Reviving American Manufacturing (Dave Johnson)

Today’s Big Idea To Get America Working: Revive American Manufacturing

Dave Johnson

Campaign for America’s Future, 20 August 2011

When President Nixon went to China in 1972, manufacturing was 22 percent of the nation’s economy. It was still 20 percent of the nation’s economy eight years later when China was granted most-favored-nation trading status.

We’re all too familiar with how the story of American manufacturing goes from here. Some key points of that story:

  • More than 40,000 U.S. manufacturing plants closed between 2001 and 2009 (including 36 percent of factories employing more than 1,000 workers).
  • From 2000 to 2009, 5.5 million or 32 percent of all manufacturing jobs were lost.
  • The last time fewer than 12 million people worked in the manufacturing sector was in 1941.
  • In 2009, 1.2 billion cell phones were sold worldwide. None were manufactured inside the United States.

At the end of 2010, manufacturing was just 11.7 percent of the economy. (Meanwhile, the financial sector has grown from 19 percent of the economy in the mid-1980s to more than 40 percent today.) If we want to recharge the nation’s job-creation machine, we must make manufacturing a larger segment of the economy.

For one thing, manufacturing jobs are more likely to be solid, middle-class jobs. In 2009, the average U.S. manufacturing worker earned $74,447 annually, according to the National Association of Manufacturersincluding pay and benefits. The average non-manufacturing worker earned $63,122 annually. In addition, one manufacturing job supports on average four or five other jobs in the economy—and in some industries far more. For example, (The Milken Institute estimates that every computer-manufacturing job in California creates 15 jobs outside the factory. And because innovation follows manufacturing, rebuilding our manufacturing sector is key to reviving our research and development capacity, ensuring that American workers benefit from the next wave of invention.

A bold jobs plan aims to boost American manufacturing by insisting that:

  • International trade be on a truly level playing field.
  • America adopt a national manufacturing/industrial/economic policy.
  • Congress write into law a “Buy American” policy for government procurement.
  • The administration execute a plan for capturing the lead in green energy.

Trading On A Level Playing Field

American businesses are not competing on a level trade playing field. Other countries pursue mercantilist policies, and we do not retaliate because we follow an ideology that “free trade” benefits us no matter what others do. We force American companies to compete at home with goods from countries that exploit their workers and the environment, thereby turning the benefits offered by our democracy into a competitive disadvantage in our own markets. The result is that we have built up a massive trade deficit, while losing millions of manufacturing jobs, thousands of companies and the ecosystems and infrastructure of entire industries.

China’s mercantilist trade policies have allowed them to accumulate reserves of more than $1 trillion dollars. Imagine what it would mean for our economy if China used that money to place orders for $1 trillion of American-made goods.

The thing about that is, when you imagine what it would mean, you are getting a picture of what is has meant. All of the good those orders for American-made goods would do for us represents the bad that China’s one-sided trading policies have done to us.

We had a trade deal with China. By definition that meant we would buy from them, and they would buy from us. China’s accumulation of that $1.5 trillion means that they have not lived up to their side of that deal.

Trade Solutions

China manipulates its currency, keeping it artificially low. This has created a huge imbalance in world trade. In recent weeks we have seen the first real signs that China is beginning to let their currency rise. This could be the beginning of the huge rebalancing that has to take place. While the Yuan rising is a good thing, the U.S. government can help them maintain the rebalancing by applying policy pressures. (The Yuan may be rising only in response to Vice President Joe Biden’s recent visit, showing that China does respond to policy pressures.)

The recent decline of the dollar has helped increase U.S. exports. It will help reduce pressure on American wages. It will make moving jobs to China less attractive to companies. It will increase pressure on China to bring its trade policies into balance.

But as long as China’s currency rate remains artificially low, the U.S. government should take steps to address the imbalance. The President can “convene a multilateral meeting to address global imbalances and in particular Chinese mercantilism. If China doesn’t agree to participate, designate it a currency manipulator. (China ships fully one-third of its exports to the U.S. and finances less than 10 percent of our public debt, so we have more leverage than some might suggest.)”

Other needed policies include border tariffs on imports to remove the price advantage of goods produced by exploited, underpaid workers, goods produced in ways that harm the environment, and goods from countries that are not democracies. That would remove any pricing advantage gained from not allowing people to vote and set rules that benefit themselves.

An idea to explore is a system of credits that can be used to allow imports, thereby balancing trade. A company that exports gets an import allowance for the same value, which can then be traded to companies desiring to import. Non-balanced imports would have tariffs applied.

We certainly need to remove tax benefits received by companies that close factories here and move them abroad; instead, impose tax penalties and fines. Don’t let it be profitable to do this!

Create A National Manufacturing/Industrial/Economic Policy

Other countries leverage trade policies and public investment to benefit their companies and to boost industries within their borders. We’re stuck with a conservative “you are on your own” ideology that says government should just stay out of it. This blocks our government from getting involved in developing national industrial/economic policies. The result is we send our companies out in to the world to compete with national systems and even our biggest companies are not big enough to win those battles.

Competing in the modern world requires a national plan for manufacturing – targeting strategic industries, coordinating research, providing incentives, training and modern infrastructure, ensuring supply chains, etc. We need national attention to the entire ecosystems that build and keep entire industries.

To this end, Congress should change the tax code to provide incentives for job creation and inward investment. R&D tax credits should help firms that not only innovate in America but also make their products here. Congress can lower tax rates for manufacturing activity in America. They can eliminate current tax advantages that encourage manufacturing in other countries. They can also eliminate tax shelters for hedge funds or financial transactions that have no real value.

In addition, Congress and states can adopt policies that help rebuild our vocational and technical skills programs, to address looming manufacturing skills shortages. Then we should reward companies that are investing in effective skills and training programs for their workers.

Scott Paul of the Alliance for American Manufacturing wrote this week that the President should “kick any CEO off of federal advisory boards or jobs councils who has: (1) not created net new American jobs over the past five years, or (2) is expanding the company’s foreign workforce at a faster rate than its domestic workforce. Replace them with CEOs who are committed to investing in America. Shame is a good motivator.”

Paul also wrote that “On the heels of the landmark agreement with automakers on fuel economy standards, secure an additional agreement from all foreign and domestic car companies to increase their levels of domestic content by at least 10 percent over the next three years.”

Spend U.S. Government Dollars On U.S.-Made Goods

The 2009 stimulus had a highly publicized problem. Some Democrats in Congress proposed that there be “buy American” requirements on Recovery Act spending. But conservatives opposed that as “protectionist,” so the provisions were softened. Then conservatives were outraged when stimulus green-energy projects “created jobs in China.”

“Buy American” should be a mandate on all federal, state and local government purchases, consistent with our trade laws. There is no reason our government should be undermining American manufacturers. Our bottom line should be:

  • All federal and state spending should have “buy America” provisions giving American workers and businesses the first shot at procurement contracts.
  • New federal loan guarantees for energy projects should require the utilization of domestic supply chains for construction.
  • Our military equipment, technology and supply purchases should have increased domestic content requirements.
  • Renewable and traditional energy projects should use American materials in construction.

Fight In The Green Manufacturing Revolution

Do you remember how semiconductors were a major driver of our economy starting in the 1980s and 1990s? Then the Internet drove the economy in the 1990’s and early 2000s? Now the world understands that “green energy” is the next big industry that will drive the world economy.

There is a green manufacturing revolution occurring in the world, but we’re not in the lead. We aren’t even seriously competing. Many countries are doing everything they can to move away from reliance on “dirty energy” from burning coal and oil. Among the most aggressive in this field is China. “In order to address its dire environmental problems, China is establishing millions of green jobs in the forestry, energy, and transportation sectors,” a Worldwatch Institute article published this month says. “In particular, China is making efforts to use wind and solar power to greatly reduce China’s dependence on coal and create jobs in the manufacturing of wind turbines, solar photovoltaic panels, and solar water heaters.”

China and other major economies are not just trying to beat the terrible problem of climate change — though this is a big enough reason all by itself. They also understand that reliance on imported fuel harms their economies. It drains their money and places them at the mercy of volatile supplies that are often from unstable regions.

We need to stop the energy policy game we’re playing, orchestrated by politicians bankrolled by and beholden to the big-dollar fossil fuel industry. We need a green industrial policy to drive development of these key industries in the U.S. In addition, we need:

  • A carbon tax that will incentivize alternatives and move us away from dependence on coal and oil, while helping pay our bills.
  • A renewable energy standard, which will promote development of renewable sources.
  • Cap-and-trade legislation, which will help us fight global warming.

The House Democrats’ “Make It In America” Plan

House Democrats have introduced a series of bills in a package called the “Make It In America” Plan that address many of these issues. This set of bills will create jobs here, grow the economy and reduce the trade deficit, all of which will help reduce our budget deficit.

However, the Republicans controlling the House have blocked action on these bills. Having helped set the policy backdrop for the decimation of the nation’s manufacturing sector and the loss of millions of jobs, they are refusing to allow anyone to move in to repair the damage.

Key to getting Americans back to work and the economy back on its feet is to start making things in America again, and getting America out in front of the green revolution. Those who stand in the way are the job killers, obstructing our rebuilding of the American Dream.

Isaiah J. Poole contributed to this post.