While it has slowed down some, U.S. manufacturing has continued along a robust recovery path in recent months. That's a good sign, but it may not be enough to return the sector to a leading position in the world, according to Jeremy Leonard, an economic consultant for the Manufacturers Alliance for Productivity and Innovation (MAPI).
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"U.S. manufacturers face structural costs that are more burdensome than in many of our major trading partners," Leonard said in our recent MDM Webcast, the 2012 Economic Outlook: Moving Forward in Fragile Times. Productivity growth over the last 10 to 15 years has outpaced our industrialized trading partners, but manufacturers are improving productivity "against a tide of structural costs."
Structural costs in the U.S. – including corporate tax rates, employee benefits, torts, energy and pollution abatement – are about 20 percent higher than in the trade-weighted average of its nine largest trading partners. And that's for both industrialized and emerging trading partners, Leonard says.
This disadvantage stays with us no matter where in the economic cycle we are.
"Policy makers have become a little complacent in thinking the U.S. is a low-cost environment in terms of friendliness to manufacturing," Leonard says. "The data simply do not bear that out."
Excluding the structural costs would bring the cost of manufacturing in the U.S. below that trade-weighted average of the nine largest trading partners. Simply addressing the costs associated with corporate taxes and employee benefits – particularly health care costs – could go a long way toward addressing the competitiveness issue U.S. manufacturing faces, he says.