How can manufacturing jobs be brought back to the United States?
The Reshoring Initiative has looked closely at President Biden’s plans and proposals and how they would affect reshoring. The group believes some are well founded; but others will not achieve desired goals.
The group believes that President Biden has the right objective of adding five million manufacturing jobs.
The Biden plan does not, however, include the elements to make his belief real by reducing U.S. costs by 20 percent vs. offshore and assuring universal use of total cost of ownership, among other issues.
Competitiveness requires a lower U.S. dollar, the Reshoring Initiative believes, and motivating many more students to choose a manufacturing apprenticeship or engineering degree instead of a liberal arts degree.
The Reshoring Initiative has itemized Biden’s plans on various issues, shown in bold type, followed by their critique and suggestions for improvement.
Their critique and suggestions are based solely on the plans’ ability to achieve a strong start toward balancing the goods trade deficit, reshoring the five million manufacturing jobs that Biden has promised.
Such a balance will require an approximately 20 percent reduction in U.S. manufacturing costs vs. offshore costs and increasing our skilled workforce’s quantity by 20 percent and its skills to the German level.
Biden plans that are seen as accelerating reshoring:
-- Add 5 million manufacturing jobs.
Reshoring Initiative agrees, and said that five million has long been their goal to balance the U.S. $800 billion/year goods trade deficit.
-- Directly drive reshoring by implementing a Made in America tax credit. Use subsidies, federal matching, and tax incentives to make American products more competitive and incentivize companies to reshore and expand here.
Reshoring Initiative said the plan is complicated and will be a boon for the lawyers and accountants needed to qualify companies for the incentives. Too often, U.S. manufacturing costs are 20 percent above Europe’s and 40 percent above China’s. A more efficient approach would lower the U.S. dollar 20 percent to 30 percent and make huge investments in skilled workforce to cut those price gaps.
-- 10 percent offshoring tax penalty on overseas production sold in the U.S.
OK, said the Reshoring Initiative, but this plan does not appear to apply to products purchased from other companies abroad. The group recommends a change from a profit tax to a tariff, which then will also apply to purchased products and to products imported by non-U.S. companies. The impact on consumers will be the same.
-- Public health effort of $400 billion for vaccinations, testing, PPE, etc.
This is good, the group said. It will make it easier to staff U.S. manufacturing.
-- Strengthen the Affordable Care Act.
This is also seen as being good. Put more emphasis on reducing the cost of medical care, which raises the cost of U.S. manufacturing. Cutting the U.S. cost to the German level would cut U.S. goods prices about 4 percent and reshore about 400,000 jobs.
-- $50 billion to apprenticeship and other training programs.
Reshoring Initiative agrees. Most of the dollars should be in the form of apprenticeship grants or loans, not funding to bureaucratic programs. The training should prioritize the manufacturing skills the country needs more than the skills that a trainee wants to acquire. Change the government message to show that the career opportunities and income with an apprenticeship are as good as those with a university degree. The required recruitment will not occur if free university education is an alternative.
-- Buy American for government purchases. Increase the difference in price required to justify foreign sourcing and use Manufacturing Extension Partnerships for scouting to find domestic sources.
Good idea to include use of MEPs. However, Reshoring Initiative said that changing the metric from price to TCO (Total Cost of Ownership) might double the amount of work reshored without raising the government’s total cost.
-- Tax companies that are parking income in tax havens offshore.
The group agrees. The key is to improve the system by which income is ascribed to different countries. Income needs to be taxed where products are made and sold, not where assets such as trademarks and other IP are stored.
-- China and steel tariffs are staying for now. Steel tariffs on allies likely to come off sooner.
Reshoring Initiative also agrees here, but it would be better to replace tariffs with a VAT (value added tax) on all imports as almost all other countries do.
Biden plans that are seen as hindering reshoring
-- Strong U.S. dollar. Treasury Secretary Yellen said, "The United States doesn’t seek a weaker currency to gain competitive advantage"
Eliminating the U.S. dollar’s approximately 20 percent overvaluation would drive 1 to 2 million manufacturing jobs to the U.S. Announce a gradual reduction in the value of the USD. Either buy other currencies or apply a Market Access Charge to foreign funds stored here in the form of U.S. dollar.
-- Raise minimum wage to $15 an hour.
This will, the Reshoring Initiative believes, make some work not reshorable, and will reduce the motivation for low-paid service workers to seek more highly compensated manufacturing careers and for workers to obtain the training now needed to earn a $15 wage.
It will also increase automation. The Congressional Budget Office projects a 1.3 million job loss. As an alternative, the Reshoring Initiative suggests massive expenditures to provide manufacturing skills training via apprenticeships, certificates and community colleges. The group suggests motivating many high school students to choose tech skills training instead of liberal arts university degrees.
-- Raise the corporate tax rate from 21 to 28 percent.
This will decrease the ROI on U.S. capital investment, shifting investment offshore, and will make inversions, moving headquarters offshore, look appealing again. It would be better to maintain the 21 percent rate or cut it further. Instead, raise the rate on individuals who make more than $1 million a year to recover the lost tax revenue. Companies are much more flexible in their plant location decisions than are individual taxpayers in their citizenship.
-- Repeal right to work laws.
The 27 states that have right to work laws were responsible for 69 percent of the reshoring from 2010 to 2019. The group asks do we want more jobs or fewer, but more union jobs?
-- Lower eligibility for Medicare to 60.
This will cause more workers to retire early, increasing the forecast shortage of two million manufacturing workers. Instead, gradually raise eligibility to 70.
-- Make college free for low income families ($125,000 or less).
Will shift more smart students from skills training and engineering to liberal arts degrees. We have severe skills shortages, and 30 percent of all university degree holders are in jobs that do not need a degree. Instead, offer free tuition for degrees in short supply (e.g., engineering and manufacturing) and apprenticeship loans to make apprenticeships affordable to companies and apprentices.
-- Do nothing about products outsourced offshore.
Biden’s plans all seem to deal with companies’ owned factories offshore. Most of the imports, especially from China, are produced by foreign companies or contract manufacturers. Solution: Make U.S. contract manufacturers more competitive via currency, skilled workforce, low tax rates or a VAT.
President Biden has the right objective: Add five million manufacturing jobs. He believes the objective is achievable, and American workers can compete with anyone.
The Biden plan does not, however, include the elements to make his belief real by reducing U.S. costs by 20 percent vs. offshore and assuring universal use of Total Cost of Ownership. Competitiveness requires a lower U.S. dollar and motivating many more students to choose a manufacturing apprenticeship or engineering degree instead of a liberal arts degree. Unless he takes these actions, Biden will repeat Trump’s failure.
The Reshoring Initiative is available to provide data and analysis to refine the Biden plan.
*Sources: https://www.investopedia.com/joe-biden-s-economic-plan-save-the-middle-class-4769869 and https://joebiden.com/the-biden-harris-plan-to-fight-for-workers-by-delivering-on-buy-america-and-make-it-in-america/
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