After the November election President Trump pressured a number of companies to either keep their existing U.S. factories open or to bring jobs back to the U.S. The companies that complied often did so with a big caveat, that they would substitute robots for many of their employees in order to keep expenses down.
Conventional wisdom argues that this problem is uniquely American, that since we have high labor costs we need to use more robots to stay competitive. Well it ain’t so, this is a universal problem. The chart at the bottom shows what has happened to average Chinese income the past nine years, up 11.7% per year. Manufacturing pays more than the service sector so China’s problem with labor costs is probably actually worse than it looks here.
In 2013 China became the world’s largest buyer of robots. The labor market is shrinking today in China as the effects of the late 1970s one-child policy are felt in the workplace. Fewer babies mean fewer new workers. And many younger people are no longer attracted to moving from inland China to the coast for factory jobs. So China is having to make adjustments and this means substituting robots for more expensive, and fewer, workers.
What are some of the implications for the U.S. in this global move to more robots? Well first it means the world is going to sell a lot more robots. Unfortunately this may not be that good for us. U.S. colleges such as Carnegie Mellon are at the cutting edge of robot technology, but it is the Germans (like Siemens) and the Japanese (Fanuc among others) and eventually the Chinese that are garnering the bulk of robot sales. U.S. companies do not have a big presence now. Secondly, China’s increase in labor costs does not necessarily mean production will leave China or come back to the U.S. China has the distinct advantage of having all the manufacturing infrastructure in place – – all the suppliers and parts makers that are crucial to manufacturing. This is a big leg up. The U.S. was hollowed out many years ago in terms of manufacturing infrastructure. A winner, however, might be Mexico which combines close proximity to the U.S. with lower manufacturing wages than China (yes, lower than China). And finally, substituting more robots for labor means all Americans need all the education they can get to stay competitive in the world economy.