In his State of the Union address, President Obama called for a wide-ranging package of policies to help create American manufacturing jobs, including trade enforcement measures, business tax breaks and worker training programs.
In many ways, the proposal is surprising, as few economists now consider manufacturing a potent engine for job growth in the United States. Manufacturers have added about 330,000 jobs in the country in the last two years. But the growth followed three decades of decline, during which companies like automakers and textile companies slashed payrolls by about 7.5 million. That has led many economists to say the recent turnaround might be nothing more than a correction from the depths of the recession.
But the administration argues that big trends — like rising wages in developing countries, falling wages in America and a weaker dollar — have made moving work to or keeping work in the United States a much more viable option. And they say that manufacturers will continue to add jobs domestically, especially with a little help from Washington.
“We have a huge opportunity, at this moment, to bring manufacturing back,” Mr. Obama said in his address to Congress. “But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed.”
The proposal stems from a belief that after “a long period where people felt the wind was in our face, the wind is with us,” said Gene Sperling, director of the White House National Economic Council. “It’s not fighting against the trends. It’s actually working with them.”
Workers might command relatively high wages in the United States, but wages are climbing rapidly in countries like China and Brazil. High energy prices have increased shipping costs. And manufacturers argue that American workers frequently produce higher-quality goods and that American factories are closer to the markets for more sophisticated goods.
Those trends have led some companies to repatriate manufacturing jobs in the last few years, a development called on-shoring. General Electric has decided to move production of a water heater to Louisville, Ky., from China, for instance. NCR, a maker of self-service kiosks and automated teller machines, has shifted jobs to Columbus, Ga.
It is difficult to determine how many jobs American manufacturers are sending overseas or bringing back. But in a November survey by MFG.com, a site that connects manufacturers with suppliers, one in five North American manufacturers said they had brought production back from a “low-cost” country, up from about one in 10 manufacturers in early 2010.
Economists said that the administration could help sustain the trend. But they warned that the administration’s proposal seemed unlikely to lead to major job growth, and said that many businesses would still hire lower-cost workers overseas.
“We’re not going to get very labor-intensive, relatively low-skilled jobs in America, and I don’t think we want them,” said A. Michael Spence, a professor at New York University and Nobel laureate in economics. “But sometimes it makes sense to have a little help developing technologies that will make us competitive. And sometimes public support for upgrading workers’ skills makes sense.”
“The best we could possibly get is continued modest growth in manufacturing jobs,” said C. Fred Bergsten, director of the Peterson Institute for International Economics, a research group in Washington.
Mr. Bergsten noted that manufacturing continued to become more efficient, meaning companies needed fewer and fewer workers. American manufacturers produced roughly the same amount of goods in 2010 as they did a decade before, but they did so with six million fewer employees on their payrolls. Mr. Bergsten also argued that sending jobs to other countries continued to make sense for many global firms. “You’re trying to buck two major trends,” he said.
Some economists also questioned whether Washington should be giving manufacturing a hand at all.
“It’s totally implausible to think that there’s going to be a surge in manufacturing jobs,” said Lawrence F. Katz, an economist at Harvard. Broader measures to improve American infrastructure and education, he said, would be more effective in creating middle-class jobs.
But the White House says that manufacturing offers significant potential for new jobs — jobs that require more skills and offer better pay than the assembly lines 30 or 40 years ago. And it says that even modest incentives might make a difference.
To that end, the administration has put together a far-ranging set of proposals: cutting taxes for manufacturers that produce goods in the United States, taking away tax breaks for businesses that move jobs offshore, doubling a tax deduction for makers of high-tech goods, providing support to businesses investing in areas where factories are closing, expanding worker training programs and creating a new task force to better enforce trade rules and intellectual property rights. Closing a loophole that allows companies to shift profits abroad would pay for the tax credits, the White House says.
It all adds up to what economists might call an industrial policy, the out-of-favor practice of using tariffs, taxes and other measures to help a particular industry. The White House avoids the term because it implies that the government is picking winners and losers. It argues that its proposals are a moderate plan to aid businesses deciding whether to move jobs overseas.
Countries like Germany, Japan and China offer far larger tax breaks and financing support to their manufacturers, the administration argues. Such countries have “been in a bear hug” with manufacturers, said Fred P. Hochberg, president of the Export-Import Bank of the United States, a federal agency. “We’ve held them at arm’s length.”
Mr. Hochberg said a focus on manufacturing and exports might lead to more sustainable growth. “For the last three decades, we’ve relied on the U.S. consumer for growth,” he said. “But now we’re seeing growth coming from an investment in infrastructure happening in the emerging economies,” where American companies should be selling their wares and expertise.
The administration also called for a focus on manufacturing because of its spillover effects on the economy. “We do believe that manufacturing punches above its weight economically,” said Mr. Sperling of the National Economic Council. “Advanced manufacturing is critical to your innovative capacity as a country.”