How to save U.S. manufacturing
New book presents the case for saving U.S. manufacturing and how to make it happen
The majority of U.S. citizens agree that manufacturing is vital to the economy and national security. So what can be done to save manufacturing? In his new book, Dr. William Killingsworth outlines a five-step program the government must implement to make it happen.
Saving American Manufacturing: The Fight for Jobs, Opportunity, and National Security, a new book by Dr. William R. Killingsworth, vice president of manufacturing and supply chain research at DESE Research Inc. and former executive director of the MIT Forum for Supply Chain Innovation at the Massachusetts Institute of Technology, relies on comprehensive statistics to paint a picture of where U.S. manufacturing is today and what the government must do to save it.
In writing his book, Killingsworth adhered to a principle described in these sentences from Sherlock Holmes, A Scandal in Bohemia: "It is a capital mistake to theorize before one has data. Insensibly, one begins to twist the facts to suit theories, instead of theories to suit facts."
The book has no shortage of data, and the information presented leads logically to Killingsworth's conclusions and his five-step plan for righting the manufacturing ship. Throughout, the author reinforces a premise set forth by Thomas Jefferson that is as true today as when it was written: " … to be independent for the comforts of life we must fabricate them ourselves. We must now place the manufacturer by the side of the agriculturist … experience has taught me that manufacturers are now as necessary to our independence as to our comfort … "
In preparation for the book's September release, Killingsworth participated in a Q&A with thefabricator.com.
thefabricator.com: When did it first dawn on you that U.S. manufacturing was in serious trouble?
Killingsworth: I was conducting an analysis for the Office of the Secretary of Defense, the Manufacturing and Industrial Base Policy office. I saw many manufacturing supply chains that had numerous single points of failure; that is, if those companies went down, the entire supply chain went down. So many plants and factories had closed that the supply chains were incredibly fragile and subject to large risks.
thefabricator.com: The free-trade policy (NAFTA; trade relations with China; agreements with Korea, Panama, and Colombia) seem to be the catalyst for the rapid decline in U.S. manufacturing jobs and companies. Did you foresee this happening when NAFTA was first proposed?
Killingsworth: To be completely honest, I didn't. I thought if everyone agreed and followed the terms of the trade agreements, things might be all right. U.S. exports could grow. However, the U.S. has followed the rules, but China and others certainly have not. As a result, our exports are meager and our imports are massive.
thefabricator.com: You note that while the great majority of Americans consider manufacturing and its jobs critical to the economy and our national defense and security, some argue that the demise of U.S. manufacturing doesn't matter. Based on its actions, which view do you believe the current administration supports?
Killingsworth: I believe the current administration understands the importance of manufacturing, but like the past several administrations, it is not been sufficiently aggressive in pursuing claims with the World Trade Organization. One could say that George H.W. Bush and Bill Clinton let the horse out of the barn, but neither George W. Bush nor Barack Obama have been very aggressive in stopping the runaway.
thefabricator.com: Companies have begun to reshore some manufacturing. Do you think the initiative is solely because of difficulties involved in offshore production, or a PR move necessitated by the majority attitude about companies and jobs moving offshore?
Killingsworth: I see some movement away from Asia and that's because of rising wages and transportation and inventory costs. Some of that, however, is coming to the U.S., but a lot is going to Mexico with lower wages than the U.S. and a logistics advantage over Asia.
Does it matter to offshoring companies what Americans think? I don't think so. You now see U.S. companies not only offshoring, but buying much smaller foreign companies and then relocating their headquarters to those lower-tax countries. It's driven by quarter-to-quarter profits and return to shareholders.
thefabricator.com: You include fabricated metal products among the six durable good subsectors critical for the national well-being and security. While fabricated metal products as a whole does not exhibit such strong declines as other industries, forging and stamping have taken a serious beating, both in terms of jobs lost and companies closed. Do you think this trend has leveled off and things will improve?
Killingsworth: It's hard to imagine this trend changing very much. These critical industries face formidable competition, often unfairly gained by currency manipulation by China and other Asian countries. It's very difficult to compete globally when their currency is undervalued and yours is overvalued.
thefabricator.com: You offer a five-step plan of "forceful action" (see Sidebar) by the government that could save manufacturing, create good jobs, reduce income inequality, and strengthen national security. It seems imperative that these actions be taken immediately. Given the pace at which the government operates and the resistance from lobbyists, when do you see them taking place, if at all?
Killingsworth: Until the American public makes trade policy and the loss of jobs a key issue in elections, nothing will change. The multinationals and their lobbyists will rule the day. We have signed trade agreements but have not forced the other side to abide by those agreements, even though the U.S. has. That paradigm has to change.
thefabricator.com: What can fabricators and Americans do to help save U.S. manufacturing?
Killingsworth: Educate voters as to what has gone on and motivate votes for those who advocate a tough stance on trade, reduced taxes for manufacturers, and government support for continuously improving manufacturing technologies.
In stock beginning Sept. 1, 2014, Saving American Manufacturing: The Fight for Jobs, Opportunity, and National Security can be ordered from businessexpertpress.com.
Killingsworth's five-step plan for saving U.S. manufacturing
- The United States must insist that other countries stop manipulating their currencies and permit the dollar to regain a competitive level. The President and the Executive Branch can do this most readily, but Congress could demonstrate United States resolve through legislation. The United States should first seek voluntary agreement from the currency manipulators to greatly reduce or eliminate their intervention. If the manipulators do not do so, however, the United States should adopt four new policy actions as suggested by Bergsten and Gagnon of the Peterson Institute for International Economics (Bergsten 2012):
a. Undertake countervailing currency initiatives by buying amounts of their currencies equal to the amounts of dollars they are buying themselves, thus neutralizing the impact on exchange rates.
b. Tax the earnings on, or restrict further purchases of, dollar assets acquired by intervening to penalize them for building up these positions.
c. Treat manipulated exchange rates as export subsidies for purposes of levying countervailing import duties.
d. Bring a case against the manipulators in the World Trade Organization that would authorize more wide-ranging trade retaliation.
Bergsten and Gagnon suggest this approach should first be taken against eight of the most significant currency manipulators: China, Denmark, Hong Kong, Korea, Malaysia, Singapore, Switzerland, and Taiwan.
- The President and Executive Branch must pursue aggressive actions and complaints with the WTO regarding non-tariff protectionist barriers. In 2013, in a very difficult trade environment, the United States filed not a single complaint with the WTO. Given the extent to which the United States is being "beat up" in international trade, this lack of action is difficult to understand. Moreover, multiple complaints from previous years have not been resolved. "While Nero fiddled …" The United States must aggressively seek resolution of past complaints and continue filing current complaints with this world body.
- The national government should take a lesson from state governments and actively compete globally for new manufacturing facilities. This competitive stance should include lower income tax rates for manufacturing, tax credits for manufacturing job creation, more rapid depreciation on plant and equipment, permanent R&D tax credits and other incentives. These actions will help level the global playing field that is well-tilted against American manufacturing.
- The U.S. Congress should fund the proposed National Network for Manufacturing Innovation. This network will bridge the so-called "valley of death" between basic research and products made in American factories. Technology, innovation, and creativity have been the bedrock of U.S. economic growth. These institutes have the very real potential for initiating a renaissance in manufacturing and job creation.
- The Department of Commerce should immediately undertake a competitiveness audit to identify those industries in which America is still globally competitive and/or near-competitive. This audit will provide valuable insights for investment, R&D, and strategy decisions. Otherwise, actions will be taken in the dark.