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Manufacturing a crisis? Upbeat data meets Trump's tariffs

Chris Middleton Profile picture for user cmiddleton January 3, 2019
Summary:
An upbeat report on tech trends in US manufacturing finds tech can be used by manufacturers to offset impact of Trump's tariffs, but also that those tariffs aren't helpful.

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A survey of US manufacturers finds growing belief in the beneficial impact of new technologies, but falling belief in Donald Trump's trade policies.

A December study from ECi Software, conducted by Berg Research and published just before Christmas, surveyed IT decision-makers in medium to large US manufacturers – twice, in March and July 2018. Overall, it found that 67% of respondents believe that emerging technologies, such as artificial intelligence (AI), robotic process automation (RPA), and the Internet of Things (IoT) are contributing factors in what the analyst firm described as a resurgence in US manufacturing.

The survey found that 56% of manufacturers are deploying IoT solutions, 52% “connected machinery”, 50% predictive analytics, and 41% RPA. More than half of respondents (51%) indicated that they are currently using some form of AI in their operations, adds the report:

Of those who don’t currently use AI, 56% noted they plan to in the future. And while enterprise-grade AI may still be in early development, 75% of manufacturers believe their company has a firm grasp on how AI can be applied to the supply chain.

Asked to rank a range of trending technologies, manufacturers selected wearable devices as the tools with the greatest potential to drive business value, with simulation software and collaborative robots close behind, and virtual reality (VR) and blockchain in fourth and fifth places.

These rankings represent a significant change from the previous year’s report, which identified big data analytics, IoT, simulation software, connected machinery, and collaborative robots as the top five transformative trends.

But not everything is as rosy as it might appear for a sector in the vanguard of new technology deployment. For one thing, there is still some skepticism about the impact that AI and automation could have on the manufacturing workforce. The report says:

Forty-nine percent of manufacturers either strongly agree or agree that AI is a threat to American manufacturing jobs, while 51% either strongly agree or agree that automation is a threat.

That’s not all - much bigger trouble is bubbling under in the US economy, ten years on from the global recession.

The context of the report was 2017 and 2018 labor data for the manufacturing sector, which revealed a sustained recovery in employment, hours, and earnings in the wake of the 2008-09 financial crash. Preliminary Bureau of Labour Statistics figures for November 2018 demonstrated, for the first time, a return to December 2008 performance levels in the sector.

Trump troubles

“The numbers don’t lie – American manufacturing is in a major boom”, shouts the report, a statement that its authors may come to regret – or at least revise in the next update.

The reason is that the US manufacturing Purchasing Managers’ Index (PMI) hit a 15-month low just a month later, according to another survey, published this week by financial data firm, IHS Markit. The first survey of economic data for December shows growth slowing on multiple fronts, with job creation falling to an 18-month low.

Output and order books grew at their slowest rates for over a year and optimism about the economic outlook slumped to its lowest for over two years, according to IHS Markit. The survey also reveals signs of falling customer demand and business confidence.

So what’s going wrong, despite IT decision-makers deploying new technologies to help sustain what has been a ten-year manufacturing recovery? One point on which both surveys agree can be expressed in two words: President Trump’s tariffs.

As the trade war with China escalates, IHS Markit finds that over two-thirds of manufacturers attribute an ongoing rise in manufacturing prices to the tariffs.

Even the upbeat ECi/Berg Research report  – which was perhaps designed to underscore the market positioning of its sponsor, ERP vendor ECi Software Solutions – identified a growing political malaise within the US, as the impact of Trump’s domestic trade and foreign policy decisions begins to be felt at home. The report says:

In 2017, the then-new administration put an emphasis on buying and hiring American, a trend that manufacturers were responsive to and optimistic about. [2017’s] survey found that 50% of manufacturers anticipated that pending trade deregulation plans would be beneficial to their businesses.

When asked if the current administration’s regulatory plans would have a positive impact on American manufacturing in March, 71% of manufacturers either strongly agreed or agreed. By July, manufacturers were not so optimistic. Of that same group of respondents, only 56% either strongly agreed or agreed that the impact of regulations would be positive.

The majority of July respondents (64%) also noted that the current administration’s global trade policies have impacted their organizations’ expansion plans and strategies in the last year – a 73% increase from March, when only 37% of respondents noted that the current administration’s global trade policies impacted their organization’s expansion plans.

The report's twin surveys also questioned manufacturers on whether they expected steel and aluminium tariffs to benefit their businesses. From March to July, there was an 11% decrease in the belief that the tariffs would benefit them, and a 12% increase in the belief that the policy would not be beneficial.

When asked about whether Chinese import tariffs would benefit their businesses, 50% of the July respondents said no, 27% said yes and 23% were not sure.

The irony is that this uncertainty and falling confidence in the US government’s trade policies appear to be having a knock-on effect: in March, ECi/Berg Research found that roughly 53% of manufacturers were increasing their investment in new technologies. By the July survey, that figure had fallen by 20%.

My take

Even the most upbeat of surveys has a sting in its tail, it seems, as the US’ political belief in ‘America First’ begins to wither in a more complex, interconnected global market. Indeed, even Apple has this week found itself wrestling with the Chinese dragon, with Wall Street slumping on 3 January as Apple’s shares fell by nine percent as CEO Tim Cook bemoaned the lack of traction in China.

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