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June 2016

How to Revitalize U.S. Manufacturing

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How to Revitalize U.S. Manufacturing Nine policies that could spark new growth in factory jobs and the economic benefits they bring By Bob Tita June 7, 2016 10:05 p.m. ET   After a long decline, manufacturing is returning to the U.S. Now it may be time for U.S. policy makers to give it an extra boost.   The U.S. shed 5.7 million manufacturing jobs from 2000 to 2010—more than a third of the manufacturing workforce—as companies abandoned plants and workers in favor of low-cost foreign countries. But in recent years, manufacturing employment has grown slightly as the auto industry rebounded and domestic plants became more cost-competitive with those of other countries where manufacturing expenses have escalated because of higher wages.   Now researchers, politicians and business leaders are coming forward with strategies to accelerate job gains and investment in manufacturing. Their ideas range from pruning regulations that raise the cost and effort of running a manufacturing operation to imposing a value-added tax on imports to beefing up training programs so companies have an easier time finding skilled workers.   Reviving the manufacturing sector won’t be easy—but, these advocates argue, it’s crucial. Manufacturing is one of the best generators of wealth for an economy, requiring processes, materials and work skills that create employment and profits at each step in an assembly. Countries that don’t make anything eventually start to lose their edge in research and product development.   “Manufacturing and design drive each other,” says Steven Schmid, an aerospace and mechanical engineering professor at the University of Notre Dame. “If you lose one, you’ll lose the other, too.”   The U.S.’s reliance on foreign-made goods provides a conduit for trillions of dollars to leave the country. The U.S. trade deficit—the difference between what is imported and what the U.S. exports—amounted to $500 billion, or about 3% of total U.S. GDP last year.   That money is used by foreign investors to purchase assets in the U.S., such as real estate or stocks, or to lend to Americans who are increasingly willing to become debt-saddled consumers. Left unchecked, the trade deficit will continue to soak up the country’s wealth and manufacturing know-how, with little more than IOUs to show for it.   Here’s a look at some of the proposed strategies for getting U.S. manufacturing back on track. Make exports more valuable   Under a plan promoted by investor Warren Buffett, companies that export goods from the U.S. would accumulate certificates equal to the value of their exports. But companies that wanted to import goods would have to purchase certificates from exporters.   The certificates, the thinking goes, would create two desired reactions. U.S. exporters, with a cash cushion from the sale of their certificates, could offer U.S.-made goods to foreign customers at lower prices, making them more competitive and shrinking the trade deficit over time. Meanwhile, foreign-made items imported into the U.S. would become more expensive to reflect the cost of import certificates, making U.S.-made goods more cost competitive with cheap imports.   As exports increase, though, more certificates would flow into the market, and their cost for importers would fall. The price could eventually slip to zero if a trade surplus was achieved.   The appeal of this approach: It’s a more decisive way to knock down the trade deficit than waiting for U.S. exports to become more desirable over time, perhaps from a weaker dollar. And unlike standard tariffs, which typically penalize a specific product from a particular country, the certificates provide a direct and immediate benefit to U.S. companies that export.   The downside, initially at least, is that Americans would face higher prices for imported consumer items. So, the plan would likely be a tough sell in Washington. Impose a value-added tax   A similar idea for lowering the trade deficit is imposing a value-added tax. The tax, which is used by more than 130 countries, is applied to each step along a production chain as a product or material increases in value or is consumed. How does this help domestic... Read More

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