The scope of the vision of America presented by President-elect Trump yesterday is breathtaking. In both social and industrial policy he is changing direction and challenging the consensus fashioned and maintained by business, financial, academic and political elites. He is rewriting the social contract binding Americans, and challenging trade and industrial policy orthodoxy head-on.
Charles Krauthammer of Fox News now gets it about Trump, after over a year of dismissing him as unserious. Kudos to the good doctor for discovering that facts invalidated his conceptual framework and then fundamentally re-thinking how he understands Trump and the political phenomenon he has created, or taken advantage of. Yesterday on Special Report, he explained Trump’s new social contract concisely:
The combination of information technology, robotics, new materials, and many other advances (including management advances such as lean manufacturing and continuous improvement organizational disciplines) has squeezed low value labor out of manufacturing. Global companies that locate within their most important market are able to create serious competitive advantages over companies assembling products in low wage companies through flexibility and rapid response time.
There are many factors that affect the attractiveness of such strategies to companies. Too many to enumerate here completely. But two near the top of the list are already changing thanks to policy changes President-elect Trump has announced.
The cost of capital
Depending on the cost of capital, investment decisions change. There is well over a trillion dollars in corporate wealth sequestered from the American economy by our highest-in-the-world corporate profits tax that will be enthusiastically repatriated under the new tax regime being promised.
Starting with environmental impact statements that delay projects – a serious negative factor, aside from the cost of the consultants and executive manpower consumed – American environmental regulations are serious obstacles. But there are many other regulatory burdens that are expensive and unnecessary. Trump has promised sweeping reform, and yesterday emphasize how he had learned from executives at Carrier that regulations are even more expensive than the wage differential, in costing out the option of the Monterrey factory versus investing in next-gen manufacturing in the USA.