The first “Made in America week” is coming to an end. The week kicked off with a product showcase at the White House, where American-made products ranging from a Lockheed Martin’s (LMT) Sikorsky helicopter to a Caterpillar (CAT) wheel loader were displayed. The White House also took this week as an opportunity to release a detailed list of objectives it hopes to accomplish renegotiating the North American Free Trade Agreement (NAFTA) with Mexico and Canada.
Two of the primary goals of that renegotiation are to boost manufacturing jobs in the U.S. and increase domestic investment. While any renegotiation of the agreement is likely to be a complicated process, there’s a bipartisan bill that was introduced in early June focused on some of the same goals. Before we look at that bill, we’ll examine the state of manufacturing in the U.S. and some of the factors influencing job trends in the space.
The State of U.S. Manufacturing
Much like agriculture jobs over the course of the 20th Century, the number of manufacturing jobs in the U.S. has declined over the past several decades as global economies evolved, and automation and efficiency improvements reduced the number of jobs required in certain industries. From the mid-1960’s through 2000, the number of people in manufacturing jobs bounced between just under 17 million jobs and 19.5 million jobs, which was the peak back in 1979, according to the Bureau of Labor Statistics.
Since 2000, the number of manufacturing employees dropped from just over 17 million to just below 11.5 million, but has been slowly recovering since (figure 1 below). There’s a lot of factors at play that could be helping to drive the growth in manufacturing jobs, but one surprising factor is that it just isn’t as cheap to manufacture overseas as it used to be.
Factors Increasing Manufacturing Jobs
A 2014 report by the Boston Consulting Group, or BCG, found that the dynamics of global, low-cost manufacturing have been shifting. Their research stated “several economies that traditionally have been regarded as low-cost manufacturing bases appear to be under pressure as a result of a combination of factors that have significantly eroded their cost advantages since 2004.”
One of those countries that has been losing its cost advantage is China, which saw its manufacturing-cost advantage over the U.S. shrink to less than 5% according to BCG. Other countries including Brazil, Poland, the Czech Republic and Russia also saw their cost advantages erode relative to other countries.
In a 2015 BCG survey of senior manufacturing executives at companies with at least $1 billion in annual revenues, 31% of respondents said “their companies are most likely to add production capacity in the U.S. within five years for goods sold in the U.S., while 20% said they are most likely to add capacity in China.” Some of the factors BCG said has influenced those decisions include logistics, inventory costs, ease of doing business, and supply chain risks. In addition to those factors, the Invent and Manufacture in America Act might spur additional domestic investment in the future.
The Invent and Manufacture in America Act
A bipartisan bill, dubbed the Invent and Manufacture in America Act, was introduced at the beginning of June by U.S. Senators Chris Coons (D-DE) and Pat Roberts (R-KS). Currently, there is a R&D tax credit available to businesses that incur research and development costs in the U.S. and the new bill would enhance that credit “by up to 25% for companies that perform the majority of manufacturing operations in the United States,” according to Senator Coons’ press release.
Manufacturers have already benefitted from the R&D tax credit, and the new bill would provide additional tax savings to a lot of them in the U.S. The proposed tax credit could make it even more cost effective for companies to maintain domestic manufacturing operations and increase domestic investment, something many companies have already started to do.
Depending on the business, manufacturing can be highly cyclical and jobs can ebb and flow based on global macroeconomic conditions, which are constantly in flux. But the growing attractiveness of the U.S. compared to other countries might make for a new American manufacturing renaissance in the years to come.
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