A new round of isolationism has raised its head during the Democratic primary as candidates ply the emotions of workers stuck in some segments of a shrinking manufacturing economy. Even NAFTA, the realization of the last Clinton administration, has been said to be one sided and lacks environmental teeth. Now I am all for protecting the environment but judging a trade agreement hammered out more than 10 years ago by today’s green sensibilities hardly seems fair or to the point of free trade.

The electronics industry has a long history of losing manufacturing jobs to overseas competition. Back in the 60s and 70s consumer electronics, televisions, radios, and stereo equipment, manufacturing became the realm of Japanese with automobiles quick to follow in the 80s. In the late 90s and earlier this decade personal computers, cell phones, and most other products with electronic content made its way to China or some other south east Asian country.

So, let’s take a look at isolationism to see how it can work for and more likely against us.

The Global Marketplace

The world is far larger than the United States. With a population of 0.3 billion the United Sates represents 4.4% of the 6.7 billion humans that populate the global, according to the U.S. Census Bureau. China and India together account for 36% of the world population with 1.3 and 1.1 billion inhabitants respectively. These two countries in Asia have eight times the number of potential consumers the United States has.

The United States still produces more than 20% of global manufactured output. Per the International Monetary Fund, in 2007 the United States produced $13.2 trillion or 21.3% of the world total, China put out $7.0 trillion or 10.8%, and India accounted $3.0 trillion for a 4.5% share.

The United States is a far more productive or efficient manufacturer than the Asian giants. Taking the GDP and population statistics from above, the United States has $44,000 in GDP for every man, woman and child that resides here. For China the figure is $5,385 and India is $2,727 or approximately one eight and one sixteenth the productivity of the United States.

With far greater productivity the U.S. needs to reach the 95% of the world’s population outside of our country to grow.

Tariffs

The first weapons in restricting foreign competition are tariffs or duties. Raise the cost of imports to help domestic manufacturers compete. Who does this help if domestic manufactures have moved some of their operations off shore to reach foreign markets and take advantage of lower cost production? What if domestic manufacturing no longer has the capacity to meet local needs? Who will invest in a manufacturing capability for a product that is only viable if the tariffs or duties are in place? Despite the answers to these questions one thing is clear, a product that has an import tariff or duty placed on it will cost the domestic consumer more. Either by having the tax passed along or by allowing an inefficient local manufacture to charge a higher price.

Low Cost Producers

Looking back over the past 150 years reveals that low cost manufacturing has migrated across the globe. At the beginning of this period, European countries were the industrial powers. Then at the turn of the last century their supremacy was challenged by the United States.

Industrial growth in the United States was powered by a plentiful and growing population of poor immigrants that were willing to work for less than those that stayed in Europe, a vast supply of untapped natural resources, and most important the innovations created by entrepreneurs such as Henry Ford, Thomas Edison, and many more. One of the best examples of the industrial might of the United States was its ability to supply the allied forces of World War II with arms, ammunition, ships, aircraft, vehicles, fuel, and food to wage war in Europe, Africa, and the Pacific while so many of our citizens were engaged in or were causalities of the fighting.

At the end of World War II the United States helped to rebuild the war ravaged countries in Europe and Japan. Japan started down the road to become the next manufacturing super power. During the 1950s “made in Japan” meant inexpensive and low quality. Then with the teachings of W. Edwards Deming they came to realize that producing high quality products led to lower costs and very satisfied customers. This powerful combination allowed Japan to become a global leader in the manufacture of consumer electronics and automobiles.

The prosperity brought by a strong manufacturing economy can limit a country’s ability to sustain a low cost position. A fast growing economy brings an increase in competition for skilled workers and other resources needed, leading to rising cost. Improving standards of living also increases the desire and demand for better lifestyles and the resources required to support them. This leads to higher costs, as it did in the United States and Japan.

Free Trade is the Best Trade

Free trade must be fair trade. Imposing barriers and providing supports are inefficient and can hurt weak producers overtime. Insulating domestic producers from the reality of a global market perpetuates their inefficient methods and operations. Removing barriers requires producers to be cost effective in order to survive. Having a smaller number of globally competitive producers may be better than a larger group that could not survive without government intervention.

Government supports of industries, agriculture, commodities, or currencies again adds inequities and imbalances free trade.

The development of the North American Free Trade Agreement (NAFTA), the European Union (EU), and the World Trade Organization (WTO) will help to eliminate barriers and supports that prevent fair free trade.

The Only Thing Certain is Change

So back to the folks in the Midwest that have lost jobs in manufacturing, for them to find work means finding a company that is growing. Being able to provide a product or service that is in demand and competitive globally is a sure way to grow.

The government can help by ensuring our companies have fair and equal access to foreign markets. Putting up barriers for entry into the United Sates will not help this.

Also, workers must accept change and have access to training so they can learn new marketable skills. Manufacturing jobs may continue to diminish, so a press operator or an assembler may need to become a quality control technician for a global insurer, or, the government could allow tax and penalty free access to a portion of a person’s 401K or other retirement accounts for funds to start a new business.

The important idea is to recognize change and determine how to take advantage of it. Remember there are no longer any telegraph operators or very few buggy whip makers in the world today. But there are many that have found ways to harness the power of the Internet to conduct business all over the globe.