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I remember a time when every Wal-Mart truck on the road proudly stated, “Made in the USA.” After all, Wal-Mart’s founder Sam Walton started the company as a retailer providing U.S.-made products to American consumers. But Wal-Mart soon learned that most Americans didn’t care if their next-door neighbor had a job, as long as they could get a shirt for 50 cents less. Pretty soon, every Wal-Mart truck shouted, “Always Low Prices!”
Today, many Americans see the importance of their neighbor having a job and how quickly the social fabric frays when people can’t feed their families. The coronavirus pandemic has allowed all of us to take a second look at decades-old decisions and rethink and remake them. In showing us the vulnerability of our old decisions involving outsourcing manufacturing to Asia, the pandemic is providing a rare opportunity to start over.
In about 1980, light manufacturing began to move from the United States to China. As the Chinese gradually improved their education system and people moved from the country to the cities, their labor force both grew and improved dramatically. Their centrally planned form of government also allowed their government to tell thousands of these new workers where they were working and when. Light manufacturing became heavy manufacturing, which then became high tech manufacturing. China became the manufacturing center of the world. With the U.S. as their banker, investor, and customer, we financed China’s growth into our manufacturing hub.
But what if 30 years ago, we had decided to invest in our hemisphere? What if we had decided to move our light manufacturing to Mexico, Central America, or South America?
I know some of you are thinking, “Either way, we lose the jobs.” That’s only partially true. There are some jobs we should shed. The United States should focus on high-end, high-tech, high-value-added manufacturing. We should do that because that manufacturing is also where the high (profit) margin jobs and industries are. We have learned that people will spend hundreds of dollars on a smartphone, but the cost of a T-shirt is limited. We should outsource T-shirts. Low-value-added manufacturing should move to developing countries with low employment. Any job creation there leads to a life-changing economic difference.
We have also learned in this pandemic that our national security is dependent on more than weapons. Drugs and PPE can be more critical than guns and bombs at certain times. If the product is essential to our national security, it should be on-shored or at least near-shored.
Even low-margin manufacturing should be near-shored because that is how we improve our hemisphere. That is how we clean up our neighborhood. What if 40 years ago, we had moved manufacturing to Mexico, Central, and South America (MCSA)? How would things be different? We can look at the development in China to see.
MCSA had the same mass migration of farm labor to the cities as China. But when there were no jobs in the cities, the migration continued to the U.S. If we had moved manufacturing there instead of China, migration patterns would be completely different.
We would have insisted on a better-trained workforce and more educated managerial corps. There would be jobs there for their university graduates and a reason to complete secondary and post-secondary education for those seeking manufacturing jobs. Like in China, we would have seen an educational surge in MCSA. As new cities opened for manufacturing and education, roads, rail, and air service would be required. Just like in China, MCSA would have seen massive infrastructure development.
What happened instead was the North American Free Trade Agreement (now the United States-Mexico-Canada Agreement), the goal of which was to reduce trading costs, increase business investment, and help North America be more competitive in the global marketplace. As impactful as NAFTA was – and Texas was the biggest beneficiary – it was just a sliver of what could have happened. Mexico is Texas’ largest trading partner. As of 2018, Mexico took 41 percent of our exports and provided 34 percent of our imports. Second place is Canada, with China a distant third.
Thanks to NAFTA, Texas has become one of the most globalized states with international trade accounting for 27 percent of our GDP. That international trade, especially with Mexico and Canada, has grown Texas’ economy to the second largest in the U.S.
Perhaps a little-known fact outside the oil industry, but Canada, the U.S., and Mexico possess five times the fuel reserves of OPEC. Texas is right in the middle of all this with the Permian Basis, Eagle Ford and massive rail and pipeline networks to both Canada and Mexico.
In San Antonio, the benefits of NAFTA are often hidden in plain sight. The massive Toyota campus with the Toyota plant, as well as manufacturing for many of its suppliers, is hidden from view of most of us. We only know it’s there subconsciously. According to our own Chamber of Commerce, 63,000 jobs in San Antonio are tied directly to NAFTA and another 135,000 are indirectly tied to it.
What if NAFTA (now USMCA) encompassed the entire hemisphere? What if the incentives for moving jobs to China instead went to growing trade in our own neighborhood? Our focus has always been so Europe and Asia-centric that our hemisphere has suffered from benign neglect. Now, in many areas of public policy, both international and domestic, we get a do-over.
We know that we need to both re-shore and near-shore our manufacturing and supply chains. We need to be much less Euro-centric and Asia-centric and more Americas-first. This is our chance to rebuild the Americas while we rebuild the United States. We won’t get a third chance.