Scott Sumner  

An open letter to America's CEOs

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Dear CEOs,

You may face a decision about whether to locate a new factory in America or Mexico. In the past, either location gave you an option of later moving production to the opposite country. It appears that option is about to be curtailed. You will still be free to re-locate jobs from Mexico to America, but you are about to lose your freedom to relocate jobs from America to Mexico.

The loss of this option somewhat tilts the balance in favor of locating new plants in Mexico, where you will have more flexibility to adjust production over time--perhaps to China or India. If you have recently been wrestling with a decision about which location is best, I implore you to opt for Mexico, as it's the best option where other factors are roughly equally balanced. Remember how your European friends reacted to labor laws making it difficult to fire European workers? They opted to hire fewer workers in the first place. You can do the same. Make America more like Europe!

Perhaps you have Italian friends and already know all this. In that case is my open letter a waste of time? Not necessarily, this might also be of interest to America's voters.

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COMMENTS (7 to date)
Josh writes:

I'm trying to understand a possible rationale for Trump's mainstream defenders on this topic (assuming high tariffs are a necessary corollary). Is the idea to force production for the domestic market to locate in the US, to hope that the resulting supply-side contraction will be partially offset by tax reform and deregulation, and to accept any remaining aggregate welfare loss as an acceptable price for the benefits to some workers/regions? And to hope for the best regarding disruption in export sectors? If so, do you buy any version of this rationale?


Anon39 writes:

Josh,

I doubt it's even that well thought through. I think a more Robinesque signaling and tribes explanation is closer to the truth.

No one has a 100% solution to automation's (or offshoring for Noah Smith et al) impact on jobs. Has anyone looked at the efficacy of retraining programs? My guess is that they're close to useless.

Monetary policy can restore AD, more or less, but the sectoral and geographic shifts leave a giant question mark.

The fetish for manufacturing jobs is a meme that needs to die out. Service jobs are where the growth is.

Of course they might not pay as well, but the EITC could be expanded. But then again, it was never about pay....

Philo writes:

Yes, the American government is a killer of American jobs and an abortioner of potential American jobs. Unfortunately, most other governments are just as bad, and many are worse. As for Trump's policies, we just have to hope he will do enough good to offset the bad he does.

john hare writes:

One irony of this debate is that there are plenty of decent jobs that could be made available over the next decade with a mild change of a few policies and mindsets. Millions of small businesses have given up on hiring useful entry level help. I personally know dozens of people that work alone rather than put up with 1. the regulatory requirements, and 2. the non-productive mindset of many of the non-skilled. I have talked with hundreds of others.

Most of the medium size businesses around here are also short of qualified people at this time. Shortage of middle managers because there were few decent lower level managers because there was a shortage of workers worthy of promotion because of the problems in the first paragraph.

Get enough regulations out of the way that a small operation can function. Mitigate some of the cost and risk from the legal system. Teach potential employees the realities of economics of business that they might apply.

A big part of the problem as I see it is the idea that a business is there to provide a job. A business is there to provide a product or service to customers. The employee/employer relationship is a voluntary cooperation to provide that product or service. If the employee/employer relationship is not win/win, then it will go away and create the problems that exist and the problems that seem to exist today.

Scott Sumner writes:

Philo, My concern is not so much the economy, as other aspects of policy. (Immigration, the environment, civil liberties, racism, foreign policy, etc. etc.)

Serge Matenda writes:

Cutting corporate taxes to encourage businesses to stay in America and not outsource I personally do not believe will be enough to keep companies here ashore. How many large companies already pay below the 20% in federal tax? The issue isn't that mandatory tariff (35%) that will be charged to corporations when they outsource and come sell here. Companies like Carriers will simply abuse the president-Elect's "tax break" to "keep their businesses here."

Timothy Roswell writes:

("Companies like Carriers will simply abuse the president-Elect's "tax break" to "keep their businesses here.")

We know this but the American people have been waiting for a tax like the 35% mandatory tariff to help promote growth on U.S soil. Companies for years have been taking advantage of loop holes and this is the first step in the right direction. I believe this will work and cause companies to make critical decisions based on where they want to be located. This is just a small step in the revolution of the Trump administration.

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