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January 27, 2017

The Future Of American Manufacturing Is High Tech, Not High Tariffs

  Investor's Business Daily

Donald Trump scored a major PR coup when Carrier Corp. and Ford Motor Co. — concerned about potential tariffs and angering a new administration — announced they would be keeping hundreds of manufacturing jobs in the U.S. rather than transferring them to Mexico.

But if the 45th president really wants to revitalize U.S. manufacturing, he'll need to focus on companies of the future, not the past — because that's where the growth will be.

A few decades ago, Rust Belt states like Indiana, Pennsylvania, Ohio and Michigan churned out manufacturing jobs at a blistering pace. According to the St. Louis Federal Reserve Bank, manufacturing jobs peaked in 1979 at nearly 20 million Americans.  But 7 million of those positions have since disappeared.

Foreign competition isn't actually the main culprit. About 85% of the jobs were lost to advances in technology and automation.  Today, U.S. factories are producing 2.5 times as many goods as they did in 1980, but with one-third fewer employees.

From an economic standpoint, that's exactly what you want — increased production spread over fewer employees means higher wages.

But it also sends another message: If the U.S. is to grow its manufacturing base, as President Trump has promised, it won't be because a handful of large, decades-old companies decide not to export a few thousand jobs.  It will be because some of the fastest-growing companies in our country are creating 21st-century manufacturing jobs by focusing on new technologies.

Consider 3D printing. Computerworld predicts the industry could triple in size over the next four years, growing to $21 billion in revenue. Experts look for exponential growth after that.  A recent report from Wohlers Associates estimates that 3D printing "could one day become a $640 billion market, if it captures only 5% of the $12.8 trillion manufacturing industry market share."

And it just might, because the technology has such huge potential. It can be used to make everything from hearing aids to car parts. Ford, for example, boasts that it can now print prototype parts in four days for just $3,000. Creating those prototypes via traditional methods used to take four months and cost $500,000.

Think about how such innovations could dramatically reduce inventories, which are costly to maintain.  "Need a part?  Give me 10 minutes and I'll make one for you."

And the most fascinating part of 3D printing's future: printing human body parts to be used to repair and replace our old ones.

Or consider space exploration.

SpaceX, a rocket company famous for its plans to send humans to Mars, isn't just launching rockets. It's launching manufacturing jobs. In 2016, SpaceX dramatically scaled up production of its rocket cores from 18 to over 30 per year, which has boosted demand for engineers with advanced degrees as well as skilled tradesmen.

And those jobs pay well, with welders reportedly earning $31 per hour, on average.

Private-sector space exploration and 3D printing are still in their infancy, but they will spawn numerous offshoot industries creating thousands of manufacturing and related jobs, and it won't be easy to offshore those jobs.

And there is another manufacturing industry that's likely to see significant growth: energy and refining.

Innovative drilling techniques are behind the decade-old explosion in crude oil and natural gas production.  In addition, several liquefied natural gas terminals are currently under construction at several U.S. ports.  Those high-tech terminals will have to chill natural gas to -260 degrees before it can be loaded on a tanker and exported.

It's cutting-edge industries like these that could revive American manufacturing, but it's not a given.

Regulations that hamper new business creation and innovative ideas need to be scaled back.  For example, Amazon just began its trial drone delivery service — in the U.K.  That's in part because of restrictive FAA regulations.

And when the private sector can provide a service — like SpaceX's efforts to shuttle people, satellites and supplies into space — the federal government ought to be a catalyst rather than a roadblock.

Finally, reforming the corporate income tax system is critical.  Lowering the corporate tax rate, as President Trump and Republicans have proposed, will do more to create manufacturing jobs of all kinds than any tariffs or restrictions the White House or Congress could impose.

If Trump focuses on these reforms, rather than punitive tariffs, he'll stand a good chance of rejuvenating American manufacturing.


 

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