Obama Needs Zen-Like Focus for US Manufacturing Revival – Bloomberg

It’s debatable whether President
Barack Obama can revive U.S. manufacturing, as he proposed in
his State of the Union address. It isn’t debatable whether he
should try.

The U.S. can already go toe-to-toe with (or beat) other
countries on energy costs, workforce quality, supply networks
and legal rights — even if it can’t (and shouldn’t) compete
over wages and environmental controls. If Congress cherry-picked
just a handful of ideas from Obama’s long list of proposals, the
U.S. could jump the competitiveness queue.

U.S. manufacturers have added roughly half a million jobs
since 2010, when employment bottomed out. Today, about 12
million people hold factory jobs, down from 17 million at the
peak in 2000. Getting back to the previous level will be tough,
and it shouldn’t be the only measure of success.

A better yardstick is whether businesses think it’s smart
to consider the U.S., alongside China and other low-cost
manufacturing hubs, when deciding where to locate new plants.
This is beginning to happen. Cheap energy has shifted the cost
calculus for Caterpillar Inc., Intel Corp. and Ford Motor Co.,
which are moving production jobs to the U.S. from overseas.
Later this year, as Obama said in his address, Apple Inc. will
again make Mac computers in the U.S.

Obama hopes to accelerate the trend. The problem is that he
offers an avalanche of ideas — some innovative, others recycled
— without tying them together in a holistic way. The result is
that Congress won’t adopt most of them.

Laundry List

Obama would bolster clean energy subsidies, hire hundreds
of people to lobby foreign companies to open U.S. plants, and
end tax breaks to companies that ship jobs overseas. He would
expand free-trade pacts, crack down on unfair trade practices,
enhance job retraining programs, establish supply-chain
coordinators, and on and on.

The president could be more effective if he sharpened his
focus on two areas: public-private partnerships and corporate
tax reform.

Start with his request for $1 billion to open 15
manufacturing innovation institutes. It has gotten little
notice, yet deserves consideration, as we have advocated. The
institutes would be modeled on a German program that develops
and showcases new manufacturing technologies. With a broader
mandate, the U.S. versions could deliver a lot of bang for a
billion bucks.

The institutes could, for example, make sure local colleges
are equipped to offer the specialized training that workers
need, notably in high-tech manufacturing. They could help foster
a pro-business environment by pushing legislatures to trim red
tape, such as licensing and permitting requirements. They could
make sure basic services, including broadband communication and
efficient transportation, are available. And they could help
diversify their local economies to avoid overdependence on a
single employer or industry.

The day after the State of the Union speech, Obama toured a
plant owned by Linamar Corp. near Asheville, North Carolina,
where a partnership of local colleges, economic development
agencies and private-sector startups helped bring about an
economic resurgence. Linamar, an Ontario company, began making
heavy-duty engine parts in a closed Volvo factory in 2010. It
now has 160 workers and plans to add 40 more this year. Other
companies have followed and, in three years, the region has
attracted 1,900 new manufacturing jobs and more than $500
million in investment.

Tax Code

The tax code is Obama’s other challenge. Again, he asks
Congress for too much. He wants to lower income taxes on
manufacturers to 25 percent from 35 percent, enact a new global
minimum tax on manufacturing profits, make permanent the
research and experimentation tax credit, deny companies
deductions and credits when they move overseas, and create a new
tax credit for companies that add factory jobs in hard-hit
areas.

These are all worthy ideas, but it’s a complicated array.
Why not just lower taxes on earnings for all manufacturers?
Corporate income taxes, after all, aren’t actually paid by
companies, but are passed on to workers in the form of lower
wages, to consumers in higher prices and to shareholders in
smaller investment returns.

The U.S.’s 35 percent corporate tax rate — one of the
highest in the world, even if most companies use loopholes and
credits to pay far less — makes it difficult to attract
investment. A 15 percent tax on manufacturing profits would be
reasonable. One happy byproduct might be the repatriation of
overseas profits by U.S. manufacturing companies.

Reinvigorating manufacturing won’t cure the problem of high
unemployment. Still, declining energy prices in the U.S. and
rising labor costs in China have put the wind back in the U.S.’s
sails. The key now is to chart a precise course.

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