Manufacturing Resurgence in US Possible with 'Modest' Policy Shifts

March 26, 2013
Roadmap envisions increase of 3.7 million manufacturing jobs, trade surplus of $700 billion by 2025.

There is ample potential for U.S. manufacturing to undergo a resurgence that by 2025 would lead to significantly more good paying manufacturing jobs, increase GDP growth and help create the first surplus in the nation’s goods and services balance of trade since 1975, according to a new econometric forecast model released today by the Aspen Institute and the Manufacturers Alliance for Productivity and Innovation (MAPI).

“The robust results presented in the study are achievable with only modest acceleration of current trends, and none of the policy recommendations mark a radical departure from current policy trajectories,” said Thomas J. Duesterberg, executive director of the Aspen Institute’s Manufacturing and Society program and the reports’ author. “But they require a willingness to change in a disciplined way.”

Stephen Gold, MAPI president and CEO, concurred: “With no changes in public policy the manufacturing base will continue to shrink as a share of GDP as it has for the past decade. With just a few policy shifts, however, manufacturing in America can experience a resurgence that will ensure new innovation, increased productivity, more jobs, and a rise in living standards on our shores.”

Under the study’s “manufacturing resurgence” scenario, manufacturing’s share of U.S. GDP would grow from the current 11.6% to 15.8% in 2025, a proportion not seen since 1998. That compares with 11.1% of GDP in 2025 using a baseline forecast where policy changes are not implemented.

U.S. GDP would increase by $1.5 trillion in 2025 according to the model, with most of the increase coming from manufacturing, compared to a “business as usual” scenario.

Manufacturing employment would grow by 307,000 a year under the resurgence scenario, totaling 3.7 million additional workers by 2025. That compares to a baseline projection where U.S. manufacturing would add just 23,000 workers annually.

The balance of trade in goods and services would dramatically shift from the current deficit of $500 billion to a surplus of approximately $700 billion, including nearly $200 billion in manufactured goods. Under the baseline scenario, the country’s balance of trade would continue to run deficits.

Capital investment in equipment and software, one driver of innovation and productivity growth, would increase by 12.1 % by 2025, relative to the baseline.

Increases in U.S. exports and a slowing in the growth of imports would account for more than half the gains in the manufacturing resurgence, Duesterberg told a press conference today. “Manufacturing exports grow at an 8.1% annual rate. This is only slightly higher than the 7.8% growth that we achieved since 2009. And I remind you that this was in a slow-growing world economy,” he said. Imports would continue to grow but at a 2.5% annual rate, compared to 4.2% in the baseline scenario.

Duesterberg said export growth is based on the assumption that growth in the world economy would improve. The report also forecasts that the U.S. dollar will weaken against most trading partners, declining by 15% in coming years. Other factors expected to help the trade balance include high productivity growth, technological leadership and the attractiveness of the U.S. as a destination for foreign direct investment.

The Aspen/MAPI report calls for more aggressive pursuit of free trade agreements, including the Transpacific Partnership with Asian nations and the Transatlantic Trade and Investment Partnership with the European Union.

“Some effective action is also needed to address the worrisome ‘competitive currency devaluation’ that can have material impact on trade flows,” the report states. If currency issues cannot be dealt with through the G-20, the report urges, then action should be taken through WTO and IMF actions to label nations as currency manipulators.

Actions to Control Costs, Improve Labor Force

The Aspen Institute and MAPI also recommend a wide variety of other actions designed to bolster the manufacturing sector in the next decade, including:

Energy: The report calls for a “do no harm” approach to energy policy that allows the U.S. to capitalize on the boom in domestic oil and natural gas production. It urges faster approval of drilling permits on federal lands, investments in the smart grid to help the wind and solar industries, and support of energy conservation efforts.

Labor Force: At the press conference, Ron Bullock, chairman of the Bison Gear Corp. and chairman of the Manufacturing Institute, noted that the nation will need to replace 4 million baby boomers retiring from manufacturing over the next 10 to 15 years plus the 3.7 million workers that would be added to manufacturing payrolls under the resurgence scenario. The report calls for education and training efforts including adding more apprenticeships and vocational programs, developing skills certification programs such as the NAM-endorsed Skills Certification System and reforming immigration policies to facilitate permanent visas and citizenship for skilled workers, especially scientists and engineers with degrees from U.S. colleges.

Regulations: The report notes that “regulatory forbearance is fraught with controversy,” but advocates efforts to slow the pace of new regulations while looking for ways to reduce overlapping and duplicative regulations. It said trade agreements negotiations offered one avenue for producing harmonized testing and standards so that manufacturers only have to produce one version of a product.

Taxes: The report calls for a corporate tax rate in line with the OECD average of about 25%. Lowering the U.S. rate would “help to liberate capital locked away in foreign locations, eliminate the incentive to reincorporate in low-tax havens, and reduce wasteful expenditures on tax arbitrage schemes.” It recommends making the research & experimentation tax credit permanent and cautions policymakers to consider the impact of tax changes on small and medium firms which are pass-through entities and have already been affected by the increase in personal tax rates.

The economic model and expert advice used for the projections were provided by the University of Maryland’s Interindustry Forecasting Project (Inforum). Inforum was commissioned to make projections based on a target of moving manufacturing’s share of GDP back to the level last seen in 1998 (approximately 15%), before the “dot-com” recession and the “Great Recession.”

“At a minimum, this forecasting exercise ought to lend some hope that we can indeed look ahead to a manufacturing resurgence and the sustainable economic gains that it brings, if we choose to follow this path,” Duesterberg concluded.

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