Study: 'External' Costs Challenge U.S. Manufacturing Competitiveness

By John S. McClenahen "The primary competitive challenge facing [U.S.] manufacturers and their workers." says Jerry J. Jasinowski, president of the Washington, D.C.-based National Association of Manufacturers (NAM), is a collection of tax, employee benefit, regulatory and other "external, non-production" costs. Jasinowski's statement is based on a study by economist Jeremy A. Leonard that was released Dec. 9 by NAM and Arlington, Va.-based Manufacturers Alliance/MAPI, a business and public policy research group. The study finds that "domestically imposed costs . . . are damaging [U.S.] manufacturing more than any foreign competitor and adding at least 22.4% to the cost of doing business from the United States." Funded by Emerson Electric Co., a St. Louis-based manufacturer, the study compares the costs of producing in the U.S. with the costs of manufacturing in Canada, China, France, Germany, Japan, Mexico, South Korea, Taiwan and the United Kingdom. "The largest burden [on U.S. manufacturers] comes from high corporate tax rates and employee benefits, with smaller but substantial burdens caused by litigation costs and regulatory compliance," putting the U.S. at a substantial competitive disadvantage with its major industrial trading partners -- Canada, Japan, France, Germany, Japan and the United Kingdom, the study states. "Absent these extra costs, the United States would compete on an even playing field." The study notes with concern that "the absolute value of the excess cost burden on U.S. manufacturers (nearly $5 per hour) is almost as large as the total raw [manufacturing] cost index for China [$5.34]." "Now that the magnitude of these underlying cost pressures is understood, it is important that federal and state officials begin to address them with new pro-manufacturing policies," says Thomas J. Duesterberg, president and CEO of Manufacturers Alliance/MAPI. "Foremost among these should be tax, regulatory, health and legal reforms." The study makes 20 separate policy recommendations for easing the burden of overhead costs on U.S. manufacturers. The suggestions include reducing corporate income tax rates, repealing the alternative minimum tax on corporations, establishing "a more objective" cost-benefit review process for proposed regulations, improving the affordability of health coverage for individuals and companies, and reforming the legal system "to discourage and curtail" frivolous lawsuits.

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