A Political Take on Manufacturing

The Economist recently ran an article describing the "rich-nation" political posturing going on around the world--not just in the United States--over manufacturing. In short, the article says that everyone everywhere is using the manufacturing issue as political fodder. This may be true, but that not mean there is not a serious competitiveness problem that we must deal with--especially here at home in the U.S.

The Economist says: "Politicians love manufacturing because it provides lots of visible, reasonably well-paid jobs. That is why American states fight each other with subsidies to land each new Japanese car-assembly plant, and central European countries do the same, knowing that no new car factories will be built in western Europe."

Moreover, the article says that in Japan, politicians decry the “hollowing out” of Japanese manufacturing, as large-firm production seems to flee offshore. In Europe, the French are normally stoutest in defence of their national champions. But Germany is newly fierce; its chancellor, Gerhard Schröder, has picked a fight with the European Commission, denouncing its “anti-industrial bias” as it seeks to stop subsidised state loans and other favours for German industry.

While the article recognizes China as a growing competitive threat to US and other developed country production, it says the Chinese threat is not as large as the picture being painted by Washington and industry trade association (NAM) officials. I urged a careful approach to the China issue in earlier ED Futures articles, and will continue to do so.

Go here to read more.

I am convinced that a growing number of US manufacturers are looking to China, India, Mexico and many other world locations as future sources of competitive advantage--and as markets for their products. Continued offshore sourcing and production will create a great deal of economic pain for workers and communities across America. That is no small problem to brush aside. We must find a new and better way to gain a competitive advantage in manufacturing.

The Senate Finance Committee on Wednesday approved a bill that would give companies a one-time tax break to bring their out-of-country earnings into the United States. Maybe there is a "job hook" that can be included in this piece of legislation, if it has not gotten too far out of the barn already. The White House is objecting to the bill on the basis that the measure favors manufacturers over other companies.

Meanwhile, the rest of the world is poised to make us suffer if the legislation passes. A European Union official earlier this week threatened up to $4 billion in trade sanctions on U.S. products starting next year if the United States does not move faster to end tax breaks for exporters.

This will be interesting one to watch play out.