Why Are U.S. Manufacturers Paying 20% More in Costs than Rest of the World?

Oct. 14, 2011
MAPI, Manufacturing Institute study shows that health care and corporate taxes are to blame.

Compared to global competitors, U.S. manufacturers face a significant disadvantage in doing business in the U.S., according to the "The 2011 Structural Costs of Manufacturing in the United States" report by The Manufacturers Alliance/MAPI and The Manufacturing Institute.

U.S. manufacturers face a 20% structural cost disadvantage in the global market compared competitors in nine of its largest trading partners. This number is up from 17.6% in 2008.

"The story of the structural cost gap boils down to two issues: health care and corporate taxes," said Jeremy A. Leonard, MAPI economic consultant. "We have the policy tools to deal with them, but lack the leadership to bring them under control. Absent structural costs, U.S. manufacturers are broadly competitive with their international peers thanks to the tireless efforts to innovate and become more efficient. It is up to the policymakers to step up to the plate to ensure a vibrant manufacturing sector in the years ahead."

Leonard measured five key components to arrive at a trade-weighted average of structural costs: corporate tax burden; employee benefits; tort costs; pollution abatement compliance; and energy costs. Chief among the barriers are the aforementioned corporate tax rates and employee benefits, especially health care costs.

The trade-weighted foreign corporate tax advantage reached 8.6 percentage points in the 2011 study, a significant increase over the 2003 report when the gap was 5.6 percentage points, and higher than the 7.8 percentage points in the 2008 analysis.

The employee benefits foreign advantage is 5.7 percentage points in the 2011 report, a marginal increase over the 5.5 percentage points in the original 2003 study, but well above the 3.6 percentage points in the 2008 analysis.

"This report tells an important story, one in which the White House and Congress should be very interested," said Stephen Gold, CEO of MAPI. "While we recognize American manufacturers face a myriad of challenges from overseas, these data demonstrate that domestically imposed costs further undermine our ability to compete. We hear a great deal from policymakers these days about the need to bring manufacturing back to America, yet these challenges continue to undercut American manufacturing competitiveness."

Emily DeRocco, President, The Manufacturing Institute, concurred."While policymakers commend manufacturing for leading economic recovery by keeping businesses afloat and boosting exports, full recovery is made all the harder by this fundamental challenge," she said. "U.S. manufacturers face a set of structural disadvantages that erode U.S. competitiveness and offset many of the productivity gains achieved through innovation and the relentless pursuit of efficiencies."

To view the report click here.

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