The manufacturing industry in the US has been declining over the past few decades due to a number of factors which has seen investors put their resources elsewhere. The decline has been attributed to a number of factors which include the high corporate tax rates, the high cost of operation within the economy as well as the low investment in the labor skills. Other factors as well have seen the economy lose the global competitiveness especially in the manufacturing industry, which is no longer a dream, unlike years to come. All these elements pose the question, Is Manufacturing in the U.S. worth it? The research paper seeks to evaluate the viability of the manufacturing industry within the United States and its potential for competing against other economies which are performing well in the global market.
Among the factors which have contributed to the collapse of the manufacturing sector in the US as well as the challenges facing the existing firms is the sustainability of the cost of manufacturing in the long run. It is common knowledge that the economies which are performing well in the manufacturing field in the global market have cheap reliable labor that supports the labor-intensive industries such as shoemaking and textile industries. The cheap labor has helped to cut down the cost of production. Countries such as China and face economic and political challenges have a cost advantage over the USA due to cheap labor, and thus the cost of production is greatly subsidized and gained favor over the US (Powell et al. 3395). The wages for a worker in China are bound to increase from 15% to 20% have made manufacturing more attractive, unlike the US which has a limited labor force in the corporate sector.
For instance, a company such as Chrysler which is an automaker, it decided to cut the wages, which would minimize the labor costs and cost of production in general so as to remain competitive and sustain the manufacturing costs which were higher than the competitors. Such stringent measures enabled the company to sustain its operations in the economy without necessarily decreasing the quality of their end product. On the same note, manufacturing companies should have a close proximity to the facilities of higher learning, which helps to improve the knowledge transfer in the firm’s staff line (Tate et al 381). The establishment of such facilities helps the country to increase the competitive advantage of the company through the involvement of the institutions of higher learning as well as the research and development.
Credit to high profile companies such as Apple and General Electric, they have moved their foreign production departments to the United States which have led to pundits, policymakers and other firms to believe that the manufacturing woes in the country are over. The publicity of the manufacturing industries in the United States has led to most people believing that America is now the most competitive country globally. The narrative is however not the case. As of December 2015, the number of manufacturing jobs in the US was 11% fewer than in 2007 (Shapiro and Reed 12). Despite the high-profile cases of companies moving their production to the United States, the statistics reveal that the manufacturing establishment was 15, 000 less than the value in 2007 (Powell et al. 3396). In addition, the inflation-adjusted value in the US manufacturing has remained below the values at 207 while the GDP has increased by 5.6 %. A closer examination of the situation makes it even more critical. The real value added for non-durable goods is below the levels in 2007 by a margin of 11.5%, including the petroleum refining industries and chemical processing industries which have been thriving because of the natural gas boom.
The national data has revealed that the increase in the ratio of reshored jobs to the offshored jobs has not actualized. Currently, there are about 30, 000 to 40, 000manufacturing jobs which have been reshored while there are 30, 000 to 50, 000 jobs which are offshored each year. There are arguments that the manufacturing industry in the nation is at a decline due to the Great Recession which greatly affected the sector. To be sure of the recovery process of the manufacturing industries, there are about 520, 000 jobs which have been expanded the real value-added growth by 2.4 % (Tate et al 384). Most of this growth represents the cyclical recovery from the impacts of the Great Recession. Industries and firms have continued to suffer losses in demand while some are recovering optimally.
The durable goods such as motor vehicle, the transportation equipment as well as the fabricated metals have been performing well and account for 72% of the manufacturing job growth since the recession period. The main causes of the failing manufacturing industry in the US and the increased hype is the increased global shipping costs have increased the cost of outsourcing. In addition, the labor cost differentials have narrowed in other nations such as China, whose productivity is growing at a significantly higher pace than the US. The low cost of energy also contributes greatly to the overall production since manufacturing is the biggest consumer of energy in the country (Powell et al. 3399). While the low costs of energy are less than 5% of the total costs in the manufacturing industries. Therefore, this has made the cost of production for the manufacturing industries modest. The low cost of energy was thought to bring down the cost of manufacturing but the drop in the manufacturing industries costs as measured according to the value added were not significant.
Arguments for supporting manufacturing in the US
With the perceived decline in the manufacturing industry within the United States, there several factors which have influenced the situation and may determine the future trends within the sector of the economy. As highlighted by the World Bank in 2010, the U.S. remains to be the second largest leader in industrial output in the world with an approximate output of $1.7 trillion dollars. The figures have continued to increase however and have hit $1.73 billion by 2011 and 1.87 billion by 2012 (Shapiro and Reed 14). Most of the citizens have continued to believe that a strong manufacturing industry is critical to the economic success of the nation and that the competitiveness of the global manufacturing market is going to reach its optimum points very soon.
The citizens, who are either the investors or offer skilled and unskilled labor in the nation have become more disenfranchised with the federal as they believe that the economy is either unable to control the current state or is unwilling to improve the manufacturing situation (Ho, Glen and Seonsu 296). In a report prepared by Deloitte 2012, it indicates that, “Results from our fourth annual survey reveal that manufacturing is once again viewed as the most important industry for maintaining a strong national economy, with 90 percent of respondents rating it as "important" or "very important" for America’s economic prosperity and standard of living” (Deloitte 3).
The largest manufacturing within the United States includes industries in steel, petroleum, telecom equipment as well as automobiles. The US has been leading in the world in terms of Airplane manufacturing with organizations such as Lockheed Martin and Boeing having their manufacturing companies situated in Fort Worth, Texas and South Carolina respectively. The assembling of planes industry as well as the steel, petroleum industries have created several jobs to the vast population, thus have a large significance to U.S. economy, which will go a long way towards improving the manufacturing sector as well.
Case for both
One of the major factors which have led to the decline of the manufacturing industry within the US is outsourcing. A company that manufactures some products within the US may benefit from having a low cost of production for its goods, even though it means producing goods in places such as China or India. However, for the manufacturing industry in America, this has become an increasingly difficult issue for the firms (Glass, Karligash and Robin, 155). In a poll that was conducted by Deloitte in 2012, it indicated that the main threat that faces the American firms is outsourcing, with 80% of the population in the poll believing that the US manufacturing jobs need to be outsourced first or moved to the other nations.
Because China has become part of the World Trade Organization, there is a profound impact that is developed in the manufacturing industry in the American economy. In an excerpt from the US News and World Report in China’s Impact in the World Trade Organization, “Between 2001 and 2013, the expanded trade deficit with China cost the U.S. 3.2 million jobs, and three-quarters of those jobs were in manufacturing... Those manufacturing jobs lost accounted for about two-thirds of all jobs lost within the industry over the 2001 to 2013 period.” (Peralta 1)
Outsourcing labor and manufacturing to China would be very effective due to a number of reasons. With the currency manipulation of China, outsourcing would facilitate a boon from their individual exports. There are however many restrictive labor rights in China which permit the employees to work in inhumane hours, in harsh conditions and at very low wages which is more cost efficient to the U.S companies. Notably, it is more expensive to produce products in the US than it would be to produce the same goods in China then ship them to the US (Tate et al 388). Manufacturing is outsourced in other nations such as Pakistan or India where there is cheap labor and the unions are not close to restriction as the situation is witnessed in the US.
With this perspective in mind, the clothing sector in the US has seen companies combat this challenge by outsourcing and improving the stability as seen in manufacturing in America. Firms such as Brooks Brothers and Apparel have taken up to themselves to ensure that the manufacturing of clothing articles will only take place in the United States (Ho, Glen and Seonsu 298). The perception has resonated with the American consumer focusing to keep the manufacturing only within the American borders (Glass, Karligash and Robin, 155). Maintaining manufacturing as a major industry in the United States would be pivotal to the US economy and companies would implement the trademark “Made in America” and initiating other strategies that seek to ensure that they are making strides with this focus.
Why manufacturing will prosper in the US.
The question on reviving manufacturing in the US is a valid one. What is the importance of devoting resources and energy to generate solutions for reviving manufacturing within the US? At this instance, diverting the interests of the manufacturing industry elsewhere would not be in the best interests of the economy as it would affect even the prosperity of the nation. For each $1.00 that is used in the manufacturing of products in the US, there is an addition of $1.40 to the economy, which is the highest multiplier effect in any economy (Tate et al 395). This can be explained on the basis that manufacturing in the economy promotes research and development, thus innovation is at its highest. Moreover, the research and development in the US have immense benefits both to the economy and the citizens at large. Some of the areas in research and Development that the manufacturing sector in the US should focus on include nanomanufacturing, hydrogen energy technology as well as the integrated and intelligent manufacturing. The elements would facilitate growth in the economy as well as help the economy maintain its current stance in the world as a superpower and it will also eliminate complacency as the economy strives to utilize the new opportunities.
In order for America to improve the manufacturing sector in the economy, it must keep in mind that maintaining a stable industry will improve the domestic jobs and keep up with other global competitors such as China. An established manufacturing industry, for instance, China has positioned its industry and perform in the future markets such as for the domestic cars, green energy as well as mobile devices (Ho, Glen and Seonsu 299). With time, the investment pays off and the nation will reap off from the prework they have invested ahead of the other industrial sectors.
Towards the end of the Great Recession in the US, companies were destabilized and the impact spread to the housing department in 2008, where the sector outsourced most of the manufacturing jobs from the other nations. It is in the recent past where we have seen the drawbacks of the practice, which has hidden the downsides such as lack of intellectual property protection as necessary for the manufacturing processes and quality control (Shapiro and Reed 16). The long supply chains are an indication that the exposure to wars, earthquakes, tsunamis and other unpredictable disruptions will shake up the whole sector. The main advantage of having the “Made in the USA” trademark is that the company products eliminate the logistical supply chain cost. One finds companies such as Nissan and BMW have established their plants in Tennessee and South Carolina rather than just shipping cars from Japan and Germany respectively to meet the growing demand of their products in the US (Powell et al. 3399). The companies are able to meet the needs of the consumers in a fast and easier way in case one feels that the production of those goods is nearby.
The main aspect in reviving the manufacturing sector in the US as well as bringing the jobs in the US is policymaking. At the moment, the vision of the manufacturers sets on an array of profitable opportunities across the world. Other competitors such as India and China offer better opportunities thus the US has to find its space to fit in its gap (Glass, Karligash and Robin, 155). The manufacturing sector needs to review and change some of the policies in order to lure manufacturers as well as nurture the available players in the industry. Some of the policies that would help the prosperity of the manufacturing sector in the US after being amended are highlighted below:
Policy: Promoting a universal tax climate that will allow the manufacturers to remain competitive in the market.
Reason: A tax policy should consider the high tax burden that affects the competitive abilities of the firms.
Policy: Advanced research and development of energy efficient sources for production.
Reason: Since manufacturing accounts for one-third of the energy that is consumed in the national grid, a dynamic economy requires an affordable and dependable supply of energy.
Policy: Invest and develop in the infrastructure of the US to facilitate the manufacturers to move in their products and personnel efficiently
Reason: Improving the competitiveness of the US will strengthen the economy as well as improve the capital potential.
Conclusion
The faith of putting faith under the current circumstances in the revival of the US manufacturing industries is risky as the US needs to initiate various strategies which will help to fix the issues. The lowering of the corporate tax, which is high especially in multinationals and the manufacturing industries in the developed nations will help to improve the situation. Moreover, the reduction of the statutory rate and expansion of the key initiatives such as Research and development will play a key part in achieving the global production levels that will see the country regain its health. The formulation of policies to improve the prevailing market challenges will help to sensitize growth and revitalize the capital-output. Competing nations such as India, Japan, and China have also utilized the approach of ensuring proximity to factors of production so as to reduce the cost of production. An indicator of the growth in the manufacturing industry in the US would be the expansion in the number of jobs and the real value growth in the economy. The growth should indicate cyclical recovery from the impacts of the Great Recession, thus there are still chances that the manufacturing sector may recover at some point.
The firms should seek to address the global shipping costs as well as labor costs differentials that make the difference against the competitors such as China. The low cost of energy gives the manufacturing industry a clean bill of health as it can seek other strategies of minimizing its costs and maximizing revenue. The United States was once a global leader in industry and manufacturing but has been experiencing a significant decline over the last four decades. Since the start of the 1970s, the increase with the construction, financial as well as real estate industries have had a hit and are no longer the driving force in the economy as it once had been. The rate of decline has been 3.2 million jobs lost or one out of 6 manufacturing jobs being eliminated since the beginning of the year 2000.
Work cited
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Powell, Douglas M., et al. "The capital intensity of photovoltaics manufacturing: a barrier to scale and opportunity for innovation." Energy " Environmental Science 8.12 (2015): 3395-3408.
Shapiro, Joseph S., and Reed Walker. Why is pollution from US manufacturing declining? The roles of trade, regulation, productivity, and preferences. No. w20879. National Bureau of Economic Research, 2015.
Tate, Wendy L., et al. "Global competitive conditions driving the manufacturing location decision." Business Horizons 57.3 (2014): 381-390.
