The recent election had a lot of rhetoric about manufacturing jobs that had been lost overseas and America’s growing trade deficit with various countries. If we listen to many of the politicians, and mainstream media, jobs and companies are abandoning the US and other countries to manufacture overseas. Moreover, China and other countries are said to be out producing us. While this may make for a good soundbite, this is not factually correct. While we have seen companies move overseas both for tax reasons and other factors such as less regulation; the fact is that the United States remains the largest producer of goods and services in the world both in absolute terms and on a per capita basis. China is often mentioned as a prime culprit in taking manufacturing the facts suggest otherwise.
Americans produce about 20% of all the stuff in the world with 4.5% of the world’s population,
China makes 17% of the stuff with 19% population (source: Unleashing the Second American Century: Four Forces for Economic Dominance by Joel Kurtzman) America’s productivity, measured on a per capita basis, remains the world standard. Even more significant is that while the 20% of the world’s goods are produced in the United States, American companies collectively produce between 30% and 40% of everything in the world. A lot of that money comes from overseas operations and up until now most of that cash stays overseas. With an expected reduction in corporate tax rates and/or on repatriated funds much of this cash may come back into the United States.
Despite the high relative tax rates the number of jobs coming back to the United States – so called Re-Shoring – continues to increase. We believe that with lower tax rates and less regulation this number will continue to grow.
For the first time in at least 20 years U.S. manufacturing showed a net gain in jobs created domestically in 2015 – the most recent year to report. That’s according to a study published by Reshoring Initiative, a Chicago-based firm, that found the net gain on reshoring (also called onshoring) and foreign investment in the U.S. was 67,000 jobs nationwide in 2015. Foreign companies are also investing hundreds of millions in the United States. A case in point is Nox, a leading Asian manufacturer that opened a state-of-the-art manufacturing facility in Fostoria, Ohio, in 2015. Nox is investing tens of millions of dollars into modifying the space, which spans a little over 300,000 square feet. The plant will supplement the company’s primary manufacturing facility in South Korea.
Harry Moser, founder and president of Reshoring Initiative, said the trend in manufacturing in the U.S. is to source domestically. “With 3 million to 4 million manufacturing jobs still offshore, we see huge potential for growth.” While there are several factors at play here, Moser—as well as others—said one big influencer is escalating wages in traditionally lower-cost countries, including China, have pushed companies to reconsider sourcing strategies.
As mentioned in our last blog we believe that the Republican sweep in the U.S. Congress means we will see a focus on areas where President Trump has common ground with the Republican establishment in the first 100 days of the new administration. This should include lower tax rates for companies and an attempt to reduce regulation- both of which would bode well for increasing jobs and investment in the U.S.
It remains to be seen what actual policy the new administration puts forward and how successful they are in getting it passed. Furthermore, we believe that a push for more protectionism is not necessarily a good thing for the United States in the long run and not consistent with the standard Republican policy. While we are very optimistic about the longer term growth of the broad equity markets we believe that we will see rising interest rates, federal debt and inflation. This may have a large negative impact on bonds and other so called ‘safe investments’. A proactive diversified approach will be crucial to help achieve investment success in this environment. Those who are properly allocated and maintain reasonable expectations for return and withdrawals while ignoring short term swings, and don’t get caught up in the negative hype, can potentially benefit from the opportunity.
Our team is here for you and your family and looks forward to discussing any questions or concerns you may have. As we look to 2017 and beyond we continue to take a customized holistic approach to planning and wealth management that is based on your personal vision. A proactive holistic approach will, in our opinion, become even more important as we see increased volatility and regulatory complexity. Please contact us with questions or whenever we may be of service. randy.carver@raymondjames.com or (440) 974-0808.
