What Should the Trump Administration’s Manufacturing Strategy Look Like?

If one thing became clear in the weeks following the presidential election, it was that President Trump is serious about growing U.S. manufacturing. But what should that effort look like in practice, and what strategic considerations should guide it? Should federal policy focus narrowly on manufacturing or on traded industries more broadly? Do all manufacturing activities deserve equal treatment, or should the government target its efforts? Should the primary goal be job creation or value creation? Is it realistic to expect manufacturing to “come back” to U.S. shores, or should the focus be on expanding exports?

ITIF hosted a panel to accompany the launch of a new report addressing these questions. Urging the federal government to support manufacturing with a policy scalpel instead of a sledgehammer, the report lays out ten principles to guide the Trump administration as it develops its manufacturing strategy.

Rep. Tom Reed (R-NY), co-chair of the House Manufacturing Caucus, opened the event, noting that in talks he has had with the Trump transition team and the president himself, this administration has made it clear it is committed to rejuvenating American manufacturing.

Following Rep. Reed, ITIF President Rob Atkinson read a statement from Rep. Tim Ryan (D-OH), the Caucus’s other co-chair: “We need fundamental changes that will result in innovative, broad-based legislation that will grow the economy, reward businesses that keep jobs in the U.S., reduce the deficit, and level the playing field for American workers.”

Following Rep. Ryan’s statement, Atkinson noted that a common misperception among policymakers and experts is that the United States has lost 5 million manufacturing jobs since 2000 because of productivity gains (e.g., automation). In contrast, ITIF estimates at least half of those jobs were lost due to lagging U.S. competitiveness relative to other countries. Real value-added for U.S. manufacturing is 7 percent lower than in 2007, even as U.S. manufacturing consumption has increased. This suggests that U.S. manufacturing has lost some of its global competitiveness, in part due to other countries’ “innovation mercantilist” policies and in part because some industries have underperformed due to weaknesses in the U.S. manufacturing-support ecosystem (e.g., regulations and taxes too onerous, workers without the right skills, etc.) Atkinson advocated that the United States should manufacture enough to pay for its imports, thus reducing the record-high manufacturing trade deficit.

Instead of counterproductive, protectionist trade policies, Atkinson explained the ITIF report sets out ten principles for a strategy to boost manufacturing:

1. Focus on traded sectors like software, not just manufacturing;
2. Focus on high-value-added, defensible sectors and segments;
3. Focus on reducing the trade deficit through increasing productivity, not jobs per se;
4. Recognize what industries should stay and what shouldn’t;
5. Understand that when U.S. companies succeed in overseas markets, it can help U.S. employment;
6. Focus on attraction, rather than compulsion;
7. Move beyond one-off deals like the Carrier deal and a low-cost business climate to a coherent manufacturing strategy;
8. Change the playing field through technological advances;
9. Support the defense industrial base; and
10. Pay attention to where advanced production is located in the United States.

Sree Ramaswamy, a partner at the McKinsey Global Institute, followed Atkinson and argued the collapse in manufacturing jobs after 2000 was largely the result of a strengthening U.S. dollar and increasing U.S. exposure to overseas manufacturing. Ramaswamy warned against viewing manufacturing as monolithic; different types of manufacturing have fared differently and require difference policy support. For example, he noted that the last five years have seen a rebound in demand-driven manufacturing sectors like the automobile industry. Ramaswamy concluded by explaining manufacturing is critical to an economy because it disproportionately contributes to growth in productivity, exports, and private-sector R&D.

Ramaswamy was followed by Cliff Waldman, the chief economist at the Manufacturers Alliances for Productivity and Innovation Foundation. Waldman began by arguing manufacturing is at a “juncture” similar to 2000, and the policy choices made by the new administration could determine whether U.S. industry rebounds or continues to slide. He offered a manufacturing policy paradigm with four points. First, Waldman called for renewed focus on manufacturing entrepreneurship and start-ups. Second, echoing Ramaswamy, he called for boosting productivity by ending a “capital investment malaise.” Third, global supply chains should be optimized, in recognition of the outdated nature of an “us-versus-them” paradigm of global manufacturing. Fourth, the United States should focus on manufacturing clusters—regional economies that take advantage of geographic proximity—to increase entrepreneurship and productivity.

The panel concluded with Kelly Marchese, supply chain strategy leader at Deloitte. Marchese stated she is “bullish” on the future of U.S. manufacturing, although future manufacturing will not resemble its past role in the American economy. She reiterated the importance of manufacturing to the U.S. economy because of its salutary effects on productivity and GDP, and its multiplier effect on other sectors. The number one challenge to manufacturing, said Marchese, is talent. Unless younger workers receive training in new manufacturing techniques, the skills gap will not be solved. Marchese also called for reconsidering advanced manufacturing technologies not as a threat to U.S. jobs, but as a prerequisite for bolstering innovation. Although Marchese cautioned against trying to find “one singular solution” to the manufacturing sector’s struggles, she pointed to public-private partnerships in advanced manufacturing, citing a recent Deloitte study on the Manufacturing USA program. Through a national network of research institutes, Manufacturing USA is accelerating the R&D and commercialization of new, advanced manufacturing technologies.

Atkinson concluded the discussion by calling on policymakers to focus on translating these principles into actionable policies to support U.S. manufacturing.