The National Association of Manufacturers (NAM) represents the folks who invest money, employ workers, and take risks to make things in America. One of the many things that NAM does to promote the cause of domestic manufacturing is to regularly analyze the comparative costs of manufacturing in the U.S. versus the nine nations that are our strongest trading partners. The index NAM uses measures what is known as the trade-weighted average structural cost burden, which compares factors such as labor, energy, taxation, government-imposed regulations, and litigation costs, to name some of the elements.
Before addressing the cost trends, I think it is important to note why, particularly at this juncture, manufacturing is so important. In most recessions, it is the housing industry that leads the nation to recovery. In the current economic downturn, that is certainly not happening. A strong case can be made that housing is keeping us in the economic doldrums due to underwater mortgages and depressed real estate values. The industry that is doing more than any other to bring us out of this recession has been manufacturing, with its wage and benefit levels that are higher than most other industry sectors. Manufacturing jobs simply add more to the economy than retail jobs and most service sector ones.
Another important factor to keep in mind is the large balance of trade deficit that the U.S. continues to have with many of its international trading partners. What we don’t make in America, we import from somewhere else. When we import more than we export, it costs us jobs and creates them elsewhere.
The U.S. definitely needs a strong revival in domestic manufacturing. It would create millions of high paying jobs, diminish our trade deficit, and not place us at the mercy of foreign providers of critical technology and equipment. That is why the NAM cost study should be reviewed and acted upon.
The study shows that, since 2008 when the measurements were last done, structural manufacturing costs went from being 17.6 percent higher than our nine top trading partners to 20 percent. That is not a good trend.
There has been much talk in Washington recently about the tax code (“talk” may be too kind of a word for the shrill diatribe emanating from the Potomac). Whatever Congress and President Obama end up doing (if anything) about changing the tax code, they should first note that 52 percent of the imbalance in manufacturing costs between the U.S. and its trading partners comes from our corporate tax structure—52 percent! That is a factor begging for correction. Another 33 percent of the imbalance comes from employee wages and benefits and regulatory costs.
Since manufacturers are competing with other domestic industries for highly skilled workers, there is little likelihood that wage and benefit costs will drop below those of our foreign competition. Manufacturers that are primarily interested in lower labor costs have either left the U.S. or may do so in the future. In order to retain the good paying manufacturing jobs we have and to grow more of them in the future, the NAM study clearly indicates that government-imposed costs—namely high tax rates and costly regulatory polices—must be reduced.
Manufacturing jobs are worth fighting for. Our manufacturers can compete with any of their foreign competitors if they are given even a remotely level playing field. They don’t have it right now due to government-imposed cost imbalances. If we want to get back to being a nation that makes things instead of one that simply imports most of its manufactured goods, those imbalances must be corrected. The NAM study provides a good blueprint for how to do it.