As a business owner, you have heard of the impact of reshoring on the US economy and the steadily growing number of jobs in manufacturing. However, the number of manufacturing jobs will never reach the same highs it had in the past. The world economy has changed in extreme amounts of volatility and uncertainty over the past decade, and the Trade Promotion Authority, or TPA, could be the tipping point of plunging the US economy back into the red or propel trade into the future. To prepare for the unexpected, unforeseen perils of the future, you need to know what the TPA is and how it will affect the economy and the manufacturing industry.
What Is the Trade Promotion Authority?
The Trade Promotion Authority, otherwise known as “TPA” or “Fast Track Trade,” grants special permissions to the President to create and sign trade agreements with other countries without the intense scrutiny of congress. Ultimately, it eliminates any chances of congressional filibustering or amendments by restricting congressional input to a simple yay or nay vote.
The TPA began with the Trade Act of 1974, and it was expanded once more in 2002. In 2011, the current Obama Administration began seeking the expansion of TPA powers once again. Yet, this still does not answer how the Trade Promotion Authority could affect the current state of the economy.
Trade Promotion Authority and the Trans-Pacific Partnership
The TPA would effectively grant the Trans-Pacific Partnership (TPP), which would reduce, or eliminate in totality, the tariffs imposed on 11 countries across the Pacific. Ultimately, this would result in a manufacturing cost reduction within these companies. Now, this goes back to a simple principle: businesses want to manufacture their products with the least amount of expense possible.
How Could the TPA Affect the Economy?
Possible Reduction in Reshoring Rates
Reshoring, or the return of American manufacturing to US soil, has been a huge concern of companies and the public. However, passage of the TPP, following approval of the Trade Promotion Authority, could drastically slow down reshoring rates as more companies leave manufacturing plants overseas and take advantage of the possible tariff-free imports to the US.
Continued Staleness of the US Workforce
Part of the grave nature of reshoring rests with how technology is incorporated into the manufacturing process. Many aspects of manufacturing have become digitized and automated; however, this does not necessarily mean that all human-input is eliminated from the process. Physical workers are still required to inspect potential flaws, perform maintenance on the machinery, and run the machinery. Therefore, the workers involved in this automated-human alignment in manufacturing need to have advanced knowledge of the machinery itself. In other words, the worker’s education must be superior to that of a typical high-school education.
Even without the passage of the TPA, companies will still need to find educated, experienced workers to operate their factories. This could be termed, “The Paradox of Fast Track Trade.” Businesses may think they have gained the upper hand by allowing manufacturing plants to continue operation in Asia, but the very nature of increasing technological aspects of manufacturing will require additional investment of equal to, if not more than, the costs incurred in reshoring manufacturing processes in the first place.
Increase in Companies’ Opting to Outsource Offshore
To appease all parties, some companies may opt to engage in offshore outsourcing when the TPA becomes law. True, this will provide an immediate drop in business expenses, especially manufacturing, but the TPA could easily take several additional years to materialize. Consider how proposed congressional trade Acts often do not begin to hammer out the more difficult aspects of the proposal until nearing completion. This means that the brunt of such trade agreements could be put off until sometime in mid-2016.
Unfortunately, this only will result in an additional delay as the entire US will be in the midst of a power-struggle between a Republican or Democrat as the next presidential contender. Even if congress were to pass the TPA today, the official, congressional approval or denial could easily not happen until next year.
Decrease in Technology-Side of US Manufacturing
It may be far-fetched, but some companies might try to reduce the amount of technology used within their US manufacturing if the Trade Promotion Authority becomes a reality. After all, spending money on technology still represents a basic business expense, which some business may perceive as more costly than continuing to use overseas laborers. However, Asian pay rates will continue to climb in the coming years, and businesses will fade the expense in the future.
Potential Loss of Trust in Customer-Base
In addition to the expense-income comparison of doing business overseas and engaging in reshoring, businesses face what may be the greatest threat of all. Will customers hold a grudge against the company for choosing to continue manufacturing overseas? From television media reports to internet-based broadcasts of public disapproval of the manufacturing industry’s involvement in overseas production, consumers may be unwilling to purchase such goods. When the customer-base reaches a point of ire and distrust, customers have the power to destroy a business by boycott or word-of-mouth campaigns.
As your business considers how it will act if congress does approve the continuation of Trade Promotion Authority powers in the future, you need to think of the long-term goals. Do you want to risk it all to save a few bucks temporarily, or should you invest in at-home, technological upgrades and increasing your reshoring tactics to guarantee stability in the future. In fact, many 3PLs can alleviate your business expenses to the point where you could save the same amount of capital while continuing to reshore American jobs and manufacturing plants.
Let us know your thoughts on Trade Promotion Authority in the comments below.