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President's Message: Higher costs are killing U.S. manufacturers |
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Written On: November/December 2006 |
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Written By: by Don C. Brunell, AWB President |
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There’s an old saying about "fighting with one hand tied behind your back." It means that you’re at an unfair disadvantage.
Nowhere is that more true than with America’s manufacturers. Once the backbone of the American economy, today they are under increasing pressure from foreign competitors who pay lower wages, expedite permitting, and have fewer costly regulations. Yet, in the United States, the amount of money it takes to make products keeps rising.
U.S. manufacturers are doing everything they can to cut their costs and become more efficient, but today the problem is “external costs,” meaning costs over which employers have no control. Those are things like taxes, mandated employee benefits, liability insurance and lawsuits, energy prices, and regulatory costs.
According to the National Association of Manufacturers, the situation is bad and getting worse.
In a 2003 study, NAM found that external costs added 22.4 percent to U.S. manufacturers’ production costs compared to their nine global competitors — countries like Canada, Japan, China, South Korea, Taiwan and Mexico.
The most recent study shows that those costs have escalated dramatically and now add 31.7 percent to U.S. manufacturers’ costs. That’s a whopping 42 percent increase!
I got a first-hand look at those competitive challenges on Gov. Gregoire’s recent trade mission to South Korea and Taiwan. It became abundantly clear that all of us must realize manufacturing today is competitive worldwide.
Today, it is virtually impossible for U.S. producers to pass increased costs along through higher prices. In fact, product prices are either flat or falling, while manufacturer costs for construction, health care, education and other non-manufacturing sectors increased nearly 60 percent.
The stakes are enormous. Manufacturing in the United States generates about $1.4 trillion a year, or about 12 percent of our gross domestic product, and supports 20 million family-wage jobs with good benefits. It accounts for 75 percent of our industrial research and development and two-thirds of U.S. exports of goods and services.
Washington is a leading manufacturing and exporting state. We produce and export everything from airplanes to software, irrigation systems to digital voltage surge relays, bottled apple juice to beef. Our state also is a high-cost state when it comes to state and local regulations, taxes, unemployment insurance, health care and wages. In the past, our low and reliable electric rates gave us an offsetting advantage, but today electricity is no longer cheap, and our long-term supply is in question.
If we do not reverse the trend, those jobs for our children and grandchildren will be lost to foreign competitors.
So, what should we do?
The first step is a comprehensive energy policy for our state and nation which utilizes all sources of energy, encourages domestic exploration for gas and oil, develops clean coal and safe nuclear power, and continues to promote production of wind and solar power.
In addition, we must invest in basic and cutting edge research, train more skilled workers in critical areas, promote science and math education, and insist on high learning standards in our schools, colleges and universities.
Next, tax policy must encourage research and development, reinvestment in plant, machinery and equipment, and we must eliminate frivolous lawsuits.
Finally, regulations must make sense, be easily understood and reasonable. Without the ability to expedite permitting, we will lose manufacturers to foreign nations.
U.S. manufacturers are already doing their part to remain competitive through innovation, worker training and new equipment. Now, it is time for elected officials to do their part to lower costs so American employers can fight back with both fists. It’s the only way our economy will survive.
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