Sachin Shivaram, chief executive officer of Wisconsin Aluminum Foundry, and Harvard Class of 2003, reports from Wisconsin on the state of manufacturing today and policies to revive the economy of his home state.
Walking through our factory last week, a metal tool cabinet caught my eye. It had a label on it that said, “Made in the USA with Global Components.” I wondered, what did it take to make this simple cabinet that could not be made in America?
The “industrial guts” that used to make the nuts, bolts, and unsung interior parts of a manufactured product have offshored to lower-cost countries over the past 20 years. Offshoring was supposed to be a win for America – liberating Americans from antiquated jobs and boosting corporate profits.
The pandemic has thrown harsh light on the reality of offshoring. Today we are a nation unable to make the things we need to take care of ourselves, and unable to generate enough jobs to go around.
We need a coherent and forceful national strategy to re-shore manufacturing in America.
At our company we make cast aluminum parts for cars and other things you use every day. Wisconsin’s economy was built on machine shops, fabricators, and foundries like us who for generations have quietly manufactured the proverbial cog in the machine.
Offshoring has hit Wisconsin hard. We have lost 150,000 manufacturing jobs in the past 20 years.
Manufacturing jobs are good jobs. We can bring many of them back.
The conditions to re-shore are ripe. There is popular support to retrench from globalist trade policies. Millions of Americans are searching for work. COVID has complicated business travel needed for offshore supplier development. And American manufacturers like us who have survived decades of brutal global competition are lean, mean, and hungry.
Even still, re-shoring will not be automatic. Offshoring remains the path of least resistance for many businesses.
President Trump has the right idea in his railing against unfair trade, and the Republican-led corporate tax reform helped level the playing field by bringing our rates closer to those of peer nations. But Trump’s scattershot tactics have proved to be ill-conceived. For instance, the centerpiece of his trade policy to support manufacturing – a tariff on imported steel and aluminum – was widely panned by the very people he intended to help.
Vice President Biden has proposed a menu of thoughtful policies to revitalize manufacturing. His main idea is to expand President Reagan’s Buy America Act, which requires federal projects to use American-made construction materials. The problem is that by the government’s own estimates, only 0.2% of manufacturing workers benefitted from this policy. The federal government is just not a big enough customer to make a difference for most of us.
The two candidates’ plans have elements of what we need, but they lack coherence and force. We need a holistic national strategy that is singularly focused on bringing back the guts of American manufacturing.
A good place to start is to help existing businesses make the right choice to re-shore their supply base. Some coercion through an expansion of policies like the North American content requirement in USMCA would go a long way, as would requirements for companies to disclose their supply networks so that the public can hold them accountable.
Labor participation on public company boards could bring longer-term perspective to business decisions, counterbalancing the drive for short-term profits through offshoring.
Even our customers who are truly committed to buying from American suppliers get cold feet once they take stock of hefty one-time switching costs related to developing a new supplier. A tax credit to offset these costs would help nudge them over the hump.
We also need to ensure that our trade partners abide by the same standards of fairness to which we hold ourselves. Trade agreements should require protections for intellectual property, organized labor, and the environment. We must reaffirm our commitment to the WTO and reject the sort of interventionist economic policies like tariffs that we have embarrassingly pursued ourselves.
Then there is the challenge of boosting weak demand for capital goods in the US. The government has long-promised increased infrastructure spending. It is time to deliver on that. Policies to accelerate our move away from fossil fuels will create enormous demand for replacement of outdated machinery.
And finally, we will need to better prepare Americans to meet the demands of a modern manufacturing workplace. Let’s get high school kids excited about manufacturing through hands-on experiences. We will also need massive additional federal funding for state technical education programs like Wisconsin Fast Forward to help displaced workers retool.
From the vantage point of a small Wisconsin manufacturer, I am hopeful that with clear direction and strong action, we can course correct.
Reversing decades of economic destruction wrought by offshoring will not be easy. It’s going to take guts.