Thoughts on Supply Chain Impacts (After Listening to Trump’s State of the Union)

I listened to all one and a half hours of Trump’s State of the Union address last night, and while it was certainly very positive in terms of the economy, it also left me with some unanswered questions about the relationship of the different policy and funding initiatives he proposed for the next few years.  Here’s a few of the random thoughts that went through my head, (albeit from a supply chain guy’s point of view).

Trump emphasized the growth of manufacturing in the economy.  But it also made me wonder – what kind of jobs are these going to create?  One of the truths of manufacturing is that many operations are increasingly automated, and that robots are increasingly performing many of these jobs, particularly those related to repetitive manufacturing.  For instance, he mentioned how Chrysler, Toyota and others will be building cars in the US – but anyone who has been in an automotive plant knows that most of the jobs involved skilled technicians, of which there is a shortage.  So will there really be 200,000 manufacturing jobs?  What kind of jobs are these exactly?

Which leads to my next thought.  Trump was trumpeting the fact that we will be seeing new jobs due to the influx of companies “back to America” because of his corporate tax cut, and that we will be “seeing rising wages”.  But in the same sentence, he mentioned that “unemployment claims are at a record low”, and that “African American unemployment is at the lowest levels in history”… but this is likely due to the fact that the unemployment rate is ALREADY at 4.1%.  And then, he emphasizes how he is going to limit immigration.

So let’s see, what does this add up to?  Increasing wages, more jobs, and low unemployment – sounds like a labor shortage to me!  And this is already in an environment where there is a massive shortage of logistics workers and truck drivers!

One piece of good news is that he plans to invest $1.3 trillion in “infrastructure”.  We have had a massive problem with poor infrastructure in our airports, roads, bridges, and other transportation channels for many, many years.  But this isn’t something you fix in 3 years.  It will take a decade or more to truly get the type of investment we need to improve these issues.  And then you couple the with the increase in capital investment likely to occur with the corporate tax cut, and again you have more jobs – good thing, right?  Not if you don’t have people to fill those jobs, and you don’t have any immigrant workers who can fill in on construction crews, craft labor, and the other trades for which there is already a shortage!

He didn’t mention that America had disbanded the TransPacific Partnership, or that the negotiations with NAFTA trade partners and Canada were going badly.  Apparently, we don’t need anybody else in the global economy.  If these trading partners would just cooperate to drive “fair trade deals”, then we could all get along!   But that was exactly what the TPP was – a fair trade deal to level the playing field.  Trump didn’t provide a whole lot of details on what he meant by a “good deal”…you can read about it in his book I guess…

The narrative on the pharmaceutical industry was also odd.  He targeted “reducing the price of prescription drugs”.  But most of what people buy has already gone generic and is already at the lowest price.  And if you put pressure on the fact that Americans pay more for their drugs, then that means going to a “single payor” system, which is why countries in Europe are able to negotiate lower drug prices.  But how does that occur if you are “dismantling Obamacare”?  And if you do lower the profit margin for pharmaceutical companies, then the amount of money that they have to reinvest in R&D to fight Alzheimers, Parkinson’s, cancer, and other diseases is also shrunk.  And how exactly does the FDA approving more drugs help that?  It means that pharmaceutical companies need funds to increase their supply chain capacity – which also means more jobs, for which there is already a shortage.

So if we step back and think about this for a moment:  increased wages, increased disposable income due to tax cuts, increased number of jobs in construction, pharma, and capital projects, plus reduced immigration, will result in wage increases – which ultimately, adds up to higher inflation.  That is the one thing we can definitely forecast will happen if all of this comes to fruition.  What we really face here is a shortage of talented workers to fill all of these jobs!  But I didn’t hear Trump speak about training or education in the speech.  That’s the one part that I kept listening for, but didn’t even hear mentioned once.  Lots about “wanting people to be safe”, lots on defense spending to “make America great”, lots on “depraved characters” in North Korea, and odd comments about “steel in our spine”… but not so much on making people smarter to be able to adapt to this new economic vision.