Ivan Fallon: Days of big manufacturing in America are over, and there’s little Trump can do about it

Donald Trump, surprisingly, is putting into place the protectionist and isolationist policies he touted during the US election. But they will not do what he promises they will, as the US has been de-industrialising for generations.

A worker at a Tesla factory. The car maker is leaning heavily towards automation, a trend identified by recent studies as a major reason for job losses in the US. Paul Sakuma / AP Photo

The shock to a world unprepared for it is that he really does mean it. Within days of moving into the Oval Office, Donald Trump has signed an executive order withdrawing the US from the Trans-Pacific Partnership trade deal, called in a dozen of America’s top manufacturers and warned them they face “a major border tax” if they shift production abroad, and announced he would scrap trade deals with China, Mexico and Canada.

Abruptly, the rhetoric of the election campaign has given way to the reality – Mr Trump is in the White House and he is actually doing what he said he would do. In a year of surprises, that may be the biggest surprise yet. In his inauguration speech Mr Trump set out “America First” as his principle, “protection” as his policy and “buy America” as his motto. Chief executives, including those of Dell, Tesla and Ford, were summoned to the White House, where Mr Trump gave them a blunt message: “A company that wants to fire all of its people in the United States and build some factory someplace else and then thinks that that product is going to just flow across the border into the United States – that’s not going to happen.”

To me this is the most striking and unworkable aspect of all the pretty radical plans he set out in his speech last week. America, like every other advanced nation, has been de-industrialising for generations. Mr Trump may talk mournfully of how “the factories shuttered and left our shores, without a thought for the millions and millions of workers that were left behind”. But those jobs have gone forever and, if the truth be told, they weren’t very nice jobs in the first place. Do Americans really want to work in textile mills, as they used to before the jobs all moved to the Far East? Those jobs initially went to developing countries such as Singapore and Indonesia, which quickly upgraded and passed them on to China, which in turn has passed them on to even lower-paid workers in Bangladesh and Indonesia.

Just after the Second World War, the manufacturing industry still accounted for more than half of American GDP. Today it is just 12 per cent and only 12 million Americans, 8.8 per cent of the workforce, now work in manufacturing.

History, economics and just plain common sense are all against Mr Trump reversing that trend. Britain created the industrial revolution, yet today its manufacturing base has shrunk to less than 10 per cent of GDP. And yet it effectively has full employment, but is unable to run its health service or hospitality industry without record levels of immigration. France is now down to 11 per cent, and the percentages for other once-great manufacturing countries, such as Italy and Belgium, are dropping like stones. Admittedly, Germany is hanging on to its industrial base, at 23 per cent of GDP, but even Japan has slipped below 20 per cent.

The manufacturing success story, ironically enough, has been Ireland, which has grown its manufacturing base from almost nothing 50 years ago to 37 per cent today, basically by pursuing a low-tax regime, which has attracted some of those big US high-tech companies, including Dell, which Mr Trump wants back. He is not going to get them unless he does something even more radical than he has indicated so far: Ireland’s corporation taxes are 12.5 per cent, and a favourable deal meant that Apple paid less than 1 per cent on its European earnings over the past few years. The US corporate tax rate is 35 per cent, which Mr Trump has promised to cut drastically – but he can never match Ireland.

Mr Trump has a point even if he doesn’t have a coherent policy to solve it. US factories have shed 5 million jobs since 2000, but it is not because of globalisation. Recent studies have shown that three out of every four jobs lost in the US have been as result of technology. Cars are now manufactured in Dearborn with a fraction of the workforce that used to man the old Ford production lines. Robots do the jobs much more cheaply and efficiently. Production of new cars from Tesla, which is already challenging the great Michigan giants, is leaning heavily towards automation.

Yet for all that, the US, like Britain, has absorbed the decline in its industrial base without serious social disruption. “Certain industries have declined and others have risen,” says the Harvard professor and trade expert Robert Lawrence. “In aggregate, the economy is close to full employment.”

The future of America is its Apples, Googles and Microsofts. The days of the big manufacturing goliaths has gone. And threats, protectionism and trade wars will never bring them back.

Ivan Fallon is a former business editor of The Sunday Times.

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