U.S. is Losing the Global Manufacturing War

By Robert J. Martin

Published by Business First in the February 24-March 2, 2006 issue

A war is raging for global manufacturing preeminence. There are battles in corporate boardrooms and skirmishes in the aisles of Walmart and Home Depot. The United States is losing.

For generations, the United States has been the world’s preeminent manufacturer. In the past, when challenged by Japanese and European manufacturers, the United States emerged the victor.

Today, however, we are quickly losing the war for manufacturing preeminence to China, while India is emerging as a major threat. The question is no longer will we win, but how badly will we lose. The outcome of the war will greatly affect our standard of living and even our national defense.

Key Economic Component

As a primary engine for U.S. wealth creation, manufacturing is a key component of the U.S. economy. Eleven percent of Americans are employed in manufacturing, earning wages second only to the finance, insurance and real estate industry. Manufactured goods are a primary source for exports. Importantly, manufacturing has a high economic multiplier that generates four times its direct economic impact by stimulating other business activity.

Manufacturing provides other value-added contributions to the U.S. social fabric. It is a primary source of innovation leading to technical and business advances that contribute to our quality of life. Semi-skilled workers can find employment in manufacturing providing good pay, training and opportunities for advancement. As we lose the war, we are losing the many benefits that flow from a strong manufacturing base.

Our national defense also depends on U.S. manufacturing. When threatened, we must control the infrastructure, resources and core competencies needed to produce mission-critical weapons and material. Since supply lines are critical, it is foolish to depend on distant suppliers for defense-related products. Finally, the technical innovation provided by a strong manufacturing sector is needed to maintain the lead in the development of advanced weapons systems.

Manufacturing In WNY

Manufacturing is even more important to the Western New York economy. Almost 15 percent of our workforce is employed in manufacturing, generating 25 percent of the region’s wages.

As a major border crossing, distribution and shipping of manufactured goods also contributes disproportionately to our economy. As a region, we have an unusually high stake in the outcome of the global manufacturing war.

The United States is unable to maintain its preeminence in global manufacturing for a number of reasons. Information flows very quickly in today’s connected business environment, providing ready access to manufacturing best practices.

Most countries have significant competitive advantages including lower labor costs, favorable tax structures, and fewer regulations.

In truth, U.S. manufacturers do not want to win some of these battles. For example, attempting to defeat developing countries in the battle for lower labor costs is not in the best interest of the United States, as we want our employees to have an excellent standard of living.

If we already know that we will lose the war, we should position ourselves to ensure victories in the following “must win” battles: creative and innovative technology and business practices, high technology content in our products and processes, and workforce productivity. These battles are currently underway, and there is no time to waste.

‘Must-win’ Battles

To position ourselves for victory in these “must win” battles, the United States must focus more attention on its global manufacturing war. Business as usual will not work.

In the short term, we should align the tax, regulatory and legal structure to appropriately support business, increase investments in public and corporate R&D, enforce intellectual property protection, and stimulate private capital investment for plant and equipment modernization.

In the longer term, we can improve public education for all students, increase scientific and engineering education, and help provide workforce development training.

Most importantly, we need to capitalize on the competitive advantages provided by our free and open society by welcoming and stimulating the drive, creativity and innovation provided by our diverse thought, cultural, and racial/ethnic representation.