Will America Always Make Cars?

I think Will is being a little unfair to Michael Arrington.

Why did Toyota, et al locate so many factories here in the United States if it is so inefficient to do so? I think Arrington is committing one of the most common fallacies about outsourcing. Labor quality matters. The reason Americans and Germans, etc. get paid so much to assemble car parts into cars is that they’re really, really good at it. Lower-quality workers probably cannot make the same car at the same quality in the same number of worker hours. It can be cheaper to pay more per hour for more and better hourly work. Also, I imagine cars are a lot more expensive than laptops to ship to across oceans. I’m all for milking the most out of Ricardo, but it’s important to recognize that, when they are unsubsidized, exceptionally high wages tend to indicate exceptionally high productivity.

I think Will is making an important and valuable point. But when Arrington writes

Does this mean our cars will be built in China? Yeah, it does. There’s no avoiding that. U.S. workers are just paid too much to build cars any more. Detroit may become the center of the car design world, with highly skilled and highly paid workers designing the iPod of cars, but the parts will be built elsewhere, and assembled elsewhere.

is he arguing that comparative advantage is dead? I don’t think so. Rather, I think he was using sloppy shorthand.

Basically, Arrington is making a prospective argument about dynamic specialization. Comparative advantage is not, as Will knows, static. And so efforts to prop up a dying industry to save jobs that are drying up for a whole host of reasons doesn’t make a lot of sense, a case that Will has made forcefully and persuasively. The normative force of the calls for an auto industry bailout derive from the voting public’s instinctive sympathy with workers threatened with losing their jobs. But the auto industry workforce has shrunk dramatically over the last decade, and it will likely shrink further. Perhaps Arrington shouldn’t have said, “Does this mean our cars will be built in China?” He could have just as easily said, “Does this mean our cars will be built by robots?” Either way, I think his basic point is sound.

Right now, it makes sense to manufacture automobiles — or rather to assemble automobiles out of components manufactured domestically and overseas — in the U.S., but that could very well change as shipping costs sharply decline and as Chinese and Brazilian workers get better at assembling car parts. Wages in China and Brazil will increase concomitantly, and so will the advantages conferred by agglomerations in Shanghai and Sao Paulo relative to those conferred by the agglomeration in the Rust Belt. There are a lot of moving pieces!