Heard Off the Street: Report optimistic on comeback of manufacturing in economy

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A new report offers the prospect that minor changes to tax, trade, currency and other policies will restore manufacturing to a more prominent place in the U.S. economy.

The report, "The Manufacturing Resurgence: What It Could Mean for the U.S. Economy," was issued last week by the Manufacturers Alliance for Productivity and Innovation and the Aspen Institute. But it was greeted with skepticism by some manufacturing experts. They said that although the goal is commendable, reaching it will be much more difficult than the report indicates.

The Manufacturers Alliance, an industry research group, and the Aspen Institute used economic forecasting tools developed by the University of Maryland to determine what would happen if certain U.S. policies were changed. The revisions include combatting China and other countries that boost exports by manipulating currencies, encouraging U.S. production of natural gas and other energy sources, lowering the corporate income tax rate to 25 percent, negotiating trade agreements that would open overseas markets to U.S. goods, trimming regulations, educating and training workers, and encouraging research and development.

None of the policy changes "mark a radical departure from current policy trajectories," the report states.

But what a difference they would make.

According to the report, manufacturing would account for 15.8 percent of the U.S. economy by 2025, a level not seen since 1998, before the dot.com bubble and Great Recession slammed the economy. Manufacturing currently accounts for 11.6 percent of the U.S. economy.

Moreover, the report says the policy changes would generate $1.5 trillion in additional manufacturing output, create 3.7 million manufacturing jobs, and result in a projected trade surplus of about $700 billion by 2025.

The 2012 U.S. trade deficit of $540.4 billion is one way to put that achievement in perspective. Here's another:

Between now and 2025, U.S. iron and steel exports would grow an average of 6.6 percent annually if the policies were revised while imports of the same products would only grow 1.5 percent. Last year, U.S. steel exports increased 2.2 percent to 13.7 million tons while imports rose 16.9 percent to 33.3 million tons, according to the American Institute for International Steel, an industry group that supports free trade.

As enchanting as that reversal and other developments envisioned by the report are, "we're just not in an environment where a lot of these things [policy changes] are going to happen," said Patrick Van den Bossche, a partner with global consulting firm A.T. Kearney.

Mr. Van den Bossche said one of the biggest uncertainties is whether U.S. manufacturers will be able to find skilled workers to fill the 3.7 million new manufacturing jobs. Moreover, there's the question of replacing production workers who retire between now and 2025, an estimated 6 million people, according to Mr. Van den Bossche.

"You just can't put bodies in manufacturing," he said. "Those people have to be skilled and increasingly so."

Training them -- and training teachers who can prepare them -- will take time, he added.

The assumption that the U.S. will be able to deal with China and other currency manipulators is one aspect of the report that raised the eyebrows of Alan Tonelson of the U.S. Business and Industry Council. The group represents about 2,000 small- and medium-sized manufacturers.

He questioned whether countries would sit on their hands if the United States adopted policies that were more manufacturing friendly.

"We're talking about governments that have spent decades working overtime to promote manufacturing," Mr. Tonelson said. "Most of this country's trade competitors or partners are much more protectionist than the United States is."

He believes one of the policy changes called for -- negotiating more trade agreements like the Trans-Pacific Partnership currently under discussion by the United States and 10 other nations -- would actually hurt U.S. manufacturers. He said previous trade agreements that were predicted to improve the U.S. trade balance did the exact opposite.

The report comes as economists, analysts, manufacturers and others debate whether recent developments, including bountiful natural gas supplies and the decisions of some U.S. companies to bring jobs they sent overseas back to the United States, foreshadow a U.S. manufacturing renaissance. The report cites some of that evidence, including significant exports BMW and Michelin are making from their South Carolina plants.

Despite their misgivings, Mr. Tonelson and Mr. Van den Bossche say the report serves a useful purpose: shedding light on the need to cultivate a vital segment of the U.S. economy.

Mr. Tonelson said President Barack Obama has cited the importance of manufacturing more than any other president in recent history, even though he finds the administration's "actual policy less impressive."

"If we want the United States to be a high-tech country, this will be almost impossible to achieve without a strong, huge manufacturing sector," he said.

Adds Mr. Van den Bossche: "An economy built on services isn't going to go very far."

bizopinion

Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.


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