Is U.S. Manufacturing Making a Comeback?

June 5, 2014

According to a report in the Wall Street Journal, manufacturing may be making a comeback, at least according to some economists. But skeptics are not so sure. Without changes in government policy, they say, the U.S. is unlikely to see any real change in the state of manufacturing.

Who is right?

Optimists say that U.S. costs are becoming more competitive, with China's overall manufacturing cost advantage dropping to just 4 percent. Once one accounts for shipping and inventory costs, it can make more sense to make certain products in the U.S. rather than in China.

  • However, skeptics note that costs are not the only part of the manufacturing equation. U.S. manufacturers are having trouble finding skilled workers, and American students have lagged behind their international peers in math and science.
  • Supply availability is another issue. China has a great many suppliers making small electronic motors and parts, for example, and it would be years before the U.S. could establish similar supply chains domestically.

According to optimists, companies want to produce near their customers, because it reduces shipping time and makes it easier to respond to changes in demand.

  • But skeptics note that Asian, Latin American and African economies are growing quickly, and companies see them as providing the best long-term growth opportunities.
  • In 2011, American multinational manufacturers did 68 percent more capital spending overseas than they did a decade earlier. Capital spending in the U.S. dropped 2 percent over the same time period.

The political climate for manufacturing in the U.S. has improved, according to optimists, with union power declining and state and local governments competing for investments.

  • However, the 35 percent federal corporate tax rate in the U.S. is the highest of major industrial nations. American tax rules further incentivize companies to keep money overseas, rather than invest it domestically.
  • Many companies are also uncertain about the direction of laws and regulations in the U.S., from taxes to health care costs to infrastructure repairs.

Additionally, some foreign companies, from BMW to Lenovo to Michelin, have begun producing and expanding in the U.S. However, skeptics point to a corresponding flow of U.S. jobs overseas, poor trade figures and the fact that there are 70,000 fewer manufacturing plants in the U.S. today than in 1998.

Source: James R. Hagerty, "Why U.S. Manufacturing Is Poised for a Comeback (Maybe)," The Wall Street Journal, June 1, 2014.

 

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