Will Trump bring manufacturing back to America? California is a major case-in-point on why manufacturers move out.

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Jan 3, 2017 No Comments ›› admin

By Lynn Woolley

President-elect Trump is convinced he can bring manufacturing back to America with tweets and tariffs. I’m not so sure.

There are a lot of impediments to making stuff here.

cruze_trumptweet-010317-600x400Chief among them are child labor laws, safety regulations, union benefits, taxes, and the minimum wage. Trump may very well be able to shame companies into staying at home. But if he does, the cost of manufactured goods will go up. Shareholders will not be happy – and neither will consumers who will be paying a lot more.

If America wants manufacturing to come home, we, as a nation, must address the reasons that it leaves. Would we pay $500 for a Blu-Ray player or $10,000 for an HD TV set? Not likely Or, we would try to buy more goods from other countries – assuming Trump doesn’t add on heavy tariffs. If he does that, he may not get a second term.

Trump tweets General Motors.

The President-elect’s tweet to GM is about the Chevrolet Cruze, a popular smaller sedan with a price tag of around $22,000 before discounts. A similarly equipped Malibu will cost closer to $27,000 and so cost-conscious consumers often opt for the slightly smaller vehicle.

Trump is demanding that GM make a Cruze model here – instead of in Mexico:

“General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A. or pay big border tax!”

Like Trump, I wish all American car brands were made and assembled here. But the cost of the Cruze goes up if Chevy has to make it here. So there is going to be some butting of heads. Of course, Trump can’t slap tariffs on G.M. without Congress passing a bill. And G.M. will want some concessions – maybe lower corporate taxes or lessened regulations – in order to bring all its manufacturing back.

Houman Salem (Linked In)

Houman Salem (Linked In)

California is a major case-in-point on why manufacturers move out.

The Golden State is famous for its left-wing ideology – and that includes how it regulates manufacturing. The Los Angeles Times carried an amazing article by Houman Salem, an employer of 18 people at a so-called “cut-and-sew” shop in San Fernando.

He says he could absorb a minimum wage as high as $11.50. But that’s not what he’s facing. California bureaucrats are raising the minimum wage to $15 – first in Los Angeles County in 2021, and statewide the next year. That puts him in a precarious situation.

He’s paying $10.50 per hour as of the New Year — plus productivity bonuses, and payroll taxes and a high worker compensation rate. When the wage jumps to $15, that translates into $18.90 in actual employers costs – or, about $40,000 a year per fulltime worker. He says that would lead to losses in excess of $200,000 per year, and more if his workforce expands. Salem contends that if he raises prices, his clients will not pay it. He will be forced to lay off some of his employees.  He says:

“If not for the $15 minimum wage, I’d have zero interest in leaving California.”

He’s looking to move to Nevada where the minimum age is $8.25. Even if the wage in Nevada goes up, he would still be facing fewer regulations.

While California is putting up a giant “Go Away” sign, Texas should continue to say “Welcome” to business.

U-Haul trucks have made many one-way trips from the Golden State to the Lone Star State because of Texas’ business-friendly climate. That’s good for Texas, which wants to have strong economic growth, and good for California assuming its goal is to make sure everything is fair. But “fair” without jobs isn’t really fair.

Which leads us back to Trump.

Can a U.S. President really bully companies into manufacturing here? The answer in the long run is “no.” President Trump should study the massive bureaucracy in California and the better business environments in Nevada and Texas. If he can address the issues that make business leave – predominately regulations and unions – he might be able to make it desirable to manufacture here.

That’s what most businesses call a win-win.

lynn@BeLogical.com

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