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Make America Make Again

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Make America Make Again

Amid a supply-chain crisis, Biden administration policies are thwarting efforts to bring industrial jobs back home. Spring 2022
Economy, finance, and budgets
Politics and law

Optimism among American manufacturers hit a 20-year high during the Trump administration, but the mood changed swiftly after Joe Biden was elected. Fearing a tsunami of onerous and expensive new regulations, manufacturers began halting expansion projects and trimming planned investments. The CEO of a midsize Ohio company, Alloy Precision Technologies, told USA Today that his firm had spent $9.5 million on new equipment to expand domestic production during the Trump years. Now, though, it was delaying an additional $2 million in spending for equipment and hiring because the Biden administration’s new directives raised costs on everything from labor to opening and expanding industrial facilities. As USA Today noted, in his first few weeks in office, Biden signed “a whirlwind of executive actions” dismantling Trump’s deregulatory agenda, which the Republican president had initiated to cut costs, especially for industrial firms.

Just a few months after Biden took office, the United States faced a crisis unanticipated by his agenda: a pandemic-related breakdown of worldwide supply chains that caused widespread shortages of goods ranging from medical gear and medicines to microchips and everyday items like cleaning wipes and toys. In February 2022, the crisis grew worse with Russia’s invasion of Ukraine. Sanctions, severed trade routes, and a ban on importing Russian oil provoked rare unanimity among Democrats and Republicans: the United States needs to make more stuff here in America, instead of relying on foreign suppliers.

How to pull that off remains the question. Facing intense pressure, the Biden administration issued a policy paper claiming that the U.S. could revive domestic industrial output by toughening employment standards—which inevitably would raise costs—to create “good jobs” and by subsidizing favored industries like clean energy. Some Republicans responded with plans that amounted to putting American industry on a war footing, with government decreeing certain sectors essential and requiring that their goods be made here.

What both sides largely ignored is something that industrial companies themselves have said for years: the Number One reason they’ve offshored jobs is costs, and 50 years of growing regulation at the federal, state, and local levels contributed enormously to that burden. By one count, industrial firms must adhere to some 300,000 federal regulations alone—a bureaucratic tax of hundreds of billions of dollars annually. Local zoning and environmental laws often short-circuit valuable industrial projects, even when they pass federal muster. The Trump administration, to its credit, understood this, which is why it initiated a regulatory review of industrial policy and began hacking away at some of the most arduous and outdated regs. But it didn’t get far enough in one term, and Biden already has undone much of what Trump accomplished.

Still, any cursory examination of the effects of these regulations, many decades old, suggests that the first step in re-industrialization—the low-hanging fruit—would be deregulatory policy that makes manufacturing in America more competitive, including enabling firms to build new plants and staff them at reasonable costs. It’s doubtful that the Biden administration, which somehow imagines that a green energy policy would alleviate the supply-chain crisis, will make such an effort. But some future pro-growth president will likely make that project central to bringing back more U.S. jobs.

“How did the most dynamic country on the planet become so sclerotic? We did it to ourselves,” economist Eli Dourado noted in the New York Times last year. “We enacted laws that privilege the status quo at the expense of change and progress. We liberally passed out veto rights to anyone with the money and wherewithal to hire a lawyer. If we want to reverse the damage and create a more prosperous future, we must make it easy to build”—and to manufacture.

The decline of American manufacturing has been a long process, with many causes. Industrial jobs peaked in the U.S. in the late 1970s, at about 19.4 million, began falling in the steep recessionary period of 1980 through 1982, and then kept cycling downward, to about 12.2 million today. As a portion of the private-sector economy, the manufacturing decline has been even more dramatic, falling from more than a quarter of all jobs in 1980 to around 10 percent today. Liberalization of trade policies that encouraged globalization of manufacturing, plummeting transportation costs, a rise in output in Third World countries that began mass-producing goods: all played a role in the massive shift away from industrial production in the U.S. and in other developed economies.

This globalization brought lower costs and greater availability and variety of goods for U.S. consumers. And the larger American economy has kept expanding, despite manufacturing’s contraction, adding some 45 million private-sector positions since 1980. But a price was incurred as well, in the decline of regional economies that once depended substantially on industrial jobs, and in the greater reliance in the U.S. on goods from around the globe—a development that has contributed to the current supply-chain crisis.

Even pre-pandemic, American firms had begun talking about “reshoring” industrial jobs and buying more supplies from domestic sources. Some of the movement to reshore has been a response to escalating expenses overseas—including labor—that have eroded the price advantage that came from making things elsewhere. Industrial wages in China, for instance, have risen approximately threefold since 2000. Another key factor: falling energy costs in the U.S., spurred by the nation’s natural-gas and oil-fracking boom. Some companies have already acted on the reshoring front. One survey estimated that, between 2010 and 2015, U.S. firms that make things overseas had brought back some 240,000 jobs. A 2013 Boston Consulting study suggested that new investments in American plants and equipment could add 2.5 million to 5 million industrial jobs in the country, under the right circumstances.

“Manufacturers argue that a thickening regulatory tangle makes it more expensive to hire workers.”

Pandemic-related supply woes have more firms thinking this way. A recent Thomas Industrial Survey found that 83 percent of U.S. manufacturers that make products overseas were considering reshoring some of those jobs. The survey also found widespread interest among American companies in shifting some supply contracts from foreign sources to U.S. producers. Automotive companies, slammed by microchip shortages and other supply delays, along with natural-gas and oil businesses, are the most motivated to switch back to American sources. The potential added value to the U.S. economy of such moves is nearly $450 billion, says Thomas.

But significant obstacles remain—above all, the continuing high cost of manufacturing things in America. Some 40 percent of firms still list that as the top concern. For years, manufacturers have argued that a thickening regulatory tangle makes it more expensive to hire workers, delays the opening of projects and plants as they wait for bureaucratic approval, and requires considerable outlays to comply with government mandates and (once again) to pay for energy.

Over the past 40 years, the National Association of Manufacturers calculates, the federal government has issued an average of one new regulation a week affecting industrial firms. And, if anything, the pace of new regulations has sped up, though the U.S. already has some of the developed world’s strictest standards on everything from workplace safety to labor practices. During the tenure of President Bill Clinton from 1993 through 2000, the federal government issued an average of 36 major regulations (those costing more than $100 million to employers) a year. During the Obama administration’s first term, that number doubled, to 72 major new regulations yearly.

Donald Trump built a significant part of his presidential campaign on reinvigorating American manufacturing. Once he was elected, some of his policies—especially imposing tariffs on imports—drew intense criticism from free-market economists. And he took a heavy-handed approach to firms that announced that they were moving jobs overseas—threatening, for example, the heating and cooling company Carrier with reprisals when it announced that it was eliminating 1,000 jobs at an Indianapolis factory. Carrier eventually accepted $7 million in government incentives to stay.

But Trump officials also recognized that the regulatory regime was a significant drag on American jobs. Shortly after assuming office, Trump instructed the Commerce Department to study how to streamline regulations affecting the industry. Federal officials sought comments from company officials describing the rules they must adhere to, as well as their price tag. Manufacturers complained about, among other things, how often federal rules required them to inspect and report on their operations. One industrial firm told officials that it had to send an employee weekly to the roof of each of its eight plants to ensure by sight that they weren’t leaking emissions. Since 2011, the unnamed firm said, it had made more than 700 such inspections, consuming 1,000 worker hours, without observing a leak.

Another business noted that, while it had once spent most of its environmental resources on equipment that reduced emissions, its regulatory costs lately had grown because of increased recordkeeping, demanded by the feds. Other companies complained, a Commerce Department report said, of “inadequately designed rules that are impractical, unrealistic, inflexible, ambiguous or lack understanding of how industry operates”; of duplicative regulations; and of lengthy approval processes for projects and deadlines that federal bureaucrats regularly missed.

The Commerce Department later recommended that every federal agency that issued regulations affecting manufacturing should develop a reform plan. It also urged accelerated permitting for industrial facilities using the federal FAST Act, originally designed to provide rapid approval for transportation projects. The report criticized the cost-benefit analyses that many federal agencies must do in evaluating projects, finding that they often fail “to capture the true costs of implementing regulation.” Commerce officials urged agencies to adopt more rigorous methods.

Added to these reform initiatives were the Trump 2017 tax cuts, which reduced the basic corporate rate and offered incentives to encourage companies to invest more of their foreign earnings back in America. One global manufacturer, Illinois-based INX International, recounted late last year how it had boosted investment in the U.S., thanks to tax-reform savings—including expanding its workforce by 7 percent and purchasing new equipment. “We have not had one year since 2017 without raises or an increase in benefits,” the company’s top finance officer said. “That’s because the company has been doing pretty well—reaping the benefits from the economy and tax reform.”

The momentum that such steps created clearly influenced manufacturers’ plans. After slumping 1.85 percent, to $2.085 trillion in 2016, manufacturing output in the U.S. surged to $2.334 trillion in 2018, a gain of nearly 12 percent for the first two years of the Trump administration. Those gains coincided with a sharp uptick in manufacturers’ optimism. In a survey by the National Association of Manufacturers in the third quarter of 2016, 61 percent of manufacturers said that they were optimistic about their business. By the fourth quarter of 2017, that number had hit 94.6 percent, and then climbed still higher, to 95.1 percent, in mid-2018—an all-time high for the industrial index.

Biden agreed broadly with Trump’s desire to bring more manufacturing jobs back to the United States. Soon after his inauguration, he signed an executive order attempting to strengthen existing federal efforts to use government’s massive procurement spending to buy increasingly from domestic sources. But other Biden executive orders and legislative proposals have proved far more troubling to industrial firms. Biden’s plan to enact a minimum corporate tax, for instance, would undo some of the Trump tax relief by effectively ending key deductions for investing in local plants and equipment, manufacturers have warned. “Right now, any savings get invested into our people and our operations,” the INX chief financial officer said about the proposed Biden tax hike. “Any loss will negatively affect that.”

Biden’s push to impose labor-union organizing on companies and raise the country’s already-high labor standards would inflate the already-high cost of making goods in America. The administration’s proposed PRO Act would end right-to-work features of federal law, which allow states to let workers opt out of unions, even when the workplace is organized. Today, 28 states are right-to-work, and they accounted for 70 percent of manufacturing-employment growth in the economic rebound after the 2008 recession. Right-to-work has become a key feature of site selection for foreign firms looking to open industrial plants in the U.S. and for domestic firms expanding their manufacturing workforce here. Many of the biggest new U.S. plant projects announced recently, including those by Ford, General Motors, and Volkswagen, are located in right-to-work states. Ending this option wouldn’t boost unionization; instead, it would further discourage reshoring and likely dampen American manufacturing employment.

Many of the biggest new U.S. plant projects are in right-to-work states—like Tennessee, where workers are seen assembling Volkswagen sedans at the automaker’s plant in Chattanooga. (Erik Schelzig/AP Photo)

The PRO Act reflects a broader Biden administration commitment to intensify regulations, increase bureaucratic oversight, and funnel resources to favored industries. That’s clear from a June White House report, purportedly on how to reinforce the country’s supply chains and revitalize manufacturing. In some 250 pages, the report manages largely to ignore the chief reason that manufacturers locate jobs overseas—those high domestic costs—and focuses instead on a parade of “woke” goals for industry and on government interventions that inevitably will make it more expensive for most firms to operate. The document attributes some of the country’s supply problems, for example, to “lost Einsteins,” who never fulfill their destiny to become “workers, researchers, and entrepreneurs” because of America’s “inequality in income, race, and geography.” The administration commits to new, unspecified “pathways” to develop these resources.

Another key to solving supply-chain problems, the report says, is to increase pay and benefits for manufacturing and logistics workers through higher labor standards—though many of these workers, even in nonunion shops, earn considerably above the average for similarly educated employees in other fields. The administration’s focus is also on developing green industries—ensuring, for instance, that enough rare minerals are available to manufacture lithium batteries for electric cars. Government interventions, including subsidies for green products and using the Defense Production Act to impose federal controls on production in key industries, are additional favorites. But while such measures might help a few sectors through government subsidies and protections, they would do little to solve the broader supply-chain problems affecting the country.

Manufacturers are just as concerned about the Biden administration’s energy policies—from the refusal to support key energy projects to proposed higher taxes on natural gas to halting new leases for gas and oil extraction on federal lands. The administration rolled out these policies even as worldwide prices of oil and gas rose and then soared even higher with Russia’s invasion of Ukraine, hampering manufacturing worldwide. In Europe, some energy-intensive firms even went as far as shutting down production following a 250 percent increase in natural-gas prices last year. In the U.S., where an explosion of oil and gas production had kept prices down for the last decade, costs doubled in 2021, spiking upward even more after Russia’s attack and the Biden administration’s ban on importing Russian oil. Even with extraordinary gains in efficiency over the last 30 years, industrial companies still use a quarter of all the energy consumed in America, so the future health of the sector depends on keeping those costs under control.

Manufacturers applauded Trump’s moves to stimulate energy production and distribution, including an executive order to fast-track approval of infrastructure projects like the Keystone XL pipeline. Biden, by contrast, killed the pipeline, threatening America’s “energy security,” the National Association of Manufacturers said. When the administration later announced that it would release oil from the country’s strategic reserve to curb skyrocketing prices, the manufacturers’ association dismissed the action as a “Band-Aid.” “A true energy strategy would strengthen our energy independence, enhance manufacturers’ competitiveness and alleviate many of the other supply chain challenges facing our nation,” the group contended. “Instead of asking OPEC and Russia to fill the void, we should let American energy workers take the lead.”

Chart by Alberto Mena

What should be the agenda, then, for making domestic manufacturing more competitive? For now, Republicans and moderate Democrats in Washington should try to stop the Biden administration from continuing down its cost-increasing path. One important move would be to block any future legislative attempts to federalize required unionization. Biden has already showed that he wants to suppress competition among states in this area. The significant manufacturing gains in states that rank among the least taxed and most sensibly regulated in the U.S. offer a clear lesson in how to boost industrial employment.

Policies that offer expanded social benefits that discourage work should also be opposed. Extra stimulus rounds during the pandemic, including supplemental federal unemployment benefits that stretched into last summer, undermined the nation’s jobs recovery, as many of the unemployed simply stayed home. Biden has other proposals that industrial firms say would worsen this disincentive problem, among them dropping the age of Medicare eligibility from 65 to 60. That move, experts at Kearney Consulting argue, would “encourage more workers to retire earlier,” disproportionately affecting manufacturers because a quarter of their workforce is already 55 or older. Similarly, the strong push within Democratic circles for free college for all would likely pull many potential industrial workers into college, whether that was right for them or not. By contrast, Biden should maintain initiatives, endorsed by both the Obama and Trump administrations, to funnel more aid into manufacturing-training pathways, including apprenticeship programs, which often reward students with well-paying industrial jobs.

“Manufacturers applauded Trump’s moves to stimulate energy production and distribution.”

There is harder work to be done, probably by some future pro-growth president and more moderate Congress. High on the list would be to reinstate the regulatory reform efforts that Trump began for manufacturers but that Biden quickly rescinded. Industrial firms have urged Biden to continue to reduce regulations on the sector, to expedite environmental reviews by federal agencies, and to pressure the bureaucracy to meet its deadlines for reform.

An even bigger task would be to reform outdated federal laws. Legislation from the 1970s such as the Clean Air Act and the National Environmental Policy Act sought to address serious environmental problems by regulating industries’ emissions and waste. Over the decades, the U.S. has made enormous strides in this area, only to see the weight on industry keep getting heavier. According to the Environmental Protection Agency’s own data, for instance, since 1980, the U.S. has seen lead levels in our air decline 99 percent, while carbon monoxide has fallen 75 percent and sulfur dioxide 93 percent. Yet despite such gains, a growing federal environmental bureaucracy has extended the time that it takes to approve new facilities and has hugely increased expenses. Consider the “vintage-differentiated regulations” of the Clean Air Act, which require a company building a new plant to incorporate the latest (and usually the most expensive) technology for emissions control. In 1970, the authors of that act wanted to ensure that firms rapidly adopted the newest technology to reduce pollution. Over time, though, as technologies have improved, the need to install the very latest equipment in any new plant or in an expansion of any older facility has become a disincentive to such projects—including plants that companies might build to return jobs to the U.S., according to research by Harvard environmental economist Robert Stavins.

The Biden administration’s study calling for a domestic-manufacturing revival proclaims: “We must rebuild our small and medium-sized business manufacturing base, which has borne the brunt of the hollowing out of U.S. manufacturing.” Yet it’s smaller industrial firms that bear the heaviest load from government regulatory policies. The average bill to comply with regulations amounts to nearly $35,000 a year per employee at manufacturing firms with fewer than 50 workers—almost triple the proportionate weight that government policies impose on large manufacturers, according to one study. But Biden intends to add expensive new rules and mandates. It’s a giant discordance between cause and effect that will only make it harder to bring jobs back to America.

Top Photo: Last summer, dozens of cargo ships waited outside American ports to unload their goods. (Jason Armond/Los Angeles Times/Getty Images)

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