Volume 16 | Issue 5 | Year 2013

The sector was the hot topic in Washington and across the country. Many policymakers and pundits hopped on the manufacturing bandwagon for the first time in years. Then, manufacturing hit a soft spot. Growth slowed, job creation stopped and doubt replaced optimism.
Financial firms such as Goldman Sachs and Morgan Stanley released reports downplaying the manufacturing hype.

“Is the U.S. Manufacturing Renaissance Real?” Time magazine asked.

“The Myth of the Manufacturing ‘Renaissance,’” proclaimed another piece in The Wall Street Journal.

The reports and headlines are premature. It is too soon to write off the manufacturing renaissance. The sector’s future is indeed bright – but it is subject to a wild card. Will Washington make the choices that will allow manufacturers to invest, grow and thrive?

Much On Manufacturing’s Side
Manufacturing has a lot going for it. The shale gas boom is driving energy costs down. Energy is fast becoming a selling point for investment in the United States. Lower feedstock costs provide an additional windfall. As a result, manufacturers are choosing to grow their operations at home. According to the Bureau of Economic Analysis, investment is up from $476.5 billion in 2001 to $838.3 billion in 2011.

Many of these investments could take years before they are fully operational, so the direct economic benefits, such as new jobs or increased production, will not be immediately apparent. But the jobs will come. Shale gas development alone could lead to approximately one million additional manufacturing jobs by 2025, according to a study by PwC and the National Association of Manufacturers.

Global economic conditions are also making the United States a more attractive place to manufacture, particularly as production costs rise around the world. In fact, manufacturers based abroad are investing in the United States, not simply to serve domestic markets, but also as a base for exports.

These trends are promising, but they alone cannot deliver the manufacturing resurgence. Policymakers in Washington need to ensure a business climate conducive to increased investment.

Economic Overhaul Vital
Current domestic economic conditions are full of uncertainty, largely due to policies made in Washington. A number of barriers that deter investment remain in place. Without a comprehensive, pro-growth overhaul of the country’s economic policies, manufacturing will never achieve the renaissance that is possible.

Policymakers should start with the outdated tax system, which is anything but welcoming to investment. A top corporate tax rate of 35 percent, the highest among industrialized nations, is a chief deterrent. The United States is also one of the few major economies to tax worldwide income. Headquarters here come at a price. Manufacturers face the prospect of having to pay taxes on income that they earn not only in the United States but throughout the world.

While labor costs are rising among some of our competitors, the United States must confront a different challenge. Too often, manufacturers cannot find workers with the right skills. The skills gap leaves 600,000 manufacturing jobs open despite a high unemployment rate nationwide. It is a crisis that is only set to worsen. The manufacturing workforce is aging, and many in manufacturing are nearing retirement. If policies remain unchanged, there will not be enough workers to replace them. Investments in workforce training and development are critical to global competitiveness.

The tax system and the workforce are priorities, but Washington has more work to do. Lawmakers need to get a grip on the federal budget so that future generations are not buried under massive debt. They need to move toward a regulatory environment that effectively balances the trade-offs between costs and benefits and includes the participation of the manufacturing community. The United States should also work to increase trade opportunities to boost export sales to new foreign markets.

With such pro-growth initiatives and a stronger global economy, manufacturing will rebound. If Washington limits our opportunities to create jobs, however, the skeptics could very well be proven right. Falling energy prices in the United States and rising production costs overseas are not enough to bring about a manufacturing renaissance without eliminating the many obstacles to competitiveness under current policies. The conditions are right for a manufacturing renaissance, but policymakers must act before this unique moment in history bypasses our nation.

Chad Moutray is Chief Economist and Aric Newhouse is Senior Vice President for Policy & Government Relations at the National Association of Manufacturers.