Morici: When workers cannot or will not compete, investment suffers

Peter Morici

Despite unemployment falling to a 16-year-low in the United States, wages are up only 2.5 percent from last year. That is better than inflation but not by a lot, and employment gains have not been strong by historical standards.

So far this year the monthly pace of jobs creation has averaged 184,000 and adjusted for the size of the potential workforce, only slightly more than half the pace accomplished during the Reagan years – when overall economic growth was simply much more robust.

The Gipper’s strategy was quite similar to President Trump’s – he cut taxes, spent more on infrastructure and defense, deregulated business and engineered the 1985 Plaza Accord, which resulted in a 50 percent reduction in the exchange rate for the dollar against the yen and other currencies. In those days, Japanese, not Chinese, imports aided by a cheap currency were waxing the ears of American workers.

Skepticism is growing among economists – and more importantly business decision makers – that Mr. Trump and Republicans in Congress will appreciably lower the cost of investing in the United States.

On healthcare, the GOP seems incapable of substantially rolling back Medicaid spending – even for adults without children who do not work and refuse to seek employment. Without substantial progress there, broader entitlement reforms needed to cut taxes and spend more on infrastructure seem unlikely.

Much of the Trump administration’s deregulation agenda is held up by its inability to fill key positions on various boards and commissions, and Democratic opposition to new legislation where required.

On trade, China accounts for 60 percent of the $500 billion dollar trade surplus but the Mar-a-Largo agenda is bogged down with rifle shot initiatives like opening the Chinese market for beef, soybeans and credit card companies when a systemic solution – in particular, reworking the 2001 bilateral agreement that facilitated China’s WTO membership – is needed.

Mr. Trump’s trade chief, Wilbur Ross, has adapted such an approach with NAFTA but Mexico accounts for less than 13 percent of the U.S. trade deficit. Much of its success has not been from unfair trade practices but rather smart policies. A free trade agreement with the EU permits Mexican auto factories to sell duty-free in both the United States and Europe – that is something they cannot do from the United States.

Companies like Li and Fung in apparel and household items and Wipro in electronics and IT specialize in outsourcing products designed by American companies. If U.S. policymakers create too much uncertainty about market access for Mexican products, those firms can help businesses quickly move production to Asia.

Ford has figured this out without the aid of outsourcing specialists. After submitting to pressure from Mr. Trump to cancel plans for more production in Mexico, it decided to make the new Focus in China. If Messrs. Ross and Trump want to solve the trade deficit, they need a radical solution for China – not Mexico.

With more automation coming, many Americans often do not have the skills to do the jobs that are left.

In factories, robots have been able to lift and weld fenders onto autos for quite some time now, but machines are now moving into tasks that require far more complex thinking and subtle dexterity – for example the handling of fabrics to sew button holes and attach sleeves to shirts.

Large commercial bakeries, for example, are becoming “closed looped.” Soon the only humans will be those programming the machines, keeping the books and delivering the bread. And new artificial intelligence programs, driverless vehicles and robots will soon replace many of those positions.

In factories, on construction sites and across supply chains, thousands of jobs go unfilled for programming, managing and maintaining sophisticated machinery and artificial intelligence, which require advanced technical training.

The president’s initiative to improve apprenticeship programs through public-private partnerships is critical. However, only about half of high school graduates complete a career- or college-ready curriculum, because many students avoid difficult courses and take the minimum needed to graduate. Consequently, a significant share of graduates lacks the background to effectively absorb the needed training for either a blue- or white-collar position.

American politicians and young people must up their game – by making America a better place to invest and getting more serious about school – if we are going to compete in this new age.

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. © 2017, The Washington Times.



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