From the Editor: Can't Keep It All

November 1, 2003
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Save American Manufacturing (SAM) U.S.A. is an Aurora, IL-based group that has as its goal, "building public and government awareness of the devastating effects the increasing economic trade deficit with China is having on U.S. businesses." They want to "provide solutions that will re-establish the United States as the manufacturing leader and promote reinvestment in the American labor force." To accomplish its goals, the group advocates letter-writing campaigns to local and national political leaders, and supporting, opposing, changing or repealing laws that it deems harmful to those stated goals.

Among its objectives is to change current tax laws that act as incentives to locate U.S. production jobs overseas, support legislation that stops U.S. companies from incorporating overseas, oppose trade deals such as NAFTA and the FTAA, increase defense manufacturing and other legislation that supports U.S. manufacturing.

I think it's great to have the goal of maintaining and reviving U.S. manufacturing. Some of these goals are very reasonable, such as keeping defense manufacturing and critical technology jobs in the United States. Tax incentives can work. However, there is a limit to what manufacturing can and should be kept in the United States.

It must make economic sense, in terms of labor, materials and distribution, to manufacture a product in the United States. No company can justify paying a union laborer $15 per hour to build the same product his competitor manufactures overseas for a fraction of that cost. That's the economic reality of today's marketplace.

The prospect of foregoing free trade agreements and disengaging from activities with groups such as the WTO are not practical either. When the United States doesn't take part in such agreements, other countries fill that void and U.S. companies are left out in the cold-leading to more lost jobs. The United States needs to be involved in such agreements to effectively combat entities such as the European Union and Pan Asian alliances. Besides, those agreements have been entered into already, and it would take far more than letters to rescind our participation in them.

Advocates of keeping manufacturing in the United States would be advised to take a page out of the semiconductor industry playbook. In 1987, Sematech, an industry-government consortium was formed to regain U.S. leadership in semiconductor manufacturing. It took nearly a decade, but U.S. semiconductor manufacturers eventually became the dominant player in the semiconductor market. They did so by focusing manufacturing efforts on high-end, high cost, leading edge chips. They ceded the low end to Asian manufacturers. The United States used its higher priced labor and intellectual edge to produce what no one else could. There is a similar lesson to be learned for the manufacturers who make automobiles, airplanes, medical devices, etc. Ford Motor Co. has already decided to purchase $2 billion worth of "commodity" parts from China. The "critical," value-added parts will still be made here.

We need to keep manufacturing here in the United States. We just need to decide what kind of manufacturing we want to do. Let's keep the manufacturing that matters. We are losing, or already have lost, the low end. Those who are interested in petitioning our politicians would do well to focus their efforts on keeping the manufacturing that relies on our highly skilled, highly educated workforce.

What do you think about the loss of our manufacturing base? Let me know at williamst@bnp.com.

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