Boost US Manufacturing With a Scalpel, Not a Sledgehammer
Conventional economists misunderstand why the United States has lost so many manufacturing jobs, and their dismissals of President Trump’s efforts to bring them back do little to provide substantive guidance or address the legitimate concerns of American voters who are angry about trade and globalization.
That’s the central argument of the Information Technology and Innovation Foundation’s new report, which urges President Trump to ignore laissez-faire thinking and continue forward with his focus on growing U.S. manufacturing—but using a scalpel, not a sledgehammer. Outlining 10 principles to guide US manufacturing policy, ITIF cautions the president against enacting policies that could do more harm than good.
“From his involvement in the Carrier deal to the consequences he has suggested for offshoring jobs, it is clear that President Trump is serious about reviving US manufacturing,” said ITIF President Robert D. Atkinson, the report’s lead author. “It’s unfortunate that the Washington establishment has either dismissed the idea out of hand or relied predominantly on generic ideas like tax reform and infrastructure spending. While those policies would certainly help the broader economy, they’re like using a sledgehammer when we really need a scalpel. The key to effective manufacturing policy is to focus on which jobs can and should be brought back and which production is better off performed in other nations.”
In the report, Atkinson and co-author Stephen Ezell, ITIF’s vice president for global innovation policy, detail the underlying realities of US manufacturing performance and what the establishment opinion has gotten wrong. First, holders of the so-called Washington consensus—out of fear of losing support for trade—blame the loss of jobs on automation, not globalization. But as ITIF and others have demonstrated, trade and falling US competitiveness have accounted for at least half the jobs lost since 2000. Second, conventional economists in many cases do not lament job losses because they ascribe them to the will of the free market, ignoring the ways other nations unfairly manipulate the rules of competition to tip the scales in their favor.
Similarly, Atkinson and Ezell go on to suggest that while establishment economists shy away from suggesting how large the US manufacturing sector should be, fearing any sort of industrial policy, it is clear that the United States should have a manufacturing sector at least large enough for it to afford its imports without running a trade deficit. Many argue there’s nothing policymakers can do to grow manufacturing even if it were a sensible goal. But Atkinson and Ezell counter that if US jobs were lost merely because wages were lower in another country, that would be one thing—but if jobs were lost because of export subsidies, currency manipulation, or other unfair practices, then there are steps the US government can take to push back.
The report emphasizes the importance of focusing on which kinds of manufacturing jobs the United States should and should not want to hold for American workers. Atkinson asks, “Why would we want to have companies bring back jobs such as assembling iPhones, absent some breakthroughs in automation that make it economical to produce them in the United States? Even many Chinese workers don’t want to be doing that kind of repetitive work. We should instead focus on the high-value-added jobs that will pay the kinds of wages Americans want to see.”
To that end, the report proposes 10 principles for a US manufacturing policy that is geared toward the kind of reshoring and economic growth that would do the most good for America:
1. Focus on traded sectors, not just manufacturing;
2. Focus on high-value-added, defensible sectors and segments;
3. Focus on the trade deficit, not jobs per se;
4. Recognize what should stay and what shouldn’t;
5. Understand that success overseas helps US employment;
6. Focus on attraction rather than compulsion;
7. Move beyond one-off deals and a low-cost business climate;
8. Change the playing field through technology;
9. Support the defense industrial base; and
10. Realize where advanced production is located in the US.
“The Trump administration is right to focus on manufacturing to bolster America’s economy, but we need to look to the future not the past,” said Atkinson. “This will mean stepping up the fight against foreign innovation mercantilist practices, improving the US business climate, and importantly, expanding investment in key manufacturing support systems. If the president can eschew ideologically based approaches in favor of a more strategic vision, his goal of reviving US manufacturing could become a reality.”