All the plans and proposals, whether from Democrats, Republicans, liberals, or conservatives will do little to restore growth to the American economy unless they provide middle income employment. To a significant extent, that means restoring the manufacturing sector to a semblance of strength. The Little Blue Collar Fact Book notes that:
Since President Clinton gave China unchecked access to trade with the U.S., 5.1 million jobs and 65,000 manufacturing plants have been lost. According to the Alliance for American Manufacturing:
the U.S. manufacturing sector … accounts for two-thirds of our country’s private-sector research and development; …accounts for more than 12 percent of U.S. GDP; and … employs about 12 million … Americans in good-paying jobs. A typical manufacturing job supports four or five jobs elsewhere in the economy. And manufacturing jobs pay better, especially for workers who may not possess a four-year college degree … Manufacturing in America means jobs, industrial innovation, and economic growth.
a flood of cheap, heavily subsidized imports from China have put the American steel industry in jeopardy. China’s economy is slowing, but its government-funded industry isn’t slowing down. China has to do something with all that steel it doesn’t need, so it’s shipping it to the United States with a rock-bottom price tag. It’s not just steel. Industries like aluminum are facing the same problem … [The trade deficit with China amounted] a $365 billion … The U.S. trade relationship with China is one-sided. America’s growing trade deficits with countries around the world, not just in China, have had serious consequences for our manufacturing base and the jobs it supports … It’s not just jobs, mind you. There’s a lot of manufacturing innovation and know-how taking place overseas, making it less likely that the future’s big-ticket products and gizmos will be invented and made in America …
Whenever lawmakers consider legislation that will either promote U.S. manufacturing or put rules in place to go after trade cheats, the naysayers come out of the woodwork. And ‘we’re going to touch off a retaliatory trade war’ is one of their most common criticisms. They’re calling smoke when there’s no fire. Critics said a trade war was coming when Maryland passed a Buy America bill in 2013. They said one was coming when West Virginia considered a similar one in 2014. And they say the same thing whenever Washington D.C. thinks about legislation to curb currency manipulation …But just look at our deficits and lost manufacturing jobs. We’re in a trade war right now, and we’re losing it. By offshoring a chunk of our manufacturing sector, we might have got a tiny markdown on the price tags at big box stores. But our trading partners—and especially China—need America’s big market to make their own economy work.
The impact of the manufacturing sector is dramatic. The National Association of Manufacturers outlines its role in the overall economy:
- In the most recent data, manufacturers contributed $2.17 trillion to the U.S. economy in 2015.
- For every $1.00 spent in manufacturing, another $1.81 is added to the economy.
- The vast majority of manufacturing firms in the United States are quite small; almost two-thirds of manufacturers are organized as pass-through entities.
- There are 12.3 million manufacturing workers in the United States, accounting for 9 percent of the workforce.
- In 2015, the average manufacturing worker in the United States earned $81,289 annually, including pay and benefits.
- Manufacturers have one of the highest percentages of workers who are eligible for health benefits provided by their employer.
- Output per hour for all workers in the manufacturing sector has increased by more than 2.5 times since 1987. In contrast, productivity is roughly 1.7 times greater for all nonfarm businesses. Note that durable goods manufacturers have seen even greater growth, almost tripling its labor productivity over that time frame.
- Exports support higher-paying jobs for an increasingly educated and diverse workforce.
- Manufacturers in the United States perform more than three-quarters of all private-sector research and development (R&D) in the nation, driving more innovation than any other sector.
- The cost of federal regulations fall disproportionately on manufacturers, particularly those that are smaller.
It used to be cheaper to manufacture outside the U.S.; now the costs are now converging. In the manufacturing sector, the U.S. is still among the most productive economies in the world in terms of dollar output per worker. To be more specific, a worker in the U.S. is associated with 10 to 12 times the output of a Chinese worker. That’s not a statement about intrinsic abilities; it merely reflects the superior infrastructure of the United States, with its higher investments in automation, information technology, transportation networks, education, and so on. And even though this relative advantage is slowly shrinking thanks to Chinese investment in such infrastructure, the wage gap between Chinese and U.S. workers is shrinking at a much faster rate. The net effect is that overall manufacturing in the U.S. is becoming more attractive again, leading to domestic growth and reshoring.
As productivity rises and automation increasingly replaces manual labor, the returning manufacturing jobs will require a higher degree of technological sophistication from the workforce, and this unfortunately may leave behind those who are unable to adapt … The second reason to manufacture in America involves lead times. Customers have come to expect short delivery windows. With services like Amazon Prime, consumers are accustomed to delivery within one or two days, if not the same day. Offshore manufacturers need to store disproportionally large amounts of inventory to accommodate these expectations. But keeping inventory is costly—it requires space, energy, and labor; it gets lost, stolen, spoiled, and damaged; and, in the case of technology or fashion, it may become obsolete within weeks. Right now, the U.S. stores about $1.7 trillion in inventory, which means annual inventory carrying costs of between $300 billion and $500 billion—roughly the gross domestic products of Denmark and Norway, respectively. Manufacturers with onshore facilities can cut those costs dramatically. However, these indirect costs of offshoring are much harder to quantify than direct manufacturing costs, and they were frequently ignored in the initial rush to offshore.