Apple, Donald Trump, and why it’s hard to finger blame for America’s manufacturing decline

So 2016 is very definitely a year of living dangerously. Brexit warned us that in a “fact-free”, anecdote-fuelled political campaign, improbable and potentially ruinous outcomes are possible. Britain’s grumpy voters are only now beginning to taste the awfulness of the medicine they have prescribed for their perceived ills.

And on November 8, we will discover whether American’s voters can inflict similar self-harm. The problem is that the Brexit catastrophe inflicts harm mainly locally. This US “election from hell” has the potential to inflict harm on us all. And I mean not just irritating patience-testing harm, but the kind of harm that so many suffered across the world a century ago.

Most of his hallucinatory allegations justifying trade “punishments” have inevitably been targeted at China, always an easy electoral bogeyman in US Presidential elections

Whatever the result Tuesday, there is certain harm that has already been irreversibly inflicted. At home, both leading parties in the US have torn themselves to shreds, and the journey back to any kind of political cohesion in the country is set to be long and hard. Overseas, the US has punctured the faith and confidence of its allies and put in jeopardy institutions that have framed peace, stability and relative prosperity for a huge proportion of the world’s population for the past seven decades.

For those of us convinced that the liberalising trade and investment initiatives led by the US over those decades have been primary contributors to that wealth and stability, one of the gloomiest realities on the eve of the election is that no matter whether Clinton or Trump wins, that liberalising leadership has evaporated.

The first casualty will of course be the Trans-Pacific Partnership forged over seven years by 12 economies in the Asia Pacific region. Perhaps even as early as the APEC Leaders meeting in Lima in two weeks’ time, Barak Obama is likely to concede that the US will be unable to ratify the deal. The next casualty is likely to be the Transatlantic Trade and Investment Partnership (TTIP) which if agreed between the US and the EU would be the world’s largest “bilateral” trade deal.

Unnoticed, but equally important for Hong Kong, a further casualty may be the Trade in Services Agreement (TiSA). Almost no one pays any attention to this 23-country plurilateral negotiation that has been going swimmingly for the past two years, but for services economies like Hong Kong, this is hugely significant.

Top negotiators are in Geneva as you read this, with the aim of dotting i’s and crossing the t’s on a deal that is slated to be ratified by officials on December 5-6. But key differences remain unresolved between the US and other negotiators – in particular on the freedom of data flows and the treatment of State-owned Enterprises (SOEs).

Given the febrile anti-trade mood being stirred in the US around the Presidential elections, it is hard to believe that anyone will be in the mood to compromise on such tinderbox issues. Even Hong Kong has sensitivities here, because current US demands would put curbs on our own “SOEs” – and yes, we have them. Think MTR. Think Disney.

Even more challenging than the potential collapse of a number of important international trade liberalising deals is the danger that a new US administration will reel back on commitments already made, triggering retaliatory trade conflicts and new protectionist measures across the world. We are hopefully not yet imagining a new “Smoot Hawley” act whose protectionist reach has taken most of a century to unravel, but even small backward steps could be damaging to us all.

Of course it is here that Trump has created greatest anxiety, with loose and flatulent nonsense being voiced and repeated at every campaign rally. Most of his hallucinatory allegations justifying trade “punishments” have inevitably been targeted at China, always an easy electoral bogeyman in US Presidential elections.

Note one set of Trump’s inflammatory claims thrown out at a rally last Sunday: “America has lost 70,000 factories since China entered the World Trade Organisation [in 2001]. They [Chinese] come in. They take our jobs. They take our products. They make a fortune. And we owe them US$1.5 trillion.” In Trump’s fact-free universe the fact that not one of these claims stands serious scrutiny does not matter a jot.

According to the US Government’s Reshoring Initiative, 100,000 manufacturing jobs have returned to the US from overseas over the past five years – 60 per cent of these from China. Add in plants in the US opened by foreign investors, and the number of jobs created jumps to 250,000.

It is true that there are fewer manufacturing jobs in the US today than there were at the peak of 19.5 million in 1979, but from a low of 11.45 million manufacturing jobs in 2010, nearly 1 million new factory jobs have been created. Most of those lost since 1979 have been lost because of automation, robots and improved productivity and have nothing to do with outsourcing to China and offered the kind of paltry wages that no self-respecting American would be willing to accept.

As for China’s manufacturers making a fortune at American’s expense, you need look no further than Foxconn’s iPhone manufacturing headquartered in Dongguan. Out of a price at the point of export from China of US$179, China’s manufacturers capture just $7 of value. The rest of that price was made up of components imported from overseas, often from the US. And who captured the value from US$179 to the retail price of around US$500? Why, Apple in the US of course. But in Trump’s fact-free universe, such untidy and inconvenient details will never get in the way of a rabble-rousing story.

It is also true that the US runs a large bilateral trade deficit with China – it exports about US$100 of goods to China for every US$300 it imports. But remember that the US runs a very significant trade deficit not just with China but with the whole world – and has never recorded a trade surplus since 1975 – while at the same time it is the world’s biggest services exporter, never having run a deficit in its services trade since 1970.

So we are living in very dangerous times, and a Trump victory would make our lives more dangerous in ways very few have yet bothered to imagine. Let us pray that when we wake on Wednesday morning, we do not face the same awful “Brexit breakfast” that Britain’s angry population woke to on June 24. Repairing the harm done over the past months of inflammatory campaign rhetoric will be hard enough even with Hillary Clinton in office. If Trump wins, heaven save us from the repairman from hell.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view

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