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Gaining a Competitive Advantage for Manufacturers

July 27, 2015
Jay Timmons, president and CEO of the National Association of Manufacturers, talks about ozone regulations, corporate taxes and manufacturing's role in the public dialogue during the upcoming U.S. presidential campaign.

Jay Timmons, president of the National Association of Manufacturers, has been crisscrossing the country, hosting NAM Executive Insights “conversations” with manufacturing CEOs. En route to the confab in Beachwood, Ohio, Timmons stopped by IndustryWeek’s offices in Cleveland for a one-on-one about NAM’s priorities ahead of the 2016 U.S. presidential election. NAM is gearing up for a presidential candidate’s forum in Iowa in November, which Timmons joked could end up like Woodstock, with attendees bringing their bedrolls and making a long weekend of it, if the Republican field doesn’t narrow considerably.

Q: What are some themes you’re repeatedly hearing from manufacturers as you travel the country?

A: Manufacturers really want to see some attention paid to a comprehensive tax reform effort. We have somehow gotten the not-so-honorable distinction of having the highest corporate statutory tax rate in the world.

When you have the highest tax rate, it’s not conducive to investment. That’s the corporate side. At the same time, two-thirds of manufacturers are S corporations—they pay the individual tax rate. We don’t want to see them left behind. So that’s why comprehensive is so important.

Our priorities are ensuring a reduction in the corporate tax rate, ensuring a territorial tax system so basically corporations are not paying twice, and ensuring that we also include small manufacturers in our quest to gain a competitive advantage for America workers and manufacturers.

Q: Are you looking at a specific reduction in the tax rate?

A: A lot of folks in DC are talking about a corporate rate of around 25%. That’s certainly an improvement, but the average in developed countries is around 23.5%. So 25% is below average, and I don’t think we became the great country we are today by striving to be below average. We’re going to have to get serious about this and make a decision if we really want to take on some of our competitors around the world. Canada managed to bring it down to 15%. And there are real, live examples of decisions being made to move companies or start new facilities across the Canadian border because of that tax rate. We can’t allow that to happen.

Q: You’re concerned about changes in the EPA’s ozone regulations that would potentially lower the air pollution standards for U.S. counties from 75 parts per billion to 60 to 70 ppb. What’s wrong with that?

A: No matter what number the EPA picks, it will result in being the most expensive regulation in the history of our country. … These standards put an enormous burden on those who are trying to compete and succeed in the world economy. What it means for a state like Ohio is that many counties are already out of compliance from the 2008 standard. To impose a new, much-more-strict standard would likely mean that every county in Ohio is out of compliance.

The state can’t allow investment in those counties that are out of compliance. That means we can’t create more jobs. And that’s not good for anyone.

Beyond that, manufacturers are faced with a pretty big dilemma. The EPA even admits there is no viable technology to bring these ozone limits down to the levels that are being suggested. So if the technology doesn’t exist, if the equipment doesn’t exist, what are we supposed to do? And what ends up happening are very tough decisions that manufacturers have to make about either slogging it out here at home and not being able to invest in their own facilities and make improvements or build new plants or taking their investments outside of our country.

Q: NAM states on its website that EPA regulations need to be modernized. What do you mean by “modernization”?

A: Part of that is asking questions like: “Now that we have taken ozone levels down to such a low level, does a five-year cycle for moving the goalpost make sense?” Or should it maybe 10 years? Should we be looking at regulations or restrictions, something like the Thune-Manchin legislation which states that EPA can’t impose a new standard until at least 85% of the counties in this country are in compliance? I don’t think that’s unreasonable. We can’t be punishing and penalizing our own economy when we can’t even meet the standards that have already been set.

Q: What changes are manufacturers making to deal with the rising costs of health insurance?

A: Some are deciding we can’t continue to supply this. I talked with one manufacturer who had a 90% increase in his premiums because of the way the system is now set up. You’re measured on a statistical area; you’re not measured on the performance of your company. He said, “How am I supposed to do this? I have to eliminate jobs to pay for this.”

Some are deciding they simply can’t provide it anymore and folks are being forced to go to the exchanges, and manufacturers don’t want to do that. Usually the small ones. Larger manufacturers are going to absorb, it but it’s a cost they have to absorb that means fewer jobs, less pay raises. Some are lowering their offerings.

I doubt we’ll see the full repeal of the Affordable Care Act. But improvements should certainly be on the docket.

Q: Do you think the Cadillac tax (surcharge on elite healthcare plans) will happen?

A: That’s another one of those, if you don’t have a supermajority in the senate to take up the legislation to fix it, then it won’t get fixed. So if 41 senators say I don’t want to fix this because it threatens the whole ACA, you’ve got a problem.

Q: What are you hoping will come out of the NAM presidential candidates’ forum in Iowa in November? Eight years ago, you wouldn’t have seen candidates clearing their calendars for a discussion on manufacturing.

A: NAM has traditionally not been involved in the campaign process. We’ve slowly been getting into that, and it’s certainly a focus of our leadership. We want to inject the manufacturing message into the 2016 election cycle on both the Republican and Democratic sides of the campaigns. And the reason for that is not out of parochial interest. The reason is that every economist, every knowledgeable policymaker points out that manufacturing is the backbone of any growing, productive economy. So if you want your economy to grow, if you want to increase your standard of living, if you want to provide the highest paying jobs of any sector, then you want to grow the manufacturing sector.

We are going to be working very hard to ensure that our candidates for our nation’s highest office, as well as candidates for the senate and the house and state offices, pay the proper amount of attention to growing the sector and creating the jobs that it can bring.

Q: What’s your take on the Trans-Pacific Partnership?

A: The goals of TPP are good for America, and the goal is certainly to expand our access to the 95% of customers who live outside the borders of the United States.   For those who fear trade agreements, that fear is simply not grounded in reality. The reality is if we don’t sell our stuff to somebody other than ourselves, then we’re never going to grow as an economy. So if 19 out of every 20 of our customers live outside of the United States, we need to get to them, and these trade agreements are the right mechanism to get there.

Having said that, there are concerns that manufacturers have with TPP. We’re watching this very closely and communicating daily with our U.S. trade ambassador, Mike Froman, and others to ensure that we aren’t sacrificing some advantages. Number one on the list is our intellectual property. We want to make sure there are very hard and fast intellectual property rules in this agreement, specifically related to pharmaceuticals. Number two, we want to make sure that any investment disputes are handled the way they’ve been handled in other trade agreements.

We also want to make sure we’re not ceding our sovereignty or our rights in investment disputes to other governments. And there’s a process that has worked and been in place for years, and we don’t want that to be modified. With e-commerce there are new challenges for data and data security. We want to make sure that there is free flow of data across the borders of countries and that no country is able to impose restrictions on the free flow of that data. We want to see a positive resolution for America’s manufacturers on this before we agree to support this bill.

Q: You’ve been outspoken about the need to reinstate the Export-Import bank.

A: The Ex-IM bank is critical for America’s competitive edge. We’re competing against 60 other countries with export credit financing agencies, yet we’re willing to unilaterally disarm ourselves economically. That program has been around for 70 years, it’s providing returns to the U.S. Treasury. It’s the only government program that provides a profit to the US treasury. Why would we let go of the ability to level the playing field? That makes no sense.

Q: What should manufacturers be doing to address the skills gap?

A: It’s always one of the top three concerns I hear from CEOs around the country. America’s manufacturing workforce is aging--anecdotally it’s somewhere between 48 and 52 years old depending on the company. That presents a couple of challenges. One challenge is that as employees have been in similar jobs for decades, technology is changing rapidly. We want to make sure they have the right training and resources to learn new skills.

The other obvious challenge is they’re going to start retiring. So getting Millennials and the next generation into the manufacturing workforce is a pretty big challenge. It’s not something we’ve been particularly good at, but it’s something we’re working on. We’ve developed a tool kit of best practices for our manufacturing members, and that was done through a subset of our board members. And we’re working on a perception campaign to let young people know what modern manufacturing is all about. Manufacturing offers all these opportunities that people haven’t really wrapped their heads around, and our job is to get more people exposed to them. We’ve done a little bit through our Manufacturing Days, the first Friday in October. We opened over 600 plants across the country last year. I believe 300,000 students participated. We’ve got to keep coming back and reminding them what great opportunities exist out there.

About the Author

Laura Putre | Senior Editor, IndustryWeek

I work with IndustryWeek's contributors and report on leadership and the automotive industry as they relate to manufacturing. Got a story idea? Reach out to me at [email protected]


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