Like health care, international trade is complex

President Trump has lauded Harley-Davidson as a (according to NYT) "a pillar of U.S. manufacturing."

But wait, H-D has opened up a new plant.  And it is not in Wisconsin.  It is in Thailand.  H-D claims that production at the Thai plant is aimed at the Asian market and that none of the motorcycles built in Thailand will be shipped to the US.

So why isn't H-D expanding US capacity to serve the Asian market?  Two challenges: (1) savings in labor costs and (2) Thailand imposes a 60% tariff on imported motorcycles.

But what might have happened to that 60% tariff if the US had completed negotiations on the Trans Pacific Partnership Agreement?  The labor cost difference would not have gone away, but the tariff barrier likely would have become negligible.

Of course union leaders called the Thai plant "a slap in the face to U.S. workers."   And they opposed TPPA.  And they were delighted when the President cancelled TPPA.  But how can they now complain that new production facilities have been opened in Asia?  Sounds like advisors to the unions and the President did not remember much from their economics classes.

Economists link sound management to firm success

Economists have done very little research linking how different management practices correlate with indicators of firm performance such as productivity and growth.  The reason is quite simple: economic research relies all too often on data collected by the government and the government does not collect data on management.

Two professors at MIT Sloan and a colleague at Stanford decided to collect data on management practices and, with the help of the Census Bureau, linked it to data on individual manufacturing plants.  The focus was on 16 measures of monitoring, targets and incentives which were combined into a management index.

The results, summarized in this HBR piece, were quite striking: every 10% increase in the management index was associated with a 14% increase in productivity.  Well-managed firms also were most likely to grow and less likely to close.  Management practices have a bigger effect on  productivity than IT investments, R&D intensity, and worker skills.

Interesting question raised by the study: we know that investments in IT, R&D and worker skills are quite expensive compared to the cost of changing management practices.  So why don't the poorly managed firms make adjustments?  Maybe it has something to do with who the managers of those firms are!

All you need to know about trade ... in 70 words

Courtesy of former Secretary of State George Schultz and Harvard professor Marty Feldstein in today's WP:

If a country consumes more than it produces, it must import more than it exports. That’s not a rip-off; that’s arithmetic. 

If we manage to negotiate a reduction in the Chinese trade surplus with the United States, we will have an increased trade deficit with some other country. 

Federal deficit spending, a massive and continuing act of dissaving, is the culprit. Control that spending and you will control trade deficits.