The Impact of Federal Regulations on U.S. Manufacturing

October 8, 2012

From providing goods to creating countless jobs, the manufacturing sector has always been the engine of economic growth in the United States. Despite the downward trend that the manufacturing sector has experienced in the last 50 years, it has been the one bright spot in an otherwise sluggish growth period for the economy, says Thomas A. Hemphill, an associate professor of strategy, innovation and public policy in the School of Management, University of Michigan-Flint.

  • The U.S. manufacturing sector has slowly decreased its share of the gross domestic product (GDP) from 27 percent in 1957 to 12.2 percent in 2011.
  • However, through July 2012, factory output rose 21.9 percent from its recession low in June 2009.
  • Furthermore, it is just 1.7 percent below the prerecession peak for factory output that was reached in April 2007.

The most surprising fact about the manufacturing sector's comeback is that it has been in the face of onerous federal regulations. The Manufacturers Alliance for Productivity and Innovation (MAPI) released a study in 2012 to examine the impact of federal regulations on the manufacturing sector. They find:

  • Since 1998, the costs of regulations have exceeded manufacturing growth by an annualized rate of 7.6 percent.
  • In 2010, the cost of major regulations could reduce the value of shipments from U.S. manufacturers by $500 billion and manufacturing exports by 17 percent.
  • The U.S. GDP loss attributable to the regulations ranges from $240 billion to $630 billion.
  • Moreover, the average U.S. household's purchasing power decreased between $1,800 and $5,000.
  • The Obama administration has instituted 106 new major regulations, costing Americans nearly $46 billion.

It should be noted that the study doesn't take into account non-major regulations (those that cost less than $100 million), however the aggregate cost are on par with the cost of major regulations. The MAPI study recommends three actions the government can take to sustain the manufacturing sector:

  • First, revisit and revise existing regulations.
  • Second, slow the rate of new regulations.
  • Finally, ensure new regulations mesh with old regulations rather than be duplicative.

Source: Thomas A. Hemphill, "The Impact of Federal Regulations on U.S. Manufacturing," American Action Forum, September 24, 2012.

 

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