_States%E2%80%93China_Relations_Act_of_2000, Accessed 7/11/20
- Business Insider, “The White House is only telling you half of the sad story of what happened to American jobs” https://www.businessinsider.com/what-happened-to-american-jobs-in-the-80s-2017-7, Accessed 7/11/20
- Wikipedia, “RCA”, https://en.wikipedia.org/wiki/RCA, Accessed 7/11/20
- Wikipedia, “Corporate tax in the United States”, https://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States, Accessed 7/12/20
- Trading Economics, “United States Federal Corporate Tax Rate”, https://tradingeconomics.com/united-states/corporate-tax-rate, Accessed 7/12/20
- POLITIFACT, "Raise tariffs on goods imported into the U.S", https://www.politifact.com/truth-o-meter/promises//trumpometer/promise/1411/raise-tariffs-goods-imported-us/, Accessed 1/18/21
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2020 Cleo Addams