U.S. Needs to Return to Its Manufacturing Base

One of the biggest challenges facing the American economy is that we lack a domestic manufacturing base. Simply put we do not produce anything anymore. We buy tons of foreign goods and then wonder why we are lacking jobs. We import most of our goods which has resulted in a huge trade deficit and industrial job losses. Our economy has transitioned from an agricultural society to an industrial society to a service economy. The problem with being a service economy is that services are the first thing that consumers eliminate during difficult times. We need to become more of a mixed economy that combines industrial production with service.

In 2006 Warren Buffett said, “The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil… Right now, the rest of the world owns $3 trillion more of us than we own of them.” The US trade deficit severely hinders US economic growth. As Buffett puts it, “Our country’s net worth is now being transferred abroad at an alarming rate.”

Most of our electronics are developed by foreign companies. Philips (PHG), Toshiba (TOSBF.PK), Sony (SNE), Hitachi (HIT), Samsung (SSNKF.PK) and Sharp (SHCAY.PK) dominate the US market in terms of television sales. Who owns a Zenith anymore? Are Magnavox and RCA American companies? No, they were sold off to foreign companies that use the American brand names.

Popular electronics items like the iPod (AAPL) are mostly manufactured overseas and then sold in the US. We are also losing more of the US automobile market. Toyota (TM) just surpassed General Motors GM) to become number 1 in global sales. Even clothing and apparel sales in the US are dominated by foreign countries. Over 90 percent of clothing and shoes sold in the United States are made in foreign countries.

We need a multifaceted approach to address these problems:

(1) We need to increase the tariffs on foreign goods so that they are more expensive than domestic goods. Increased tariffs would only apply to countries in which we have a massive trade imbalance such as China. According to the Economic Policy Institute, the US has lost more than 2 million jobs since China joined the World Trade Organization. China illegally subsidizes a large number of their exports to the US so that their products will be cheaper than US products. The US has the largest trade imbalance with China. China exports 5 times as many US goods as it imports.

(2) We need to demand the same level of quality in all foreign goods as American goods or reduce the standards for American companies. China consistently imports unsafe items to America such as toys, pet food, toothpaste and other consumer products. US companies suffer from much heavier product regulations than Chinese manufacturers do. Either make all regulations uniform or allow US companies the same lax regulations that foreign countries enjoy.

(3) We need foreign countries to stop manipulating their currencies. China is the best example of this. China has historically devalued its currency so that its exports are cheaper than other countries. Even during this global economic crisis, China continues to devalue its currency at a time when America needs the yuan to strengthen. Consumers gain from lower prices in the short run but the US economy and US companies suffer the most in the long run. People don’t understand that by buying cheaper foreign goods today, you eliminate US jobs and decrease wages over time.

Other factors persist such as concessions from industrial unions. Employers need to pay a fair and liveable wage to unions but do need to get union workers to agree to some cost cutting measures.

Without a return to its manufacturing base the United States will struggle to attain any viable long term economic growth.

Photo by asecondhandconjecture

Comments

[huangthomas:]

Protectionism is raising its ugly head. It is a dangerous thought to ignore World Trade Organization (WTO). I believe only George Bush, who has a special talent of messing up everything, can do it. "Too bad" that he is gone.

Europeans are contemplating demanding American chocolate to be labeled as "brown candy" in Europe, because we don't use 100% chocolate butter (white chocolate). And Boeing 787 dream liner be called "Still dreaming" or "Flying Titanic" in China. This is to call attention to the fact that all silly things can happen once worms are out of the can without WTO.

Feb 08 12:41 PM

[John Slater:]

While I totally agree that the U. S. should adopt policies to incentive manufacturing strength, there are a number of false assumptions going around on this subject.

Facts are:

1. U. S. manufacturing output hit an all time record in 2007

2. U. S. manufacturing output is expected to exceed 20% of world output at least through 2024.

3. Chinese output will likely not exceed that in the U. S. for at least five more years and China will need much of this for domestic consumption.

4. Manufacturing employment keeps going down because U. S. manufacturers continue to become more efficient.

Continued growth of the U. S. manufacturing base will come from increasing robotization of production. This is political dynamite and no one wants to talk about it. Manufacturing will not solve the U. S. jobs problem, but it could address a lot of the balance of trade issue that is plaguing us right now.

Feb 08 02:26 PM

[Cicco:]

Everybody assumes manufacturing must come back to the US because it creates a lot of jobs.
This is totally false, manufacturing is now days totally capital intensive, mostly automatized.
Very few manufacturing industries are job intensive, mostly in low end textile and toys manufacturing.
Do you really want your American son to earn a living sewing shoes?
Reality is that US is still a manufacturing powerhouse in all high skill sectors.
It also is quite stupid to hear comments like: most of our GDP is in the service industry, we have become a nation of masseurs and gym trainers.
The service industry contains very sophisticated sectors where the US have a huge advantage and most of the sectors are future proof sectors. The US service sectors includes: software industry (think Google, Yahoo, Microsoft, Sun, Adobe, Oracle, etc..) without competition worldwide, the Entertainment industry (Movies, TV programs, Video Games, Music, that we export everywhere), Industrial Design, legal expertise, consulting, etc..
I honestly prefer my son is gonna be part of this very high value industries than putting together 2 dollar toys.
The USA are dead? Nowhere close, we are best in class in so many sector.

Feb 08 04:42 PM

[jjc7477:]

To: Cico,

You have been brainwashed by what you've been reading in the papers my friend. Why do you think nations such as China and India have been able to grow at a double digit annualized rate? It's due to the fact they make things. If you believe for one minute your son will be part of a high value industry, take a look at where most of the high tech growth is taking place right now. India, Taiwan, China, Thailand, Vietnam and on and on. I happen to work in the manufacturing sector in one of the most basic of industries: steel. I have had an excellent career and my first job was as a bander of steel coils making $3.50 an hour in 1977. Most positions in factories are not sweat shop jobs and for each of these, there are two which require talented individuals to manage, build dies, design and promote (sales). The problem as I see it, and believe me it is a gigantic one, is when we stop making anything, what is left for our people to do. Do you truly believe for one second the rest of the world is going to sit still while we tell them what to do?

Feb 08 05:46 PM

[robert1234:]

I'm amazed by the ignorant and stupid anti-union views of some. Obviously, they are totally unaware of history. Historically in the United States and in other nations, strong unions equals wealthy nations. Weak unions means wealth disparity, lowering of the standard of livings, lowering life expectancy, etc. Sound familiary? With low wages people are forced to work two jobs, creating family disturbances, etc yielding crime, etc., forced to live off of credit, meaning a large part of their income goes to pay for the non-productive interest rates instead of goods and services that promote wealth, etc. You can chart the destruction of America by the decline in union membership. It really is that simple. High wages means a wealthy nation. Low wages means disaster. It's univeral and historic and it's financial law. You can't get past it. It's unions or poverty and that holds true around the world.

Feb 08 05:50 PM

[MikeT:]

This is typical garbage from someone who has probably never left his home state.
The Yuan has gone from north of 8:1 down to 6.83:1 in the past 16 months. That isn't exactly a favorable manipulation. And they have instituted minimum wage laws and worker protection laws that have also driven up their costs.
If someone wanted to really protest the China connection they would start at Wal Mart. I believe they account for as much as 15% of our china imports. Or, possible, that is Wal mart and Target combined. Either way it is a big number. Where is this guys outrage at that? he probably is a Wal Mart shopper or share holder and therefore is hands off. Japan built their cars in japan, Germany's BMWs in Germany, mercedes in germany, etc. Now they build much of what we buy in the US. maybe not all the componenets are made here but the cars are assembled here.
And maybe the port workers and railroad employees like the wages they make moving containers of product from coast to coast? And China does not "consistently" import unsafe items. Dog food and painted toys happened this year. Of the billions of dollars of products that they made, several million got all the press. Has he compared them to US recalls for tainted food? I don't think it is close, the US wins that one.
Subsidies are another great point. What country subsidizes their industries more than the US? From agriculture to oil we have as much or more corporate welfare than any country. And China has cut back on much of that sort of thing.
If he read a history book he might realize that the US was the China in the teens and twenties. Europe cried foul and unfair for two decades as manufacturing moved to the US. It might be called the evolving economies of the world.
Where do guys like Riddix get credibility to have such a mindless article published? The editors should be ashamed of crap like this.
He might be right that a manufacturing base is a good thing but his overly simplistic solutions and irresponsible generalizations are ridiculous.

Feb 08 05:53 PM

[MikeT:]

The reason China makes things is because we buy things. Stop at your local wal mart or Best Buy or Target and get a grip on reality. We stopped buying Zenith and started to buy Sony. Why? Was it better quality? Better design? Smarter advertising? maybe all of the above?


On Feb 08 05:46 PM jjc7477 wrote:

> To: Cico,
>
> You have been brainwashed by what you've been reading in the papers
> my friend. Why do you think nations such as China and India have
> been able to grow at a double digit annualized rate? It's due to
> the fact they make things. If you believe for one minute your son
> will be part of a high value industry, take a look at where most
> of the high tech growth is taking place right now. India, Taiwan,
> China, Thailand, Vietnam and on and on. I happen to work in the manufacturing
> sector in one of the most basic of industries: steel. I have had
> an excellent career and my first job was as a bander of steel coils
> making $3.50 an hour in 1977. Most positions in factories are not
> sweat shop jobs and for each of these, there are two which require
> talented individuals to manage, build dies, design and promote (sales).
> The problem as I see it, and believe me it is a gigantic one, is
> when we stop making anything, what is left for our people to do.
> Do you truly believe for one second the rest of the world is going
> to sit still while we tell them what to do?

Feb 08 06:03 PM

[Jerbear:]

I have been working in manufacturing for over 35 years. I have moved jobs overseas and have seen the results.

It is not the high cost of USA wages that makes us uncompetitive It is all the taxes that get attached to the wages that make us uncompetitive. FICA, state unemployement taxes and the high cost of medicare and medical costs. IF these programs were run efficiently and cost kept under control the USA wages would be competitive.

Americans are the most productive workers and produce better quality than any where in the world. Do you go to Walmart to buy quality products? The taxes and government garbage attached to the wages is the problem not the wages themselves.

It is the inefficiency of our government that makes us uncompetitive.

Feb 08 09:08 PM

[Cicco:]

To: jjc7477

In what do you think I was brainwashed? I actually see all media talking down the US.
The reason they grow double digit is because they where at zero, their GDP per capita is $6.000 our is $40.000. How can you even compare?

What is your point you prefer shoes to software?
Microsoft has 60.000 Empoyees and exports $30BN of stuff abroad, that is something like $500.000 per employees, I figure it is much better than exporting $ 30 BN of shoes for which you need 3 MM employees that create $ 10.000 dollars each of export value.
Where are the Chinese software brands, where are the Electronics brand, where are the entertainment brands?
Our export may me slightly lower then theirs in term of revenues, but have a look at margins, we export very high margin products, that allow us to pay very high wages.
If you think they are technologically ahead because they produce ipods, you are wrong, because everything about the ipod is created, designed, marketed, from the US. If you take all added value attached to an Ipod, you'll find no more than 10% goes out of the US.

Sure fiery competitors will come out of China and India, but as of now, they are only doing what we don't want to do anymore. And no champions are on sight.

Please name some Chinese company you see as competitors of ours in VALUABLE industries.

Feb 08 10:48 PM

[Joseph Sherman:]

People want to connect. In an open society ideas spread, people find better ways to address problems, wealth is crated and the human condition improves. Protectionist economics disconnects people. In a closed, protectionist society, the common people suffer. Rather than attempt to provide a protectionist atmosphere for domestic industry the United States should focus on meeting the challenges of a global society.

In 2007 41,059 people died in traffic accidents on American roads. This would fill Madison Square Gardens in twice for a New York Rangers NHL game and a New York Knicks NBA game.

Mr. Riddix, you write “We need to demand the same level of quality in all foreign goods as American goods or reduce the standards for American companies.” I believe the statement should be reversed, at least for auto manufacturers, we should demand the same level of quality for all domestic autos as foreign automobile manufacturers. Most, if not all, products have the same inspection requirements and regulations in the marketplace regarding safety.

The National Highway Traffic Safety Administration does not take into account domestic or foreign origin of an automobile manufacturer for safety ratings. Consumer Reports does not take into account where an auto was designed or produced. Consider the findings of Consumer Reports Safest Cars. Few of the safest autos are produced by American corporations.

Protectionist economics which increase taxes on foreign imports will encourage domestic automobile manufactures to remain at the bottom tier of auto safety and innovation. Open markets push for the spread of ideas and consumer expectations, thus increasing the quality of auto safety. Perhaps US manufacturers can learn how to build safer autos from international producers rather than hid behind protectionism.

Feb 09 01:48 AM

[mr freddo:]

I totally agree. When we lost our manufacturing base, we lost our manufacturing knowledge. We must return to making and selling the best products in the world. We thought we could remain rich by churning out lawyers and investment bankers. Keep our hands clean while others did the real work and acquired real knowledge.

We need to create jobs for engineers with incentives for investment in new technologies. Our hope for a bright future rests in creating new Googles and Apples. Biotech is a new frontier. Now that Bush is out of the way, let's get on the stem cell research and lead the way to new disease treatments.

Feb 09 01:52 AM

[Alexander P...:]

This looks like just another business article. It is not--it touches on the economic revolution we must undertake. While we cannot control total product quality or international policy manipulations, as proposed here , we do have to regain manufacturing independence, while gaining energy independence, while restructuring the entire financial pillar of our system.

The undertaking is massive--probably unprecedented in American history, but ionly thru this "root and branch" renewal (over a decade or more) can we find the engine(s) that will pull us out of the mess to which our own poor economic policies and deregulation have brought us.

Sandy Prisant, COO, Prism/San Francisco

Feb 09 09:17 AM

[Stormybear:]

For those of you who have no idea how China is protectionist, I suggest you research export tax rebates, energy and business subsidies, preferential loans, and, of course, currency manipulation--all in China, of course.

Mercantilism is alive and well in China. I have written extensively on these subjects.

Unfortunately, one of the reasons American multinationals went to China was that it offered a two-tier tax system: Foreign firms were taxed at half the rate as Chinese firms. These firms benefit as well from China's currency manipulation. In some cases, they were given a ten-year tax holiday. Make it in China; sell it to the U.S.

In addition to hi-tech, the U.S. furniture industry has gone. (Foreign firms now make more than 50% of furniture exported from China. Hi-tech foreign firms account for almost 80% of Chinese exports.

These firms are active lobbyists in cries about protectionism. China is their golden goose while our goose is the one being cooked.

Feb 09 11:01 AM

[Stormybear:]

The above comment is mine.

Feb 09 11:02 AM

[Chicago Rick:]

In reading through the comments I wonder how many of the people commenting have real exposure to how things are made. It is a fact that American manufacturing base is being decimated. You can visit government websites to view by category of product what percentage is made in the USA. Most consumer goods are 70-95%. Even critical high value added areas such as machine tools and electrical equipment is rising rapidly in percent imported. Other countries WILL NOT help us learn how to make these things once we lose the expertise. At that juncture when we can no longer add value in the world the currency will drop and we will learn what most countries know from experience. Those who cannot make pay much for what they need to those who can make.

I work in advanced manufacturing. While I sell the equipment manufactured abroad (typically W. Europe and Japan where they have NOT disassembled their manufacturing and their governments make it very difficult to transfer advanced manufacturing knowledge) I find it terrifying how even clients seeking American made equipment finally accept that it is not possible to find an American company with expertise to meet specifications.

Feb 11 02:29 PM

[Middlethomas52:]

Wrong, and I am not a union worker. We lost our manufacturing base because people were looking for a good deal at the expense of the security of the United States. Buying foreign goods will bring this country down to the level of the third world countries producing these goods that we are importing. Other countires realize that buying imported goods would destroy their country's economy. As an example, that is why it is hard to export cars into Japan.


On Feb 08 11:28 AM Marcap wrote:

> The US (not unlike Canada) has lost most of its manufacturing base
> due primarily to the ransom demands of its various unions, and for
> no other reason. Rather than be subjected to unreasonable wage and
> benefit demands, constant strikes and other threats, most companies
> chose to take their manufacturing facilities elsewhere, since under
> such conditions, those manufacturing sectors could no longer compete
> on the world stage. They really had no choice but to do as they did.
>
>
> The bottom line is that until union power is curbed, nothing will
> change for the positive, but rather quite the contrary, jobs will
> continue to leave, and the US will very likely go bankrupt eventually,
> since it imports so much more product than it can export. After all,
> it is a case of simple math: If "A" buys more from "B" than it sells
> to "B", then eventually "B" will end up with all the money. Oh sure,
> "A" can print more and more money as needed, or simply borrow more
> and more, however the first will devalue the dollar, and the second
> will increase the debt. But both will lead down that very same road
> to bankruptcy.

Feb 13 11:09 PM

[vev46:]

To me, it all comes down to one thing: standard of living/quality of life. All else being equal, here in the US, our standard of living requires us to pay ever-decreasing prices, (as a % of income), for just about everything. This is certainly not the case in most of our supplier countries, whose people not only cannot afford to buy for themselves what they make for us, but who must also work longer hours and end up with less leisure time, (quality of life). If we in the USA would ever get serious about our long-term economic health, we would embark on a path to return to the kind of manufacturing-based, wealth creating behemoth that we were during much of the 20th century. Of course, the downside of this would be having to pay more for everything we bought that would be made here, which in turn would mean a lower standard of living. And although this would be extremely distasteful and gut-wrenchingly painful, I submit that it would ultimately strengthen us. Sure, I find myself often saying, "If I could find this so-and-so product made in the US instead of Taiwan, I would be willing to buy it", but when decision time comes and such a choice becomes available, I pay $39.95 instead of $79.95 every time. We are, (or will be) victims of our own "gotta have it now, gotta have it cheap" mentality, because unlike many other nations, we do not have a commonality of purpose when it comes to the economy. We are constantly told that we are on a ruinous path leading to huge financial hardships for our unborn descendants because of our present behavior. We apparently don't care, because it's only getting worse. Most of our political leaders haven't the guts to do what's right, because they only care about their re-election. I'm afraid that only a world war, or other huge calamity may be the only kind of event that could shake us up enough to make a difference, but even then, we may find ourselves unwilling to collectively make the difficult moral choices that were made when we became involved in the 2 world wars. I am not optimistic.


On Feb 08 09:08 PM Jerbear wrote:

> I have been working in manufacturing for over 35 years. I have moved
> jobs overseas and have seen the results.
>
> It is not the high cost of USA wages that makes us uncompetitive
> It is all the taxes that get attached to the wages that make us uncompetitive.
> FICA, state unemployement taxes and the high cost of medicare and
> medical costs. IF these programs were run efficiently and cost kept
> under control the USA wages would be competitive.
>
> Americans are the most productive workers and produce better quality
> than any where in the world. Do you go to Walmart to buy quality
> products? The taxes and government garbage attached to the wages
> is the problem not the wages themselves.
>
> It is the inefficiency of our government that makes us uncompetitive.

Apr 11 11:43 AM

[Bigger Red:]

Really sick of products from China because it's mostly crap. The whole world talks about being "green." Well, how 'green" is it to buy a product, have it fail or break in a short time and have to throw it into a landfill? Wouldn't it be cheaper and more "green" not to waste the world's resources by making products that last?

The other problem with buying products overseas is that our money goes offshore. What a prescription for poverty THAT is. NAFTA was the worst idea anybody ever had. The USA is going the route that Rome went and we all know about the fall of Rome.

I love the Wal Mart comments. I HATE that store and won't buy anything from them. It's nothing but a Chinese junk store. When I need a kitchen tool or a T-shirt, I go to the garage sales. Do you realize how many USA kitchen tools are sold in garage sales???

Jun 23 12:23 PM

[rm316:]

Not all people want hight tech jobs. Some people want to sew shoes.
In order to be strong nation we have to have all types of manufacturing. If we let China do our manufacturing they can cut us off at anytime and stangle us. We need companies here that can be competitive with world markets.
Most of our powerful companies developed during the Industrial Revolution are gone. Many managers have abused their power and taken advantage of the workers and the companies. Some workers have lost ambition and spend more time being non-productive then being productive. The net result is loss of business to countries that can produce at minimal cost.
Sure most manufacturing is becoming robotic but robots need people to run and maintain them. Why can't we do that here? I have spent 30 years in manufacturing environments her in the US. I know why we are losing the manufacturing. Companies like Wal-Mart buy the cheapest they can so they can sell them cheap. If they could buy US made goods cheaper than they would sell them as well.


On Feb 08 04:42 PM Cicco wrote:

> Everybody assumes manufacturing must come back to the US because
> it creates a lot of jobs.
> This is totally false, manufacturing is now days totally capital
> intensive, mostly automatized.
> Very few manufacturing industries are job intensive, mostly in low
> end textile and toys manufacturing.
> Do you really want your American son to earn a living sewing shoes?
>
> Reality is that US is still a manufacturing powerhouse in all high
> skill sectors.
> It also is quite stupid to hear comments like: most of our GDP is
> in the service industry, we have become a nation of masseurs and
> gym trainers.
> The service industry contains very sophisticated sectors where the
> US have a huge advantage and most of the sectors are future proof
> sectors. The US service sectors includes: software industry (think
> Google, Yahoo, Microsoft, Sun, Adobe, Oracle, etc..) without competition
> worldwide, the Entertainment industry (Movies, TV programs, Video
> Games, Music, that we export everywhere), Industrial Design, legal
> expertise, consulting, etc..
> I honestly prefer my son is gonna be part of this very high value
> industries than putting together 2 dollar toys.
> The USA are dead? Nowhere close, we are best in class in so many
> sector.

Dec 19 01:10 AM

[rm316:]

I also want to say that non-productive individuals contribute to the high cost of US manufacturing. They are rarely terminated because companies fear lawsuits. Some managers would rather turn their heads than to deal with it.
The bottom line is that we are doing this to ourselves. It's time for us to wake up and get back into competitive manufacturing.

Dec 19 01:17 AM