Trump wants US to make things again- but is it ready for the challenge?

Business Standard

5 days ago

President Trump ignited a global trade war on a gamble that taxing other countries would bring jobs and factories 'roaring back' to the United States.
Many business leaders are skeptical. Some are incredulous. Sanjeev Bahl is optimistic.
From his factory in Los Angeles, Mr. Bahl oversees around 250 people who sew, cut and distress jeans for brands like Everlane, J. Crew and Ralph Lauren. They stitch together 70,000 pairs of jeans a month. America, he insisted, can make stuff again.
But there is a catch. The operation works only because his company, Saitex, runs a much bigger factory and fabric mill in southern Vietnam where thousands of workers churn out 500,000 pairs of jeans a month.
Mr. Trump's tariffs have upended supply chains, walloped businesses and focused the minds of corporate leaders on one question: Does America have what it takes to bring jobs back?
In many industries, the undertaking would take years, if not decades. The United States lacks nearly every part of the manufacturing ecosystem — the workers, the training, the technology and the government support.
'There are some harsh realities,' said Matt Priest, chief executive of the Footwear Distributors and Retailers of America, a trade group. And Mr. Trump's strategy is shrouded in uncertainty. Last month, he said, 'We're not looking to make sneakers and T-shirts' in the United States. But his steepest tariffs, set to take effect in July, were directed at countries that make clothes and shoes for sale to Americans. Vietnam, at 46 percent, was one of the hardest hit.
Those tariffs, intended to push companies to bring factory work home, were deemed illegal by a ruling last week by the U.S. Court of International Trade. That decision was temporarily paused by a different court, giving judges time to evaluate an appeal by the Trump administration. Amid all the legal wrangling, Mr. Trump has promised to find other ways to disrupt the rules of trade.
Mr. Trump has exposed the difficulties in closing the vast distances, geographical and logistical, between where many products are made and where they are consumed. The gulf was laid bare during the Covid-19 pandemic, when strict health policies in Asian countries led to the shutdown of factories. When they reopened, orders had piled up and snarled shipping routes trying to ferry goods across thousands of miles. For executives like Mr. Bahl of Saitex, the turmoil caused by Mr. Trump's trade policies has brought fresh urgency to the challenges of managing global supply chains.
'The extended fear and uncertainty that Covid brought was unforeseen,' Mr. Bahl said. 'There was nothing that could help us except survival instinct.'
In response, Saitex opened a factory in Los Angeles in 2021. Since Mr. Trump announced his intention to impose steep tariffs on Vietnam, Mr. Bahl has been thinking about how much more he can make in the United States. He could probably bring about 20 percent of production to the States, up from 10 percent today, he said.
He believes Saitex could be a blueprint for other apparel companies. 'We could be the catalyst of the hypothesis that manufacturing can be brought back to the United States,' he said. But his experience highlights how hard it would be. There are no mills in America on the scale of what the industry needs, nor major zipper and button suppliers. The cost of running a factory is high. Then there is the labor problem: There just aren't enough workers.
American factories are already struggling to fill around 500,000 manufacturing jobs, according to estimates by Wells Fargo economists. They calculate that to get manufacturing as a share of employment back to the 1970s peak that Mr. Trump has sometimes called for, new factories would have to open and hire 22 million people. There are currently 7.2 million unemployed people.
Mr. Trump's crackdown on immigration has made things worse.
Factory jobs moved overseas to countries, like Vietnam, that had growing populations and young people looking for jobs to pull themselves out of poverty. The future that Mr. Trump envisions, with millions of factory jobs, would have to include immigrants seeking that same opportunity in the United States.
Steve Lamar, the chief executive of the American Apparel and Footwear Association, an industry lobby group, said there was a gap between a 'romantic notion about manufacturing' and the availability of American workers.
'A lot of people say we should be making more clothing in the U.S., but when you ask them, they don't want to sit in the factory, nor do they want their kids to sit in the factory,' he said. 'The problem is that there aren't any other people around,' he added.
At Saitex's Los Angeles factory, most of the workers come from countries like Mexico, Guatemala and El Salvador.
Some 97 percent of the clothes and shoes that Americans buy are imported for cost reasons. Companies that make everything in the United States include firms like Federal Prison Industries, also known as Unicor, which employs convicts to make military uniforms for less than minimum wage, Mr. Lamar said.
Other companies make some of their fashion lines in the United States, like New Balance and Ralph Lauren. Others are playing around with a model where they make small batches of clothes in the United States to test designs and determine their popularity before commissioning big orders — usually from factories in other countries.
It is hard to make things in great volume in America. For Mr. Bahl, it boils down to the cost of a sewing machine operator. In Los Angeles, that person gets paid around $4,000 a month. In Vietnam, it is $500.
In Saitex's factory there, which Mr. Bahl set up in 2012 in Dong Nai Province, an hour's drive from Ho Chi Minh City, more than a dozen sewing lines are neatly laid out and humming six days a week.
On a recent day, hundreds of workers pushed panels of jeans through sewing machines so quickly that the fabrics, briefly suspended in the air, looked as though they were flying. The work was augmented by sophisticated machines that can stitch labels onto a dozen shirts at a time, or laser a distressed pattern onto multiple jeans. Nearby, at a spray carousel, a robot mimicked the precise movements of a worker spraying denim.
'The speed is much higher in Vietnam,' said Gilles Cousin, a plant manager overseeing the sewing section.
If Mr. Trump really wants to bring jobs back, Mr. Bahl said, he should give some tariff exemptions to companies like Saitex that are doing more in the United States. American factories like his can't expand without importing many of the things that go into their finished products. For its part, Saitex ships bales of American cotton to Vietnam, where its two-story mill turns fluffy cotton lint into thread and, eventually, rolls of fabric. That fabric is then dyed and shipped back the United States for his Los Angeles factory.
Until there is enough momentum from companies making things in the United States, the fabric, zippers and buttons will have to be brought into the country.
Moving production from overseas would require huge investments, too. Saitex has plowed around $150 million in Vietnam, where its factory recycles 98 percent of its water, air dries its denim and uses technology to reduce carbon dioxide emissions and cut down on labor-intensive practices. In the United States, Saitex has spent around $25 million. These are long-term commitments that take at least seven years to recover, according to Mr. Bahl.
Ultimately, if Mr. Trump decided to stick to his original 46 percent tariff on Vietnam and Saitex could not soften the financial blow, it would have to look to other markets to sell the products it made in Vietnam — like Europe, where it sends about half of what it currently makes.
'But then,' Mr. Bahl said from Los Angeles, 'what happens to our factory here?'