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Paul Sherman: Obama’s manufacturing solution

By Paul Sherman, Columnist
Published February 12, 2013

For the past four years, Americans have been waiting for the solution to the economy they thought would have come sooner. Four years ago, in his first State of the Union address, President Barack Obama said that Americans had to “answer history’s call” in the light of a potential “second depression.” This time, as he entered the House chamber and looked in the television cameras for a fifth time, he focused on the idea that creating middle class jobs must be the “North Star that guides our (economic) efforts.”

While there are many important issues that face this country, I was pleased that the president brought up manufacturing. He said that Washington must “guarantee that the next revolution in manufacturing is made in America.” With the Republicans reeling and looking to find support, Obama must strike a bipartisan agreement on the fiscal issues facing this country. Now is the time for Congress to finally make America a “magnet for jobs and manufacturing.”

Though there have been signs of erosion, the American manufacturing industry is still one of the largest in the world. A Jan. 2012 Congressional Research Service report found that America’s share of global manufacturing activity has decreased in recent years. China’s manufacturing sector is almost as large as in the United States, valued at $1.814 trillion and $1.756 trillion respectively. In Dec. 2012, the manufacturing sector made modest gains in manufacturing activity and factory hiring.

One of the common arguments related to manufacturing thrown around recently is that American companies are outsourcing jobs to other countries because their labor laws allow manufacturing operations to be more profitable. However, this is not as big of an issue as most Americans think it is. As the Bureau of Labor Statistics has found, the effect of outsourcing has been minimal. In the third quarter of 2012, when more than 100,000 workers were laid off, firms told BLS that less than 1 percent of these workers had their jobs moved to another country.

An article from The Atlantic reported that American companies are seeing the economic benefits of keeping jobs in America and have, in fact, started to “insource” jobs. China’s Foxconn, the Chinese manufacturing giant, is actually planning on increasing their operations in the United States. American companies are realizing the benefits of keeping jobs in the U.S., which will limit the effect that outsourcing will have on the economy.

On the other hand, what’s preventing companies from producing in the United States is the attractiveness of production in other countries. Part of the issue is that the value of the dollar made producing goods in the United States less attractive than other countries with cheaper labor and production costs and lower marginal tax rates. If America wants to become more competitive in this regard, the federal government must be willing to create a plan that provides subsidies and “lowers tax rates for businesses and manufactures that (will) create jobs right here in America.” This would help reduce the costs of production in the U.S., which would make companies more willing to attract new jobs without having to reduce workers’ salaries.

One point that President Obama has been stressing is that increasing our focus on alternative energy will make America a stronger manufacturing country. According the Department of Energy, in Aug. 2012 the wind sector was employing “75,000 American workers, including workers at manufacturing facilities up and down the supply chain, as well as engineers and construction workers who build and operate the wind farms.” People are now feeling the benefits of alternative energy manufacturing. On top of providing jobs, it will help Americans save money on energy consumption. This is the direction the manufacturing sector is going. If we fail to recognize the importance of alternative energy, America will fall behind.

Manufacturing is what has driven America over the past century. If we plan to give up on manufacturing, we are throwing the future of this country away. But words can only go so far. This plan will not completely revive the American car industry or the steel industry. While it's not complete, President Obama’s plan will make the American manufacturing industry more competitive than it is today so that we can be authors of the next great chapter in our American story.

Paul Sherman can be reached at pausherm@umich.edu.