Federal Lights on for Lights-Out Factories

Real U.S. manufacturing output is falling as a share of GDP. Advanced manufacturing output as a share of GDP is below the global average. And manufacturing productivity growth has stagnated.

So, President Trump is right: The United States needs more manufacturing, especially in advanced sectors. But that’s easier said than done. The relatively high cost of doing business in the United States, coupled with a strong and stubbornly high dollar, means it is often not cost-effective to produce here.

Trump’s solution is tariffs and tax cuts. While tax cuts can help, the reality is that even if key provisions from the 2017 Tax Cuts and Jobs Act are restored in the “One, Big, Beautiful Bill,” the average effective tax rate for manufacturers would still be around 13 percent of profits. Given that profits are about 9 percent of sales, cutting manufacturers’ taxes by half would reduce costs by less than 1 percent. Given that U.S. News & World Report ranks the United States 82nd in manufacturing cost competitiveness, we need more than a 1 percent change.

What about tariffs? Tariffs could certainly reduce the cost differential, at least with some countries. But there are four big problems:

1. To the extent that tariffs apply to all imports, as President Trump appears to want, they will raise costs for many U.S. manufacturers by making inputs more expensive.
2. Other nations are likely to retaliate with their own tariffs, thereby significantly reducing U.S. manufacturing exports.
3. Absent congressional authorization, especially through trade agreements, Trump’s tariffs will rightly be seen as temporary, reducing their effectiveness in encouraging onshoring.
4. Tariffs lower living standards by raising the production costs of consumer goods.

But we can no longer follow the counsel of globalists like Fareed Zakaria, who argue that manufacturing doesn’t matter. That notion is so nonsensical it’s barely worth rebutting.

So, what to do? It’s time to think big and bold. In this case, the United States should pursue a super-automation moonshot: a national initiative to establish 50 to 100 demonstration factories that deploy state-of-the-art automation technologies. The goal would be to minimize labor hours, materials waste, and other production costs to the bare minimum.

“Lights-out” factories are highly automated manufacturing facilities that can operate with minimal or no human intervention at all. They often run in darkness (hence the name) because human visibility is not required. These facilities represent the pinnacle of industrial automation, leveraging advanced robotics, artificial intelligence, and IoT sensors.

Companies in many nations are already moving in this direction. For example, Chinese phone maker Xiaomi builds one phone per second with no human workers, using only robotic automation. It has also established mines with 100 percent unmanned materials trucks.

In Japan, FANUC, a leading robotics maker, operates a factory in Oshino where robots build other robots, and the facility can run unattended for up to 30 days. Similarly, Daifuku’s Shiga factory in Japan can operate without human oversight for 72 hours, producing material handling systems.

In the Netherlands, Philips produces electric razors with just nine human quality-assurance workers overseeing hundreds of robots. In Germany, Siemens’ factory in Amberg manufactures programmable logic controllers with extremely high levels of automation and minimal human oversight.

Beyond industry investment and advancement, governments around the world are actively promoting lights-out factories and super-automation.

• Japan offers substantial tax incentives for companies investing in advanced robotics, including accelerated depreciation and tax credits.
• South Korea's Intelligent Factory Support Program provides financial subsidies covering up to 50 percent of the cost for SMEs implementing smart factory technologies, with special emphasis on fully automated systems.
• Germany's Industry 4.0 initiatives offer tax breaks and funding through programs like INNO-KOM and ZIM to help firms transition to highly automated production.
• Singapore's Automation Support Package combines grants, tax allowances, and loans to support companies implementing automation solutions, with funds covering up to 50 percent of project costs.
• And of course, China's Made in China 2025 strategy includes significant subsidies and low-interest loans for companies developing unmanned factories as part of national industrial modernization efforts.

It’s time for the United States to get on the lights-out bandwagon, with clear, actionable policies to support such factories.

The first step is to want it. U.S. Commerce Secretary Howard Lutnick recently said the Trump administration wants to create and operate “the greatest automation build in the history of modern mankind.” That’s fantastic.

But as the saying goes, if wishes were horses, beggars would ride. Wanting it isn’t enough. The federal government must act to make it happen. Too many American firms prefer to go “asset-light” and avoid building the advanced production infrastructure we need. So, even with tariffs, they are unlikely to create globally best-in-class automated factories.

Allowing first-year expensing, as Congress is hopefully about to do, would help. But in addition, Congress should implement an investment tax credit for manufacturers that achieve a position in the top 10 percent of their industry in value-added per worker. In other words, if companies invest in super-automation and succeed, they should receive a sizeable tax credit on the equipment they purchased.

Congress should also pass a “CHIPS-like” bill to provide grants of up to 50 percent for company expenditures to establish super-automated facilities. These would be factories in which companies commit to reaching a productivity level—measured as value-added per production worker—greater than 90 percent of firms in their industry. Companies in states offering even more generous matching incentives would receive higher priority for federal funding. As a condition of receiving support, recipient firms would agree to participate in business school case studies and help disseminate lessons learned to other U.S. manufacturers.

This kind of initiative is sorely needed if the United States hopes to avoid an even more hollowed-out manufacturing base, producing mostly items that are hand-assembled. Already, U.S. manufacturers lag significantly behind most advanced nations, including China, in robotics adoption. A recent National Science Foundation survey found that just 8.3 percent of manufacturers used robotics, while an astounding 55 percent didn’t even consider robots applicable to their business.

Okay, I can already hear two complaints. First: What about jobs? What about them? There are two main reasons to boost manufacturing: to reduce the trade deficit and national debt, and to increase national power. Jobs are not one of those primary reasons. We already have a low unemployment rate.

Second, a complaint from the right: Isn’t this industrial policy, and why won’t the market do it? Yes, it is industrial policy—thank you. And no, the market won’t do it, because companies understandably don’t care about national power or the trade deficit. That’s the role of the nation-state.

So, if we are to make Lutnick’s vision more than a nice slogan, Congress needs to act.