Friday, July 2, 2010

Andy Grove wants to start a trade war. There's a better way.

It's always sad seeing somebody you've admired for years propose something completely crazy. Andy Grove, pretty much The Guy Who Built Intel, has written in BusinessWeek that the best thing for America's economy is to shift from chopping its own head off (by offshoring) to shooting itself in the head (start a trade war). He starts off on the right foot. I would agree that moving manufacturing jobs away from the US contributes to local unemployment and drains our local economy. However, I would also add that it improves our standard of living by making nonessential items much less expensive. The question becomes what to do about it. Mr. Grove starts with the idea of taxing offshored employment. This is a problematic notion at best - it would simply result in offshoring the company headquarters as well (we're already starting to see this happen for less significant reasons). He then moves on to the laughable idea of putting the tax money into a lockbox account that would be used to fund local manufacturing jobs - if this doesn't have you doubled over on the floor laughing, crying, vomiting, or some combination of the three then you should probably crack a history book. Or at least check out the current state of Social Security and Medicare.

Local jobs or cheap products? It's a tough choice. What's overlooked is the fact that you can have both. There's a good reason that low-end manufacturing jobs have left: we've outlawed them in this country. Between minimum wage laws, the grossly excessive power given to unions, and other costly employee mandates (you can now add health care to this), the only way we can locally manufacture these precious new Silicon Valley inventions is to price them far above what the market will allow. I'd love to have a locally-made iPhone, but I'm not willing to pay $600 (or whatever) more for it. And neither is anyone else.

We may not be able to get local manufacturing costs down as low as China, but we could make them considerably lower than they are now. It's important to keep in mind that manufacturing in China isn't free - there are language and cultural barriers (often requiring additional employees and / or consultants to manage), the hassle of dealing with people in a vastly different time zone, and the expense of shipping stuff halfway around the world. We don't have to match the Chinese, we just have to get a bit closer. It should also be kept in mind that China has been keeping its currency artificially weak for some time now - this can't go on forever, and when the Yuan's value does adjust the costs of everything made in China will go up considerably.

American industry thrives on innovation and competition and it does exceptionally well ... when the government lets it. Now what would really help local manufacturing is if we had millions of people come into our country willing to take jobs with low wages... just imagine what you could accomplish with a crazy situation like that.