Although America's service sector accounts for 70% of all economic activity in the U.S., manufacturing still makes up an important 12% of our output. The health and well-being of America's economy is heavily dependent on manufacturing, since it is the main source of the economy's prosperity -- through the creation of factories, jobs, R&D, profits, and tax revenues. Without a solid manufacturing base, the economy is unable to grow in a sustainable way, without piling on dangerous debts.
The health and fate of manufacturing in the U.S. depend critically on two sets of changes. The first must be made by U.S. businesses, consumers, and government agencies at all levels -- WE must choose to buy American-made products whenever possible in order to support the U.S. economy and U.S. manufacturing. When products are purchased form a U.S.-based manufacturer, it spurs job growth and stimulates the economy in a healthy way. But reinvigorating domestic manufacturing also requires major changes in recent U.S. trade policies, which have sent needlessly too much manufacturing production and too many industrial jobs overseas.
Why Buy American?
Many businesses literally accept the misconception that foreign-made products are cheaper than their U.S. counterparts, which often is not actually true. Of course, overseas labor will likely cost far less than U.S. labor, but when looking at the total costs of U.S. products vs. products made overseas, buyers need to consider all costs and service implications before deciding that overseas purchasing is saving their company money. When transportation, logistics, service levels, quality, import costs and other factors are added to the equation, the cost U.S-made products in many industries is comparable to or less expensive than the imported product.
American-born products often carry higher quality levels and are often more environmentally friendly. In the case of steel products, many contain more than 50% recycled content, while most foreign companies use little or no recycled content. Another reason that buying closer to home is eco-conscious is because it wastes less fuel since goods are only traveling hundreds of miles-generally in more fuel-efficient, less-polluting trucks and trains- instead of many thousands of miles by means of ocean, air and land to arrive from overseas.
Compared to the cost of shipping domestically, overseas shipping costs are significantly higher and have risen as much as 50% during the past year. In the steel storage and furniture industry, import transportation expenses often comprise more than 20% of the total cost of the product. That 20% "overseas import cost" often more-than-offsets the labor differential between the U.S. and overseas plants, where labor can make up 10-20% of the U.S. cost versus the typical overseas labor cost of 3-5%.
Even more importantly, retailers and industrial distributors need flexibility to adjust to constantly changing customer demand. If resellers don't have product in stock, they will not only miss the sales opportunity but also destroy precious customer loyalty. In reaction to that possibility, it is not unusual for resellers sourcing product from overseas to have 8-12 or more weeks of safety stock. That safety stock has a cost that is not always analyzed when making the U.S.-versus-Import decision. If sales increase quickly, import buyers typically need at least eight weeks to order and receive replenishment stock.
On the other hand, many U.S. manufacturers operate on order-to-ship lead times of less than one week. Customers buying from these U.S. manufacturers should be able to reduce their inventory by more than 50 percent while achieving the same or better service level. Lowering inventory levels also improves cash flow and reduces required warehousing space and costs.
Paramount to the success of all businesses today is customer service. Buying from American suppliers typically means receiving reliable and superior customer service. Whether it is a replacement part or a simple assembly question, it is easier to pick up the phone during regular hours and call customer service in the United States. Many import products offer little or no technical assistance with their products, and when support is offered, language barriers and time zones can be frustrating and time consuming, ultimately alienating the customer.
The Politics of Manufacturing
The U.S. Business and Industry Council is a non-profit group of family-owned manufacturers that lobbies Congress in support of policies that promote a strong manufacturing sector. Alan Tonelson, research fellow at the council, says that a strong American economy can only thrive if there is a thriving, broad-based manufacturing sector in place. During the last 25 years, Tonelson says, "Manufacturing in the U.S. has grown too slowly to keep creating adequate jobs, new inventions, and profits to power the economy. Although manufacturing output has grown in absolute terms for most of the last few decades, it has fallen as a share of the total economy.
Decision-makers need to understand, that if manufacturing grows too slowly relative to the rest of the economy, that's a huge problem, because the rest of the economy relies on manufacturing to create new wealth. The slow growth can be blamed largely on poor U.S. trade policies that discourage American companies from producing and buying products and materials in the U.S. "The main obstacles to promoting a strong manufacturing sector come from Washington," Tonelson said. "Excessive taxes and regulations are indeed big problems, but offshoring-focused trade policies must be overhauled first."
Tonelson says Washington's borrow-and-spend policies are driving the economy into yet another dangerous boom-and-bust cycle, rather than helping to improve the problem. "Washington is under the misconception that the way out of this mess is to borrow and spend our way to recovery. We must build a sustainable plan to generate genuine economic recovery by encouraging companies to buy at home instead of overseas."
Manufacturing is such a critical component of a healthy, sustainable economy because it dominates the part of the economy that creates the new wealth needed to jumpstart America's consumption, innovation, and growth.
"A U.S. economy without a strong manufacturing sector can be compared to a household that lacks a first-rate source of income," Tonelson said. "There are alternatives-you could borrow more or sell your assets, but those aren't reliable ways to maintain prosperity. You have to earn new income to maintain it. In order to be a consumer, one has to be a producer first."
A major symptom of the problem is America's enormous manufacturing trade deficits. They show that they nation's overseas sales aren't coming close to equaling its purchases from abroad. The net effect is chronically depressed demand for U.S.-made manufactured goods-which in turn helps prevent domestic manufacturers from maintain the workforces needed to underpin healthy, earnings-led growth for the whole economy.
A larger, fast-growing manufacturing sector would help restart a virtuous cycle for the American economy, in which more hiring spurs more consumer spending and greater demand. Orders increase, businesses hire, R&D jumps, and tax revenues soar - helping to reduce government borrowing and debt that has to be repaid by future generations.
What Can Businesses and Consumers Do?
Changing U.S. trade policies, however, can't restore healthy growth by itself. Businesses, individual consumers, and government procurement also have an opportunity to make a difference and contribute to health American prosperity. Most important, each one of us can buy American products whenever possible. Everyone wants less unemployment and a lower national deficit, and one of the most important ways that can be accomplished is by boosting the manufacturing sector.
On the business level, companies can help impact where something is made based on their specifications for the product. For example, a buyer looking to purchase steel cabinets or shelving in basic colors and features, can usually find American-made products competitively priced. On the other hand, if a buyer creates exotic specifications such as specialty paint colors, metallic plating, detailed laminating, or intricate packaging, these types of requests tend to favor overseas plants, where labor is very cheap. However, if buyers partner with U.S. manufacturers to design their products for domestic manufacturing, the "edge" and the jobs are more likely to be kept in America.
Many products are made only in overseas factories because they are too hazardous or unfriendly to the environment to be made here. One such category of products is chrome- plated products, which are most often manufactured overseas because the regulations surrounding plating processes are more relaxed in many third world countries. The lax regulations can result in tragic long-term environmental impacts, such the recent 16-square mile toxic heavy metal red sludge in Hungary that flowed into the Danube River on October 7, 2010.
While many American buyers turn a blind eye to the impact of their overseas purchases, we and all American businesses have the responsibility to choose materials and product specifications that protect THE earth's environment -- whether in third world countries or here in the USA. That means sometimes paying more to ensure the health of employees, the plant's neighbors, and the environment.
Although buying American seems to be the common sense option, there are thousands of U.S.-based companies who buy primarily overseas because they are comfortable with their overseas suppliers and don't want to invest the time to analyze the benefits of switching back to American-made. Many do not realize that buying "material intensive" products made in the U.S. (like steel and laminate furniture) can make a huge difference in quality and cost, among other benefits. The problem is that it's not an easy task to change the status quo -- which oddly, in many cases, now artificially favors buying overseas.
Consumers play a vital role in supporting U.S. manufacturing. It is the U.S. consumer's responsibility to check products to see where they're made, and ask questions if the product doesn't indicate where it was created. It comes down to making a simple decision to buy American products whenever possible.
The Bottom Line
When our money is spent on goods produced overseas, that money is being put into the pockets of people overseas who will not spend it in the United States, e.g., restaurants, repair shops, newspapers, accountants, legal advice, or any other U.S. store or service. The trade deficit shows that foreign populations don't buy nearly enough American-made manufactured products either, which would help offset our purchases of their exports.The money spent on imported goods creates jobs "over there," which replace American jobs here, and ultimately adds to our trade Deficit and broader national debt. Manufacturing groups like the U.S. Business and Industry Council can promote government policies that boost manufacturing, but it is every American's responsibility to do his or her part in promoting the manufacturing sector and a healthy economy. When U.S. households spend their money on goods made here, it spurs job creation, keeps state and local economies strong, and maintains tax bases so that our cities can provide essential public services, including first responders, a quality education system, and physical and social infrastructure.
Everyone wants more jobs and reduced budget and trade deficits, and it starts with buying American and supporting U.S. manufacturing.
Mitchell Liss is Vice President at Edsal Manufacturing . Edsal Manufacturing supplies made-in-the USA storage systems and commercial furniture. Most of Edsal's raw materials come from within a 500-mile radius of the facility.