President-elect Donald Trump garnered both acclamation and censure for his effort last week to stop Carrier Corporation from moving 1,000 manufacturing jobs to Mexico. Trump succeeded in part because the state of Indiana provided expensive tax incentives to the company and the president-elect himself threatened to impose a tariff on Carrier products produced outside the U.S. That’s a strategy which, if repeated every time a business threatened to take jobs overseas, would hardly amount to a win for American taxpayers and consumers. If Trump is really going to deliver on his pledge to preserve a significant number of American industrial jobs, he’s going to need more than intimidation and a “let’s make a deal” philosophy.
Fortunately, better alternatives exist, including bolstering a trend that’s already underway: reshoring, or the bringing home of manufacturing jobs by American firms. Hundreds of businesses have already found compelling reasons to begin producing goods here in the United States again, and the Trump administration can help clear some of the obstacles to reshoring to ignite even more gains.
American companies are eyeing our own shores for various reasons, including rising labor costs in places like China, where firms are now producing goods, and declining energy prices due to the domestic fracking boom. Companies are also investing again in production at home because they’re better able to protect trade secrets here than in places with widespread intellectual property theft, and because higher wages in America are at least somewhat offset by the extraordinary productivity of U.S. workers. A recent study by Deloitte on manufacturing competitiveness, for instance, estimates that American workers produce on average about $111,000 per year in Gross Domestic Product, compared with about $20,000 per worker in China.
Reshoring involves bringing jobs back to the U.S., but it also includes new investments in manufacturing facilities by companies previously sending jobs overseas. Between 2010 and 2015, the reshoring trend has produced nearly 240,000 jobs. The Reshoring Institute estimates that more than a quarter of industrial jobs that American companies have located overseas could be brought home. A 2013 study by the Boston Consulting Group estimated that reshoring—as well as new foreign investments in American industrial facilities—could generate 2.5 million to 5 million manufacturing jobs by 2020.
But government could do more to enable the trend, especially in areas that Trump has already targeted for reform. Following through on some of his campaign promises will be as important for industrial employment as the president-elect’s particular efforts to save Carrier jobs. The Deloitte study, for instance, included a survey of business executives that found that, though the United States’ competitiveness in manufacturing jobs has been rising sharply thanks to technological advancements and the strength of our workforce, America ranks low on issues like taxes and regulations. Trump preached tax reform, and cutting corporate taxes in particular could give manufacturing a big boost. Half of all executives surveyed by Deloitte said America’s corporate-tax rate is its biggest competitive disadvantage in generating industrial employment. The Milken Institute has estimated that cutting that tax by one-third, and increasing the tax credit for research and development, could add some 300,000 manufacturing jobs alone.
The second-biggest competitive disadvantage, according to executives surveyed, is the cost of health care, which makes Trump’s pledge to reform Obamacare crucial to bringing industrial jobs back to the country. In the last 35 years, health-care costs in the U.S. have risen from an average of 4.5 percent of worker compensation to about 10 percent of total pay for those with coverage provided on the job. Today, the United States spends a greater percentage of its GDP on health care than any of the nations challenging it for manufacturing dominance. The burden has gotten so heavy that many businesses have increased the use of part-time workers in order to avoid the enormous cost of paying for health care. But industrial firms prize highly trained, full-time workers, and must pay a steep price for U.S. jobs. The alternative is to leave jobs overseas, where costs are lower. That’s why stemming the sharp rise in health-care costs, and lifting some of the severe restrictions that Obamacare places on how companies can design their health coverage, could be a boon to blue-collar America.
Finally, executives considering relocating jobs back to the United States say that excessive regulation, in particular of our labor markets, represents another big disadvantage. In a recent study on American competitiveness, Gallup found that federal regulations, including workplace mandates, have added $250 billion to the cost of doing business in the United States since 1980. On top of that, states have piled local regulations onto businesses. Indeed, while local officials often preach the virtues of creating manufacturing jobs, municipal governments place a number of burdens on industrial firms, including long wait times for permits to build and expand, mandates requiring family leave for workers, high taxes and fees, and restrictive zoning. The Tax Foundation, for instance, estimates that businesses are taxed on their properties at nearly twice the rate as residences. State court decisions have also played a role in keeping some industrial jobs in America uncompetitive, particularly in cases where courts made it difficult for firms to discharge workers even when they don’t have an employment contract. These rulings reduce the willingness of firms to expand their labor forces during good times because they increase the risk that when business slumps, firms won’t be able to adjust their workforces accordingly.
Trump has promised a thoroughgoing review of federal regulations. He should place particular emphasis on examining workplace rules. And while the federal government doesn’t have purview over state laws—unless they violate the Constitution—Trump has already successfully used the bully pulpit to preach reform. He should use it to draw attention to state laws and practices that are keeping jobs overseas and depriving workers of good industrial jobs.
During his campaign, Trump pitched tariffs and incentives as ways to pressure firms to keep jobs in America. Rather than trying to intimidate American corporations, however, Trump should emphasize the opportunity presented by reshoring. Despite the obstacles government has placed on manufacturing in the U.S., industrial firms have already brought back hundreds of thousands of jobs. There’s more to gain.
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