Roadblocks to Manfacturing’s Rebirth

February 5, 2012
By

The day after the State of the Union Address, President Obama visited a Phoenix suburb to tour Intel’s still-under-construction computer chip manufacturing plant. Its price tag – $5.2 billion – making it the largest construction project in the world outside this summer’s London Olympics. When the plant opens in 2013, it will employ about 1,000 workers, a welcome boost for a state and nation hungry for new manufacturing jobs.

The president’s tour, overshadowed in the media by a pseudo-confrontation with Gov. Jan Brewer on the Phoenix airport tarmac, was designed to highlight his manufacturing jobs agenda. During the speech, Obama pledged to eliminate tax breaks for companies that ship jobs abroad; establish new tax breaks for those that bring jobs home; clamp down on tax loopholes that allow companies to shift profits abroad; and earmark $7 billion in new tax credits for companies building clean-energy manufacturing facilities or locating in depressed communities.

The president also highlighted partnerships between major manufacturers and local community colleges like the one between Siemens and Central Piedmont Community College in Charlotte, where the company paid for laid-off worker Jackie Bray’s tuition to learn new skills so she could work in its local manufacturing plant. Obama promised community colleges “the resources they need to become community career centers -– places that teach people skills that businesses are looking for right now, from data management to high-tech manufacturing.”

The president’s election-year manufacturing initiative has reopened the long-simmering debate over industrial policy that dates from the mid-1980s. President George H.W. Bush’s chief economic adviser, Michael J. Boskin, famously dismissed targeted attempts to aid manufacturers with the retort: “It doesn’t make any difference whether a country makes potato chips or computer chips.”

Democrats, with the strong backing of America’s declining industrial unions and some manufacturers, reject that attitude. Their approach allowed for the bailout of the U.S. auto industry during the Great Recession, which Obama touted during his speech. Not only did the government’s investment save a million jobs, the president said, but a resuscitated General Motors is once again the number one carmaker in the world. The industry as a whole has added 160,000 jobs since the depths of the downturn, he pointed out.

Given that GOP frontrunner Mitt Romney has rejected aid for specific industries and said bankruptcy would have been a better route for GM and Chrysler, the radically different approaches are certain to be front and center during the fall campaign. The debate could be a major factor in Midwestern swing states like Ohio, Michigan, Wisconsin and Pennsylvania, which rely on manufacturing for a larger-than-average share of local jobs and are heavily dependent on the auto industry.

Those states are now seeing stronger rebounds than Sunbelt states like Georgia, South Carolina, Florida and Nevada, which were hard hit by the housing and construction collapse. To the extent Sunbelt states attracted manufacturing in recent decades, they touted their low-wage, low-tax, minimal-regulation business climates to attract clothing, textile and furniture manufacturers, many of which have since moved on to even lower-cost locales in Mexico, Central America, Southeast Asia and China.

Those states have not benefited as much from the recent rebound in manufacturing, which has added 300,000 jobs since late 2009. The bounce back has been led by those parts of the semiconductor and computer and electronics industries that are highly automated, capital intensive and depend on skilled, not cheap labor.

But those minor gains come nowhere near replacing the 5.6 million manufacturing jobs lost during the last decade, which is nearly one out of every three. The wholesale abandonment of entire industries to China, India and Latin America raises serious doubts about whether the manufacturing sector can ever again be the major driver of renewed job growth in the U.S.

Some experts are saying now is as good a time as ever to try for a manufacturing rebound, especially in areas where the U.S. is still strong such as aerospace, construction machinery and semiconductors. Wages in China, which runs the largest trade surplus with the U.S., rose nearly 70 percent between 2005 and 2010, according to a recent Economist Magazine report. And some U.S. firms are rethinking their overseas investment strategies due to rampant intellectual property theft and onerous technology transfer rules on U.S.-based multinationals seeking to invest in China.

But for industries that have largely left U.S. shores – like most of the consumer electronics industry, which was documented recently in a New York Times story showing how all of Apple’s sector-leading products are manufactured abroad – the effort to encourage a domestic rebirth will run into roadblocks. And they are not the regulatory complaints that Republicans usually raise or the tax incentives for overseas production that the president’s proposal would address.

Mark Luden’s Columbus-based Guitammer Co. has been investigating domestic sourcing of its $329 home entertainment system device, which picks up on extremely low bass-tones from surround-sound systems to vibrate seats and couches. It currently assembles the “Buttkicker” in Kentucky with parts imported from China. “You’d have to be a fool not to explore domestic sourcing,” he said. “China’s costs are going up; oil for shipping is going up.

Yet “a small business trying to grow its market share is not going to have a decision driven by a tax break,” he continued. “It’s not the cost of labor. The issue is components. Our Buttkicker requires steel, aluminum, copper, a circuit board, chips and resisters, plugs and power adapters. . . These components still come from China. We’ve lost the infrastructure for a lot of these parts,” he said.

Meanwhile, manufacturing firms that are trying to compete with Chinese firms say they are being undermined by unfair trade practices. U.S.-based solar manufacturers last October filed a trade complaint against China-based firms for dumping solar cells on the U.S. market at below their cost of production, which they can do because of substantial government subsidies. The International Trade Commission issued a preliminary ruling in their favor earlier this week.

“Twelve U.S. companies have gone out of business or experienced significant layoffs in the past year,” said Tim Brightbill, an attorney at Wiley Rein, which filed the complaint on behalf of SolarWorld in Portland, Ore., and six other domestic manufacturers.
“Over 2,000 manufacturing jobs are gone.”

But America’s love affair with cheap goods made overseas extends even to this high-tech industry, which is having its domestic subsidies pulled away after repeated assaults on Capitol Hill. A coalition of solar installers and manufacturers, some of whom have their own operations in China, oppose the imposition of trade sanctions on China.

And it’s not hard to understand why. Solar installer sales are surging based on cheap Chinese solar cells. “Oversupply is good for you and me,” Danny Kennedy, founder of California-based installer Sungevity, said shortly after the complaint was filed. “We are doing what we are meant to be doing, which is to make solar cheap and affordable.”

The preceding appeared first in The Fiscal Times.

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One Response to Roadblocks to Manfacturing’s Rebirth

  1. Dan on February 6, 2012 at 7:51 am

    Good to see you focusing on manufacturing, but I think you’re dancing around the 800 pound gorilla. American manufacturing would quickly rebound if China and other countries did not manipulate their currency, which not only gives them an unfair competitive advantage, it also results in killing any effort to jumpstart the US economy through stimulus.

    Remember that happy old story we all learned as kids about the multiplier effect from stimulus? Government gives me a dollar, I give it to the butcher, who gives it to the farmer, who gives it to the seed company, etc., etc. and all that money results in a growing economy and the gov’t gets paid back many times over. Well, now that dollar takes one or two bounces and it’s gone ex-US to one of our “free trade” partners. Remember the China and Latin American booms in ’09 and ’10 following the big stimulus while the US economy continued in stall? Not too hard to figure out what happened there.

    Yet the president refuses to take any steps to stop the currency manipulation, whether its China, Brazil, or whoever, and pursues more cockamamie “free trade” deals to please the multinationals. Until that changes, good luck to anyone trying to manufacture anything in the US aside from luxury homes for the top earners and happy meals for the rest of us.

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