Trump tariffs bring back jobs for Robots

American businesses trying to cope with President Trump's tariffs probably will embrace shaky Artificial Intelligence technologies that employ robots rather than Americans.

Photo courtesy of Abobe

In the early 1980s, I traveled to an auto components factory near Youngstown, Ohio, which was about to be closed because the company that owned it had relocated the plant to Mexico.

Unable to enter the plant to interview workers for a piece I filed as a reporter for the Chicago Tribune, I went to a bar frequented by the plant's employees to hear their stories. Over a few beers and several hours, some dispiriting experiences emerged, particularly from a man who made wire harnesses for automobiles in nearby Detroit.

His employer had ordered him to train his Mexican replacement so the company could move his job to a maquiladora, a car plant near the Mexican border that paid low wages and escaped federal regulations that US car companies hated.

I can still see his dejected face in that smokey bar, telling me, "I didn't have much choice." He trained his replacement, got laid off, and the Youngstown plant eventually closed.

The demise of the Youngstown factory was just one of many that occurred as Democrats and Republicans alike sat on their hands. At the same time, American manufacturers moved to other parts of the world. Contributions to the American economy by the companies that jettisoned wiring harness workers slid from 25 percent of the gross domestic product (GDP) to 10 percent, where it stands today.

President Donald Trump is now imposing sweeping tariffs on offshoring companies – taxes designed to force them and their cohorts to move back to America and start making things here.

President Trump's punishing tariffs are a good payback for the Youngstown wire harness maker and his displaced colleagues. When he got sacked, markets didn't plunge, economists didn't predict disaster, and corporate executives didn't whine when his job and millions of others moved to faraway low-wage places and put him out of work. They callously chalked up his bad luck to the inevitable hand of free markets and free trade.

I don't know what ever happened to him, but I can see Americans like him among the legions of disaffected Democrats who voted for President Trump and think he is doing the right thing, even if it's too late to save their jobs.

The President praises his tariffs as retribution for the inequities suffered by American companies and workers disadvantaged by a world where US allies "ripped us off" with unfair tariffs and trading practices.

Under his version of events, the tariffs are altruistic. They will lead to a strong nation where American workers will make products in American factories again as US tax-paying companies flock to our shores to avoid tariffs.

There's some truth to that, but also an underlying reality that is far different than Trump’s vision. Manufacturers that abandoned American shores in the 1970s and 80s are a vastly changed, globalized cluster of companies that aren't likely to replace the jobs they eliminated.

They've invested billions in supply chains or the networks that get product components. The networks stretch from Canada and Mexico to southeast Asian nations such as Vietnam. Unwinding these systems won't be cheap or easy, particularly if the President's tariffs spark a recession, which now seems likely.

As employers try to figure out what to do, they must cut costs, absorb the tariffs, or charge customers more, leading to higher prices and inflation.

Even if employers rush to American shores to avoid the tariffs, they will likely look for ways to offset the enormous costs of moving complex operations across the globe.

As they strategize on what to do, the tariffs and the income tax cuts the President seeks will give offshoring companies a considerable incentive to adopt cost-saving Artificial Intelligence (AI) technologies. President Trump will probably create jobs for robots instead of people. The larger companies with the means are already adopting AI technologies, cheered on by Silicon Valley, which has a loud voice in the White House thanks to Elon Musk, Trump's right-hand man. And the pressures will increase in the future.

McKinsey and Co., the giant global consulting company, projects such automation could displace between 400 to 800 million jobs worldwide by 2030, the same time that the tariffs take their bite.

One of the industries projected to get hit the hardest is Trump's primary target: Manufacturing. The consulting firm estimates that employers could eliminate nearly sixty percent of manufacturing jobs over the next decade. Another study by Oxford Economics, another global consultant, projects manufacturing companies will slash up to twenty million manufacturing jobs worldwide, replacing the work with robots by 2030. These studies occurred before Trump announced his tariffs.

The changes spawned by the turmoil in the 1970s are just the beginning. The tariffs, along with Trump's income tax cuts and the evolution of AI technology, will impact all corporations, large and small.

A wide swath of America is starting to question the wisdom of the tariffs, although the reaction by the stock markets and many economists seems exaggerated. At a minimum, even the threat of the tariffs will further transform American society into a nation of haves and have-nots.

Regardless of their name, consumers will bear tariffs as a consumption tax, which falls more heavily on poor and middle-class Americans. Meanwhile, the income tax cuts, possibly enhanced by the White House and congressional Republicans, favor the wealthiest Americans. The President's policies will shift the tax burden from the rich to the middle class, where the significant tax revenue lies.

Despite all complaints about existing inequities in the federal tax system, IRS data shows that federal income taxes fall most heavily on the wealthy. About half of the $4.5 trillion of federal government revenues come from income taxes. The top one percent of American taxpayers, who make $663,164 and above, pay about forty percent of federal income taxes. However, only 126,128 Americans are in the upper one percent.

In contrast, taxes paid by middle-income Americans, earning between $51,500 and $86,800 a year, account for about ten percent of income tax revenue. Census data says about 23.5 million Americans fall into that middle-income bracket.

In other words, from a tax perspective, the middle-income tax brackets form the revenue-rich stream where officials worried about the nation's unsustainable debt can get the additional revenue needed, regardless of what they say on the campaign trail.

Pulling all the strands together, lower- and middle-class Americans will face a heavier tax burden as they struggle against AI to keep their jobs. Of course, Trump could scrap or revamp his tax and tariff proposals. But that's about as likely as Congress growing a spine.

Ironically, AI isn't ready for this, either. The technologies underway are long on promise and short on results. AI models need much more work and human engineering to ensure that the robots can do their jobs as well or better than good old humans.

The current versions of AI can more easily replace jobs such as welders and machine operators. Still, human reasoning trumps the current AI training models. They can't replace human rationale despite the industry hype.

We could end up with dumb robots that need help from intelligent humans, assuming that humans haven't moved to Mexico or East Asia to get jobs.

James O'Shea