Caroline C. Lewis / Oct. 26, 2017

American Made Means American Paid

Manufacturing output is up while jobs are down. A look at taxes, regulation and free trade agreements.

Since 2000, it has been estimated that five million Americans have lost their manufacturing jobs, many due to their employers outsourcing or moving their jobs overseas. For the American worker, many of whom have worked at the same factory for decades, this means the loss of a job, health benefits and a company pension. Lost jobs have turned into empty factories, poverty and the dwindling of the middle class. So, how did this happen?

American manufacturing has lost jobs to foreign competition for many reasons. Some jobs have been lost to automation, where a machine’s efficiency replaces a person’s job. That’s likely why U.S. manufacturing output is up despite job numbers going down. In addition, the low cost of foreign labor accounts for another basic reason. A $20 per hour U.S. wage cannot compete with a $3 per hour Chinese wage no matter how you slice it. For companies looking to increase profits, a move to China initially appears beneficial.

However, anti-business policies have also made it difficult for American manufacturing companies to thrive. High corporate taxes and overregulation have produced an environment full of disincentives for companies to stay in the U.S. Manufacturing companies therefore seek to headquarter their businesses in a place that won’t “punish” them with taxes and overregulation like China, India, Mexico and elsewhere. And when the factory moves to Shenzhen, Mumbai or Mexico City, the American employees lose their job, while thousands in China, India and Mexico just got hired.

Additionally, the U.S. has lost its footing as the leader in international patent and intellectual property protection. According to the U.S. Chamber of Commerce’s 2017 International IP Index, the U.S. has fallen to 10th place (tied with Hungary) in its protection of “patents, rights, and limitations.” This marks the first year that the U.S. has not been in first place, which means that innovators are turning to Germany, England or even Singapore as preferred places for patent protection. Ceding ground as the world’s patent protection leader means that the IP-intensive industries which account for 38% of GDP (2014) will be looking for other countries to protect their intellectual property.

Another factor affecting America’s competitiveness in a global market has been the North American Free Trade Agreement (NAFTA). This trade agreement between the U.S., Canada and Mexico removes (or greatly minimizes) tariffs on goods exchanged between the countries. This has been beneficial for American farming. However, it has caused somewhat of an unfair advantage by allowing all three countries to be on the same playing field, without considering that the U.S. production costs are higher than those in Mexico, mainly due to labor and regulation costs. Therefore, NAFTA has encouraged many companies to move to Mexico at the expense of thousands of American workers’ jobs.

Globalization, the free sharing of goods across global markets, promised access to cheaper goods. It delivered, and our standard of living is higher for it. But sometimes that’s been to the detriment of the American worker. It also claimed that all the money made overseas would ultimately help the U.S. However, when businesses “repatriate” money made overseas, the government levies a huge tax on it. For example, if a U.S. company based in China produces 10 million dollars in profits and wants to bring that money back to the U.S., they have to pay a tax. As a result, companies often hold their profits in foreign banks and spend or invested it in other countries. This policy hurts the American economy and ultimately the American worker.

Moving massive amounts of American manufacturing to Mexico or overseas also presents a security threat. Other countries now have access to American machinery and technology that they can copy and reproduce without having to invest the time and money to perform research and development.

Harry Moser, founder and president of the Reshoring Initiative, has been successfully communicating the advantages of reshoring (bringing a company back to American shores from overseas). He cites the many unaccounted costs to businesses that move overseas including high freight cost, duty and the increasing cost of Chinese labor. In a recent MarketWatch article, Moser and Sandy Montalbano observed that about 25% of offshore companies would return if they quantified the total cost. Moser and the Reshoring Initiative estimate that bringing back 25% of off-shore companies would equate to about one million American jobs.

Creating a new future for the American manufacturing worker means prioritizing policies that help American companies to succeed. Cutting corporate taxes and regulations, protecting intellectual property and patents and reshoring American jobs will restore the American worker’s place in the workforce and America’s economic competitiveness in a global market.

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