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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 24, 2011 at 9:40 AM

U.S. manufacturing at the turning point

We know a few things about manufacturing: It produces more high-wage jobs than most service sectors; its suffered since NAFTA and China’s entry into the World Trade Organization, with tens of thousands of American factories closing and sectors such as textiles being decimated, and yet until recently manufacturing had been a bright spot in what passes for recovery. We know it’s critical to the Seattle-area economy, and not just with Boeing. Then there are things we think we know, such as manufacturing here faces an inevitable decline because of a surplus of cheap labor and unfair trade practices overseas.

Still, a recent report from the consulting firm Booz & Co. and the University of Michigan’s Tauber Institute for Global Operations says that American manufacturing is both stronger than generally thought, and yet at a critical crossroads that will determine its future.

“As labor costs and currency rates play a smaller part in manufacturing decisions, there is an opportunity for U.S. business leaders and policymakers to rise to the challenge and create conditions that support manufacturing,” said Arvind Kaushal, Booz & Co. partner. “The potential for a rebound is there, but only if the right actions are taken.” The report identified sectors where the U.S. is a global leader, including aerospace, semiconductors, medical equipment and machinery. Then the ones on the edge: Paper, plastics, electrical equipment and components, computer equipment, fabricated metal products, pharmaceuticals, printing, and some auto equipment companies, all “besieged by low-cost overseas competitors. They could become global competitors themselves or see their operations displaced to other countries.”

The report recommends four broad areas of focus to encourage a manufacturing revival:

  1. Think and grow regionally. The U.S. needs to build a better future with Mexico, shifting less-demanding, labor-intensive processes to that country while helping to build a safer consumer economy there and retaining highly skilled work in the U.S.
  2. Develop and attract skilled talent. The U.S. needs more robust manufacturing education programs, immigration reform, and promoting the attractiveness of manufacturing careers.
  3. Foster high-impact clusters. The public and private sectors can build geographical concentrations of suppliers, service providers and academic institutions, reinforced by investments in infrastructure.
  4. Simplify and streamline the tax and regulatory structure. The official U.S. statutory corporate tax rate stands at 39 percent. Closing the gap between statutory and effective rates (typically 28 percent) would be a revenue-neutral way to put U.S. manufacturing on a level global playing field.

You can download the entire report here.

Friday poll results: They’re pretty overwhelming: 85 percent of respondents want to bring back Glass-Steagall to control the big banks, and more than 70 percent are moving their money to a credit union or a small bank.

And Don’t Miss: Are small businesses really key to recovery? || NY Times

Today’s Econ Haiku:

Money market funds

Safe and unregulated

And I’m very thin

Comments | More in Manufacturing

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