It hasn’t even been one month since Donald Trump won the presidential election, and already, there have been large announcements in the business world. Ford Motor Company, which had announced that it would be moving much of its small SUV production to Mexico from Wayne, Michigan, has reconsidered, and for now will not be doing so.
The previous announcement, which would have affected 3,700 workers, would have been a devastating blow for the auto-making economy and to the U.S. manufacturing world. Had it occurred, it would have been a further admission that the business model of making cars in the U.S. wasn’t making sense.
Ford has been producing cars in Michigan since 1903. The concept of the moving assembly line was pioneered by Henry Ford in 1913 and was quickly imitated by countless other industrial manufacturers. Long a critical member of “The Big Three” automakers in the U.S., Ford has 199,000 employees today and still makes the bulk of its American-sold cars and trucks in the United States.
When Ford initially announced its decision, President-elect Trump quickly declared that if he was elected, he would slap a 35 percent tariff on Mexican-manufactured cars coming into the U.S. For Ford, the cost savings achieved by moving its SUV operations to Mexico would have been negated.
With Trump’s election, the company quickly rethought its plans and realized that from a financial perspective, shifting operations outside the U.S. wouldn’t be a smart move. For now, Ford plant workers can rest easy; Trump has stabilized their jobs.
Another surprise announcement since Trump’s election has been hints that Apple may move some of its iPhone production to the U.S. from China. For the last 10 years, Apple has contracted out manufacturing of its iPhones to Taiwanese firms Foxconn and Pegatron, which in turn employ subcontractors for various components of the sophisticated devices.
In the beginning of the iPhone’s production, there were horror stories about workers killing themselves due to abysmal working conditions and long hours in Foxconn factories and those of its subcontractors. Those problems have largely been allayed, but the labor cost of producing the phones offshore is still highly competitive compared to U.S. production.
But once again, perhaps fearing the prospect of Trump-imposed tariffs on offshore manufacturing, Apple may have preemptively decided that moving at least some production to the U.S. could be a way to stave off tariffs.
Also, the company may have thought that such a move might be a way to forestall the repatriation of the firm’s massive cash hoard, which currently sits in Europe and other places for the benefit of not paying enormous corporate taxes in the U.S.
Although Apple is a hardware company, most of its software engineers are located in America; in fact, it’s now putting the finishing touches on the construction of its new “Infinite Loop” campus building, which resembles a circular spaceship in Cupertino, California. With over 115,000 employees, the company definitely would like to save on labor costs in any way it can.
One issue that was prominent for Apple and other high-tech companies before the election was that of H1-B visas. H1-B visas are a way that tech companies can hire foreign-born workers to work in the U.S. often for lower salaries than what American-born workers would earn.
H1-B visas have been a thorny issue in Silicon Valley, with companies such as Google and Facebook lobbying politicians such as Hillary Clinton and Barack Obama to enact reforms to the visa program that would allow more H1-B workers to be hired.
For many of these companies, the labor cost savings would be huge. For Facebook alone, for instance, billionaire co-founder Mark Zuckerberg was so excited by the prospect of visa reform that he donated $42 million to the campaign of Hillary Clinton in 2016.
Donald Trump has talked about H1-B visa reforms also, but what he envisions would put American workers first in line for many jobs. It’s likely that some companies (such as Apple and Facebook) are highly disappointed by the recent presidential election results, even though their stocks may have seen some gains in the immediate aftermath.
In general, the above news is good for the U.S. economy. Keeping trade barriers high may yet convince other American companies to move their production lines back to the United States and/or persuade others to keep theirs here in the future.
If President Trump and his chief strategist Steve Bannon play their cards right, it’s possible that U.S. manufacturing could undergo a renaissance in the next four to eight years; time will tell if this is likely to be the case.
Regards,
Ethan Warrick
Editor
Wealth Authority
