June 7, 2016 10:05 p.m. ET
After a long decline, manufacturing is returning to the U.S. Now it may be time for U.S. policy makers to give it an extra boost.
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The U.S. shed 5.7 million manufacturing jobs from 2000 to 2010—more than a third of the manufacturing workforce—as companies abandoned plants and workers in favor of low-cost foreign countries. But in recent years, manufacturing employment has grown slightly as the auto industry rebounded and domestic plants became more cost-competitive with those of other countries where manufacturing expenses have escalated because of higher wages.
The U.S.’s reliance on foreign-made goods provides a conduit for trillions of dollars to leave the country. The U.S. trade deficit—the difference between what is imported and what the U.S. exports—amounted to $500 billion, or about 3% of total U.S. GDP last year.
Under a plan promoted by investor Warren Buffett, companies that export goods from the U.S. would accumulate certificates equal to the value of their exports. But companies that wanted to import goods would have to purchase certificates from exporters.
Sources: Daniel J. Meckstroth, MAPI Foundation, and U.S. Bureau of Economic Analysis (Economic Engine); Bureau of Economic Analysis (trade deficit); Bureau of Labor Statistics via FRED Economic Data (output); Bureau of Labor Statistics (employment)THE WALL STREET JOURNAL.
As exports increase, though, more certificates would flow into the market, and their cost for importers would fall. The price could eventually slip to zero if a trade surplus was achieved.
A similar idea for lowering the trade deficit is imposing a value-added tax. The tax, which is used by more than 130 countries, is applied to each step along a production chain as a product or material increases in value or is consumed. How does this help domestic manufacturing? Almost all countries with VATs waive them on exports but impose them on imports, at an average rate of about 17%.
The U.S. dollar’s status as the world’s reserve currency is killing demand for U.S.-made goods in global markets. Because foreign governments and foreign private investors prefer to use the greenback to pay off debt, invest in financial markets or purchase commodities, economists say, the demand for the dollar intrinsically keeps it 10% to 15% above the value of other currencies. That makes U.S.-manufactured goods more expensive in other countries, but imports are cheaper in the U.S., giving foreign governments an incentive to keep their own currencies below the dollar.
When companies decide to offshore production, they often simply seek the lowest initial price per unit. If they were required to take into account the hidden costs of foreign production, U.S.-made goods would become more cost-competitive.
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Advocates argue that the government should amend the federal Worker Adjustment and Retraining Notification Act, which requires companies conducting mass layoffs to provide workers 60 days’ notice. If the layoffs are the result of companies’ moving production overseas, companies should have to analyze the total cost of offshoring. While this wouldn’t stop companies from moving, it would require them to provide an explanation of their expenses. Supporters say the requirement would raise awareness of the total costs of offshoring.
When federal agencies impose new rules, they rarely repeal old ones or check to see if another agency has a similar or conflicting regulation. Over decades, this has resulted in layers of rules for environmental protection, workplace safety and financial reporting that are often redundant or outdated. The National Association of Manufacturers estimates that regulatory compliance costs manufacturers about $139 billion annually.
State and federal governments typically view manufacturing as employment generators. But economic-development policies that place too much emphasis on boosting head counts risk missing the broader trend coursing through manufacturing even in low-cost locations: automation. Countries that give short shrift to robots and other manpower-reduction technologies won’t be desirable destinations for manufacturing in the future.
Despite low manufacturing payrolls in the past decade, companies continue to have difficulty finding welders, machinists and other skilled craft workers to replace retiring employees. While community colleges offer programs for skilled trades, businesses executives complain the course work is often too generalized to suit companies’ needs. So companies must put new hires through on-the-job training and aren’t able to quickly increase production through additional hiring.
Training workers isn’t enough, advocates say. The government also needs to spend more on applied research to solve specific problems in manufacturing and bringing new products to market. Most government funding for research is directed at developing new ideas and theories. As a result, early research breakthroughs that often occur in the U.S. are turned into new products such as flat-screen TVs and lithium-ion batteries in other countries.
The U.S. won’t be able to produce high-tech, high-margin products if it continues to cede the ability to perform more basic manufacturing work, advocates argue. The U.S. has already relinquished whole industries such as garment manufacturing and consumer electronics to other countries.
PHOTO: ISTOCKPHOTO/GETTY IMAGES
One proposed solution is to create regional centers of expertise. In this approach, a region looks to leverage an existing set of skills or an industrial legacy, such as machining or casting metal. Even though these manufacturing hubs, which are often in the Rust Belt, fell on hard times in the 1970s and 1980s, they still have considerable manufacturing talent and expertise that can form the foundation for manufacturing innovations and new businesses.