The Difficulties in Making US Manufacturing Great Again

  • Print

manufacture

Donald Trump ran for president promising to return American manufacturing and jobs to Rust Belt states workers. He promised that jobs would come roaring back and that it was the fault of China, bad politicians, and crooked owners for closing down factories. Rust Belt voters elected Trump into office and he must now deliver. Bringing those jobs back will be extremely difficult and some say impossible. But if manufacturing jobs return to American shores, and there is no guarantee they will, then certain key factors must fall into place.

Building and Rebuilding American Infrastructure

Manufacturing needs a durable, strong infrastructure system in order to thrive. Factories need highways so trucks can deliver parts, supplies, and materials on time and without damage. Rail systems are necessary since they are the cheapest method for delivering parts and supplies in bulk. Manufacturing firms also need modern ports that can accommodate large cargo ships bringing raw materials and parts from around the world.

Must Hear The Next Big Thing – Infrastructure

In places such as the Rust Belt, there is a lack of proper highways and rail systems, with landlocked states often far from ports. For factories in the Rust Belt states to thrive, highways must be updated or newly built. This means a massive undertaking to rebuild America’s infrastructure in a short time period if Trump wishes to fulfill his promises. Based on an estimate by the American Society of Civil Engineers, the repairing and building of all the roads, bridges, rail lines, energy systems, airports, water treatment plants, and hazardous waste facilities in the nation would cost $3.6 trillion by 2020.

This is a monumental, but necessary expenditure if American manufacturing is to see a renaissance. A Trump adviser, business professor Peter Navarro of the University of California-Irvine, estimates that for every $200 billion in additional funds spent on infrastructure projects will create $88 billion in additional wages and raise America’s gross domestic product by more than 1 percent.

Read Japan Looks to Boost Infrastructure Investment in the US

But the financial problem arises in paying for it. Instead of tax increases, Trump proposed a series of tax credits to private investors and builders to accomplish the task. Trump contends that the funds lost to the Treasury Department by the tax credits would be replaced by increased personal income taxes that workers hired for the infrastructure projects would pay and by business taxes from construction firms. Either way, rebuilding the nation’s infrastructure will take at least a decade and cost trillions of dollars.

Training and Education

Another issue facing Trump is the fact that manufacturing is now more technical. Today’s manufacturing techniques mean that workers must have advanced technical skills so that they can help assemble transient electronics, operate 3D printers, and understand the ‘internet of things’. This involves having substantial numbers of precision machinists, engineers, and chemical technicians, to name just a few. Today’s manufacturing centers are producing more technology intensive, specialized, and higher value-added goods for their customers.

You may also like US Manufacturing Jumps to 33-Year High

Today’s manufacturing workers must have STEM backgrounds: Science, Technology, Engineering, and Math knowledge. These skills are vital since manufacturing has become more sophisticated in the products they develop and the follow-up services provided to customers. The challenge is that high schools, trade schools, and community colleges must now provide their students these skills to properly prepare them for tomorrow’s workplace challenges. This also means retraining today’s workers to handle manufacturing’s new demands.

Modern manufacturing requires workers who are comfortable with different computer programs, high-tech equipment, and lean techniques; however, this training and retraining of workers will take time, money, and effort until they can meet manufacturing’s demands. With Trump’s recently unveiled budget making significant cuts to education, how can states and businesses be expected to fulfill the demands for better-trained workers? There must be a collaboration between all levels of government, firms and the education sector in order to ensure better-equipped workers who can meet the needs of modern manufacturing.

Can Tax Breaks Help?

Perhaps the biggest concern among policymakers and economists is whether tax breaks can help manufacturing rebound. Trump feels that corporate tax rates should be cut from 35 to 15 percent, helping firms to cut costs. Every business person I know would like a tax cut and the smart ones would use the money to hire more workers and expand operations, be more competitive, and develop new products. Some have even called for ways for companies such as Apple to repatriate their overseas funds at a lower tax rate. Apple currently has more than $200 billion in accounts overseas.

Listen to Taxes Suck – Here Are Ways to Reduce Them

There are others who argue that a tax cut may not have their expected benefits. For example, when the United States tried a tax holiday in 2004, the idea was to allow firms to relocate overseas money back into the country without paying taxes. The strategy was that bringing the funds back would spur hiring among companies. However, the money was distributed to shareholders through stock dividends and share buybacks. More recently, when Trump made a deal with Carrier to keep jobs in Indiana via $7 million in tax breaks, this move received high praise from workers. The problem was that it actually saved fewer jobs than Trump originally claimed with approximately 50 percent of the jobs still going to Mexico. Tax cuts sound like a great idea and incentive to help businesses, but will the money really be used for its intended purposes?

Is There a Way to Make in America Again?

Manufacturing still occupies an important place in the American economy. Today, for every $1.00 earned in manufacturing it contributes $1.37 to the macroeconomy and that for every job in manufacturing, approximately three are created in other areas. Manufacturing is in a transition, and how it will look in ten or fifteen years is hard to predict. But the key point is to find a role for manufacturing in the new economy and how it can contribute to the nation’s long-term economic growth.

CLICK HERE to subscribe to the free weekly Best of Financial Sense Newsletter .

About Global Risk Insights

Quantcast