U.S. manufacturing jobs continue to disappear. Here are the policies that will encourage manufacturing job growth.
Back in 1979, there were 19.5 million manufacturing jobs in the U.S. By 2001, the total had dropped to 17 million. Between 2001 and 2010, the U.S. lost 5.6 million more manufacturing jobs and hit bottom at 11.4 million manufacturing jobs in 2010.
In 2016, total U.S. manufacturing jobs grew to 12.3 million. That means, the U.S. has recovered 900,000 jobs, but still needs four million more jobs to return to a manufacturing base that we can call a growing and vibrant sector that supports the middle class and a healthy economy.
We are now in another election, and politicians are again promising how much they love the manufacturing sector and why they will create more manufacturing jobs. We heard the same claims from President Obama during both of his election campaigns, but nothing happened.
As a response to manufacturing job losses, President Obama created the Council on Jobs and Competitiveness (in 2011). Its mission was to provide non-partisan advice to the President on how to strengthen the nation's economy and ensure the its competitiveness. It also was supposed to find ways to create jobs, opportunity and prosperity for the American people.
The 26-member jobs council set a specific goal for companies to create 1 million manufacturing jobs in Obama’s second term. According to the Alliance for American Manufacturing (AAM), which keeps track of the goal, as of October of 2016, the U.S. has added 302,000 manufacturing jobs since the beginning of President Obama’s second term in Jan. 2012. That's 698,000 short of the goal.
The Council’s recommendations to create these jobs are the same as the often repeated multinational corporation demands, including calls for less government regulation, lower corporate taxes and reforming the tax code. These demands have everything to do with supporting what the Fortune 500 companies want to achieve in increasing profits and little to do with producing immediate jobs for working people. It is amazing to me that Obama formed a council dominated by the large corporations, the very people whose major goal is to cut labor costs, outsource jobs and lower their head count.
The problem is that we have started on the wrong end of the problem. Instead of begging the large corporations to create jobs, we should identify the economic factors that are killing job creation.
Trade Deficits and Currency Manipulation: Growing trade deficits are the single biggest killer of manufacturing jobs. A report from the Economic Policy Institute states that "currency manipulation, which distorts trade flows by artificially lowering the cost of U.S. imports and raising the cost of U.S. exports, is the primary cause of growing trade deficits. Halting global currency manipulation by penalizing or offsetting currency manipulation is the best way to reduce trade deficits, create jobs, and rebuild the economy." The report goes on to conclude that stopping currency manipulation could create between 2.3 million to 5.8 million jobs.
The U.S. also needs to enforce our current trade laws to counter industrial subsidies, intellectual property theft and barriers to market access by our trading partners.
The problem is that neither Democrats nor Republicans in Washington seem to be willing to take on China regarding any of these problems. There is a positive historical precedent for stopping currency manipulation. In 1985, both Germany and Japan were gaining unfair advantage by manipulating their currencies. President Reagan persuaded Congress to pass a bill that outlawed foreign currency manipulation with the threat of slapping tariffs on their exports to the U.S. Both countries backed down, and the strategy worked. If we can’t reduce trade deficits, there is little chance that we will create manufacturing jobs.
Trade Agreements: Closely allied to the trade deficit problem are trade agreements. It is now pretty obvious from the analysis of the 1993 North American Free Trade Agreement (NAFTA) and the 2012 South Korea FTA agreement are detrimental to American jobs. We need to negotiate trade agreements that create jobs and lower the trade deficit, not agreements designed to simply increase overall trade which benefits the few. If negotiating agreements that will increase jobs and reduce the trade deficit are impossible to attain, then from the point of view of working Americans we don’t need trade agreements.
Infrastructure Projects: The U.S. has let its highways, bridges, waterways, water systems, sewer systems and electric grid fall into disrepair. Twenty-four percent of bridges are structurally deficient; 240,000 water mains break every year; 75,000 sewers over flow each year; and the electrical demand has exceeded our capacity to build transmission lines by 25% per year. Repairing or replacing these systems is the best short-term opportunity to create manufacturing and construction jobs. The cost of replacing or repairing all of our infrastructure exceeds $3 trillion, but it is an investment in America and will create millions of jobs.
Dan DiMicco, chairman emeritus of Nucor Corp., says that investing in infrastructure is a “public investment that pays dividends for decades. Every dollar of infrastructure spending adds $1.59 in gross domestic product.” In his book, American Made, DiMicco proposes a realistic job creation plan that invests in $415 billion in repairing infrastructure and produces 10 million jobs.
Corporate Taxes: Multinational corporations are lobbying Congress to reduce corporate taxes from 35% to 25% and to give them a one-time 5% tax on the $2.4 trillion they have in overseas tax havens. Instead of giving them another “no strings attached” tax reduction, a better idea would be to offer tax breaks that support job creation and help domestic manufacturing. This can include expanding up-front expensing for plant and equipment purchases, and more research and development tax credits for firms that make their products here in the U.S.
Giving up-front tax breaks has led to little job creation or GDP growth. We should instead insist on results first, and pay later. Also, any tax reductions or tax credits for R&D should be based on creating jobs and investment in the U.S. — not overseas.
The manufacturing sector is not growing, and in fact is now contracting. Since January of 2016, America has lost 67,000 manufacturing jobs and, in the last four quarters, manufacturing productivity has increased an anemic 0.09%, according to the Bureau of Labor Statistics. So we are not moving in a positive direction.
However, I see an opportunity. With a new President and, hopefully, a new Congress, it may be possible to force China and other Asian countries to play by the rules. We can’t continue to hope that the large corporations will reverse themselves and focus on creating jobs or growing American manufacturing.
Hope is not a plan.
This is no longer a problem that will be solved by free market absolutists. Currency manipulation, trade agreements, corporate taxes and infrastructure are political problems that require political solutions. We need to face up to the fact that we are in a worldwide competition for jobs and growth--and we are losing. The future is now. Are we going to act or talk?
Michael Collins is the author of Rising Inequality and the Decline of the Middle Class, his website is mpcmgt.com.