The Continued Decline of American Manufacturing
Politicians on both sides of the aisle have called on America’s manufacturing economy to drive our national recovery in 2013. The talking point of growth in manufacturing and industrial production creating jobs, exports and prosperity is common in political media. Unfortunately, it is not realized in practice.
According to the latest report from the Bureau of Labor Statistics, the United States created just 4,000 manufacturing jobs in January 2013. Measurable growth is better than no growth at all, but paltry job creation figures reveal the weakened state of industrial production in the United States. The economy created more manufacturing jobs than it lost in 2012, but that well of good fortune seems to have run dry. The employment trend in manufacturing is overwhelmingly negative and has been for nearly twenty years.
This country does not simply lack manufacturing jobs, it lacks entire industries.
The Manufacturers Alliance for Productivity and Innovation (MAPI) released a report in January 2013 detailing the generational decline in manufacturing output and capacity in the United States. In general, for every two new plants that come on line, three others are shut down. For every two jobs created at one plant, three are lost somewhere else.
The companies that make up our so-called “manufacturing base” often survive, but they do so by moving jobs and production overseas. The MAPI report shows dramatic increases in overseas production and sales by the foreign affiliates of American multinationals alongside virtual stagnation of domestic metrics in the United States.
Why are these companies fleeing the United States to produce and sell their goods? More importantly, what can we do to reverse the trend?
The loss of manufacturing began decades ago, and accelerated in earnest from the 1990s. The era of global free trade incentivized relocating to cheap labor markets with lax regulations and generous tax benefits. A for-profit commercial enterprise cannot afford to take note of the human cost facing its newly-unemployed workforce when it moves from one country to another. Its only concern is the bottom line.
Worldwide tech phenomenon Apple makes its products in China despite polling indicating a strong preference in the United States for the “Made in USA” brand. Some analysts have calculated that Apple devices could be sold at a profit for the same cost even if they were made by highly-paid American workers. The problem is that the profit margins available thanks to near slave wages in China is enormous compared to slim profit ratios presented by American workers. Shareholders want profits, and extravagantly-paid corporate executives make their fortunes protecting those profits. In such an environment, it is hard to believe any company would remain in the United States.
What is the solution to this pervasive problem? Some on the political right advocate destroying unions and depressing wages in the United States. It is nonsensical to witness a flight of jobs to overseas sweatshops and come away with the conclusion that America needs more sweatshops.
This country does not need to drop its wages to compete with the underdeveloped and authoritarian nations of the world. What it needs is to institute protections at its borders that make those cheaply made goods more expensive in our domestic market. It then needs to invest money into domestic champions who can pave the way forward.
The simplest solution is a value-added tax (VAT). The VAT is the most widely used tax scheme in the world. Nearly every country in the world employs a VAT of some kind, including every single developed economy. Both Canada and Mexico, with whom we have an alleged “free” trade agreement, charge a value-added tax on goods entering their economy from abroad. Why would the United States not do the same?
A value-added tax is legal, simple, and easy to regulate. All goods exported to the United States would pay a fee for the right of entry into our market. The money derived from that service charge could then be re-invested into American companies who compete against foreign-made goods. This sort of border adjustment tax has worked in the past and will work in the future. It is the easiest way to raise revenue without injuring a single American consumer or corporation. It is also the only chance this country has to ever pump life back into its dying manufacturing base.