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Would the Benefits of Tariffs Outweigh the Threat of Increased Inflation

Tuesday, March 25th, 2025

On March 12, 2025, President Trump “imposed sweeping 25% tariffs on all steel and aluminum imported into the United States…” causing some economists to warn “that broad-based tariffs threaten to drive up prices on everything from food to new homes.” In answering the question of whether tariffs would increase inflation, we can consider whether or not inflation was increased by the imposition of Section 232 tariffs on steel and aluminum and the 301 tariffs levied on roughly half of U.S. imports from China, and we can consider the benefits achieved from these tariffs in 2018. 

Tariffs have traditionally had a two-fold purpose:  protect American manufacturers from unfair trade practices by mercantilist countries and stimulate domestic production. The Section 232 and 301 tariffs were aimed to protect the domestic steel and aluminum industries from what the government perceived as unfair competition and national security threats. Here are some benefits that were projected from these tariffs:

Section 232 Tariffs:

  1. Protection of Domestic Industries: By imposing tariffs on imported steel and aluminum, the U.S. government intended to protect and support domestic producers of these metals.
  2. Stimulating Job Growth: The tariffs were expected to create and maintain jobs in the U.S. steel and aluminum industries by making imported metals relatively more expensive compared to domestic products.
  3. Infrastructure Development: With a healthier domestic steel and aluminum industry, there was an expectation of increased capacity and capability to supply materials for critical infrastructure projects across the country.

Section 301 Tariffs:

  1. Addressing Intellectual Property Concerns: The Section 301 tariffs targeted imports from China and were aimed at addressing intellectual property theft and unfair trade practices in various industries, including steel and aluminum.
  2. Leveling the Playing Field: By imposing tariffs on Chinese goods, the U.S. sought to level the playing field for domestic steel and aluminum producers who may have been competing against subsidized Chinese products.
  3. Encouraging Fair Trade Practices: The tariffs were intended to push China towards adopting fair trade practices and addressing concerns related to market access, technology transfer, and intellectual property rights.

Here are some specific examples of how the Section 232 and 301 tariffs have benefited the U.S. steel and aluminum industries:

  1. Expanding Existing Plants:
    • Example: Nucor Corporation, a leading steel producer in the U.S., announced plans to invest $1.35 billion to build a new steel plate mill in Kentucky after the implementation of tariffs on steel imports under Section 232. This expansion will not only create more jobs but also increase production capacity, catering to the rising demand for steel products in the country.
  2. Building New Plants:
    • Example: Alcoa, a prominent aluminum producer, decided to restart its aluminum smelter in Evansville, Indiana, following the tariffs imposed on aluminum imports under Section 232. This move signifies a significant investment in building a new plant that will contribute to the growth of the domestic aluminum industry, providing employment opportunities and supporting the local economy.
  3. Adding Employees:
    • Example: U.S. Steel Corporation hired additional employees at its plant in Granite City, Illinois, in response to the tariffs imposed under Section 232. The increased demand for domestic steel prompted the company to bring back workers who were previously laid off and also recruit new talent to support the plant’s operations, showcasing the positive impact of tariffs on job creation within the industry.

Overall, the Section 232 and 301 tariffs have played a crucial role in revitalizing the U.S. steel and aluminum industries by encouraging investments in plant expansions, new construction projects, and workforce expansion, thereby fostering growth and competitiveness in these sectors.

Now, let’s examine whether or not these tariffs increased inflation since going into effect in 2018. The U.S. International Trade Commission (USITC) released the report,  Economic Impact of the Section 232 and 301 Tariffs on U.S. Industries in March 2023.  “It took an in-depth look at the effects of these tariffs on the importing industries and on industries dependent on them…over the years 2019 through 2021. In every one of the ten industries the authors studied, the 301 tariffs led to significant increases in domestic production.”  An article titled “USITC Report Shows Tariffs Boosted U.S. Production” by Jeff Ferry, Chief Economist of the Coalition for a Prosperous America, states that the key points of the report were:

  • “Section 301 and 232 tariffs boosted production in all twelve of the industries studied.
  • Price increases in the product categories targeted with tariffs were very small, in the 3%-4% range, contrary to mainstream media narrative.
  • Most of the tariffs targeted intermediate (industrial) goods. Downstream goods, including consumer goods, saw barely visible tariff-related price increases.
  • Downstream price increases due to steel and aluminum tariffs were estimated to be 0.2%.
  • Section 232 steel tariffs unleashed a huge wave of steel investment, likely creating some 20,000 direct jobs.
  • Tariffs are a valuable tool for generating growth in the U.S. economy.”

Since these tariffs were beneficial for the steel and aluminum industries, additional tariffs would be beneficial to other American manufacturing industries and help reduce our increasing trade deficits.

The Press Release on March 19, 2025 by the Coalition for  Prosperous America  titled:  “Importers Front-Run Global Tariffs; Deficit Expands a Record Breaking 34% in January” by Kenneth Rapoza states:

 “January imports rose 10% to $401.2 billion while exports rose at their usual pace, around 1% to $269.8 billion, according to the Bureau of Economic Analysis (BEA)…The January goods deficit is the biggest in years, if not ever.”

The top 10 deficit countries as measured inbillions of dollars were: “China ($29.7), the European Union ($25.5), Switzerland ($22.8), Mexico ($15.5), Ireland ($12.4), Vietnam ($11.9), Canada ($11.3), Germany ($7.6), Taiwan ($7.5) and Japan ($7.4).”

These high trade deficits explain why President Trump is proposing 25% tariffs on imports from China, Canada, and Mexico. 

On March 19, 2025, the Coalition for a Prosperous America released a memorandum titled “CPA Recommendations for Implementing Tariffs Pursuant to the America First Trade Policy” by Charles Benoit as a response to the Presidential Memorandum titled America First Trade Policy President Trump issued on his Inauguration Day.

It states: “CPA is strongly supportive of President Trump’s Trade and Tariff Agenda that seeks to broadly reindustrialize the United States and raise significant revenue as outlined in the America First Trade Policy Memorandum.”

“However, CPA cautions against adopting a reciprocal tariff strategy aimed primarily at negotiating lower foreign trade barriers and more favorable investment conditions abroad. A reciprocal tariff strategy that prioritizes foreign governments’ willingness to reduce their trade barriers or be more receptive to foreign investment is in conflict with the stated goals of the America First Trade Policy Memorandum and undermines the predictability and stability American businesses need to confidently invest in long-term domestic production.”

CPA offers the following recommendations as they relate to the use of tariffs for protection, for revenue, and for reciprocity.

Tariffs for Revenue:

  • CPA fully supports President Trump’s concept of a 10% to 20% supplemental, universal tariff. CPA estimates that even a modest 10% supplemental universal tariff would lead to $728 billion in economic growth and 2.8 million new jobs, while generating $263 billion in new federal revenue to pay for domestic tax cuts.

Tariffs for Protection:

  • Section 232 is an excellent Presidential tool for protecting American producers, and CPA applauds the Trump Administration for already initiating new Section 232 investigations on copper and lumber.
  • CPA believes it is essential that entire supply chains be considered for the successful deployment of tariffs. Conveniently, Sections I through XX (1 through 20) of the Harmonized Tariff System (HTS) are organized in this way. The Trump Administration should consider initiating a Section 232 review for each of Sections 1 through 20 of the HTS.

Tariffs for Reciprocity

Reciprocal tariffshaven’t worked to the benefit of the United States ever since the General Agreement on Tariffs and Trade (GATT) went into effect in 1948.  When the World Trade Organization was established in 1995, “every WTO Member, including the United States, has pledged maximum tariff rates applicable to every other WTO member…Under the WTO system, there’s no single maximum rate, but rather specific maximum rates — known as ‘bound rates’ — itemized across 5,000+ product categories. Bound rates for each WTO country are listed in that country’s ‘Schedules of Concessions,’ which is annexed to the General Agreement on Tariffs and Trade (GATT.)”

Supposedly level tariff rates haven’t prevented the United States from incurring an ever-increasing trade deficit with its trading partners because of mercantilist practices such as undervalued currency, subsidies to the manufacturing industries of the respective countries, intellectual property theft, and product dumping, among other practices. Thus, CPA concludes: “These reciprocity requirements have all failed while simultaneously pitting American producers against each other.” 

Instead,” CPA calls on the Trump Administration to either withdraw from the World Trade Organization entirely, or to “Unbound” the United States’ Schedule of Concessions to the GATT.”

The Trade and Tariffs page of the CPA website states, “The Coalition for a Prosperous America (CPA) has proposed a model that uses a simple, four-level structure of global tariffs at 0%, 15%, 35% and 55% (explained more in the document). CPA projects that this tariff would create 10 million new producer jobs, increasing real household incomes by 10%, grow the economy by 7% and generate $603 billion in new revenue. This revenue is more than sufficient to eliminate income taxes on the large majority of American wage earners.

The economic benefits of imposing tariffs on all imported goods can be summarized to be:

  1. Protection of domestic industries: Tariffs can protect domestic industries from foreign competition by making imported goods more expensive. This can help prevent job losses in sectors that are unable to compete with cheaper imports.
  2. Revenue generation: Tariffs can generate revenue for the government. The revenue collected from tariffs can be used to fund government programs, infrastructure projects, or reduce budget deficits.
  3. Trade balance improvement: By making imported goods more expensive, tariffs can help reduce imports and improve the trade balance of the country. This can help decrease trade deficits and strengthen the economy.
  4. Encouraging domestic production: Higher tariffs can incentivize businesses to produce goods domestically rather than importing them. This can lead to increased investment in domestic production facilities and create jobs.
  5. National security: Imposing tariffs on certain imported goods can also be used as a strategic tool to protect industries that are deemed critical to national security.

In my opinion, these benefits make tariffs an attractive alternative to the free-trade policies that have dominated the past 70 years of international trade. Protecting and encouraging more domestic production would increase manufacturing’s share of the Gross Domestic Product (GDP) and improve the financial wellbeing of many more Americans.  

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What Legislation Should Congress Pass to Help Rebuild American Manufacturing?

Tuesday, January 14th, 2025

Now that the 119th Congress began less than two weeks ago, the priorities for Republican who have a slight majority in Congress on passing legislation that fulfills their campaign promise to support President’s Trump goal to Make America Great Again.  To achieve this goal, Congress must pass legislation that helps rebuild American manufacturing.

As a reminder of why this is critical, manufacturing is the foundation of the middle class because manufacturing jobs pay higher wages than most service and retail jobs, enabling more American to move into the middle class during the 1900s. Manufacturing employment was at an all-time peak of 19.6 million in June 1979, representing 22 percent of the labor force. The loss of millions of manufacturing jobs in this century has resulted in a shrinking middle class. The loss of these jobs also means a loss of tax revenue, increasing our national debt.

The domestic manufacture of innovative new technologies is what enabled the United States to become the leader of the free world.  A secure domestic manufacturing supply chain is critical to maintaining our national sovereignty to remain a free country. We need to rebuild American manufacturing to create prosperity for our children and grandchildren.  

Here are my suggestions for legislation that should be passed by Congress in order of importance:

Impose a Market Access Charge (MAC) as proposed by Dr. John R Hansen, (PhD economist and  Economic Advisor, The World Bank (retd.)  “forcing foreigners to pay a market access charge (MAC) if they want to dump their speculative money into America’s financial markets when US trade deficits show that the global demand for dollars and dollar-based assets like stocks and bonds is already excessive. In addition to encouraging the dollar to move to a more competitive level, thus boosting economic growth and family incomes, the MAC could also generate hundreds of billion dollars of new government revenue per year.

The MAC would start low, rise gradually until foreign demand for dollars was consistent with balanced trade, and thereafter be adjusted periodically to maintain balanced trade. The MAC charge, which is fully legal under US and international law… Even a very low rate of say 1.5 percent, the MAC, which would be paid entirely by foreign speculators, not Americans, could generate over $1 trillion dollars of new revenue per year. This could gradually be used to eliminate the U.S. deficit…and to start paying down America’s total internal and external debts.

John emailed me this comment: “We should regard the MAC as a tariff on the import of foreign money — just as regular tariffs are a tax on the import of foreign goods. A MAC tariff would create millions of new, well-paying jobs and would give the U.S. Government billons of additional revenues, all paid out of the pockets of foreigners, that could be used to:

  1. increase the quality and adequacy of government services for all Americans.
  2. reduce the burden of taxes paid by Americans.

Note that, unlike traditional tariffs on imports which increase U.S. prices, especially in the short term, the MAC would be paid entirely by foreigners. Furthermore, unlike tariffs that only restrict imports (by making them more expensive for Americans), the MAC would also stimulate exports and American jobs by making made-in-America products more competitive in foreign markets.

The American jobs that the MAC would create would emerge not only in crowded urban areas, but also in the poverty-stricken regions of America where, as President Trump mentioned in his 2017 inaugural address, “rusted-out factories are scattered like tombstones across the landscape of our nation,” especially affecting the poor workers who lost their jobs due to the China Shock.

Likewise, by making grown-in-America food and other agricultural products more competitive with competing foreign goods, the MAC would help reverse the sharp deterioration of family incomes on American farms and ranches.

Finally, passing legislation for the MAC would also help America reduce its mountain of government debt — debt that threatens the stability of our country today and the quality of life for our children tomorrow.”

Pass a Patent Reform Bill to restore inventors’ rights and end abuses by the Patent Trial and Appeal Board (PTAB). 

The largest inventors’ organization, US Inventors, supported the passage of the following bill in the last session of Congress:  HR 8134, the Restoring America’s Leadership in Innovation Act (RALIA), introduced by Rep. Thomas Massie (R-KY) and Rep. Marcy Kaptur (D-OH).

RALIA sought to revitalize patent protection by restoring injunctive relief, eliminating confusing judicially created eligibility tests, and abolishing the Patent Trial and Appeal Board (PTAB). RALIA would have reversed the effects of several Supreme Court decisions and of the America Invents Act, largely repairing most of the erosion of US patent rights accumulated over the last several decades. US Inventors urges Congress to pass the reintroduction of this bill in this session of Congress.

It would be nice for the USPTO to get refocused on its mission to ensure that the intellectual property system contributes to a strong global economy, encourages investment in innovation, and fosters an entrepreneurial spirit.

Revoke China’s Most Favored Nation Status (aka Permanent Normal Trade Relations (PNTR)

After President Clinton granted China Most Favored Nation Status annually from 1995 on, the U.S.Senate voted to give China permanent most-favored-nation status on September 19, 2000, and on October 10th, 2000, President Clinton signed into law the U.S.-China Relations Act of 2000. This paved the way for China’s accession to the World Trade Organization.  This started the trend of American manufacturers moving manufacturing to Chinese vendors and the huge influx of imported good from China flooding the U.S. when tariffs were drastically reduced.

Our trade deficit with China increased every year from $83.8 Billion in the year 2000 to $279.1 Billion in 2023 (projected to be about the same for 2024). This was down from a peak trade deficit with China in 2018 of $418.2 Billion.

In my article, “We must Revoke China’s Most Favored Nation Status, I wrote that during the 118th Congress, “several bills have been introduced to revoke or modify China’s Most Favored Nation (MFN) status, also known as Permanent Normal Trade Relations (PNTR)” but none of the bills were passed out of Committee to be voted on by the House or Senate.

Passing such a bill should be a major priority for the 119th Congress as soon as possible. Without PNTR status, all products from China would by default be subject to higher tariffs. This would reduce off-shoring by discouraging American investors and corporations from doing business in China. It would increase reshoring and diminish demand for Chinese goods, bolstering the sales of American manufactured products.

Reduce the Allowed Value of De Minimis imports

De Minimis imports was codified in Section 321 of the Tariff Act of 1930 as an administrative exemption for imports under $1. However, the Trade Facilitation and Trade Enforcement Act of 2015, signed by President Barack Obama Feb. 24,  2016, “ raised the value of a shipment of merchandise imported by one person on one day that generally may be imported free of duties and taxes from $200 to $800.

This allows foreign vendors, such as Temu, Shein, and Amazon vendors, to ship directly into the United States. When a package receives de minimis treatment, it arrives without the need of a customs broker or bond, without paying any tariffs or taxes, and without meaningful possibility of regulatory oversight.

The Coalition for a Prosperous America states: “U.S. companies and workers are subjected to a new level of job-destroying competition. Illicit drugs, such as fentanyl, and counterfeit goods are shipped directly to US consumers while evading detection. The predictable result is a major calamity putting U.S. producers and traditional retailers out of business and destroying jobs.” CPA urges “Congress to lower the de minimis threshold to $9 among other reforms.”

Reauthorize a Reformed Tax Cuts and Jobs Act (TCJA)

Major provisions of the Tax Cuts and Jobs Act of 2017 will expire by the end of 2025, so American families and business could experience dramatic increases in taxes in 2026.

Since manufacturers require affordable taxes to succeed and grow, reform and reauthorization of TCJA is imperative.

The Tax Foundation recommends that Congress “prioritize provisions that have the largest “bang for the buck,” or the most economic growth per dollar of revenue loss. These include immediate cost recovery for investments in the types of machinery and equipment upon which millions of small and large businesses depend, as well as immediate write-offs for investments in research and development. These two policy changes support a growing economy like no other tax policies proposed since the corporate tax rate was reduced from 35 percent to 21 percent.”

While the reduction in corporate taxes was a big benefit to large corporations, it was actually a tax increase from 15% to 21% for small business and small manufacturers.  The fabrication companies I represent as a sales rep all saw this increase in their corporate taxes because they generated revenues under $10 million a year.

President Trumps’s proposal for a 15% corporate tax rate should be seriously considered.  Read the Cato Institute’s “The Case for Trump’s 15 Percent Corporate Tax Rate” here. 

Pass Legislation to Address China’s Exploitation of U.S. Capital Markets, Economic Incentives, and Trade Policy

Several bills to address the problem of China’s exploitation of U.S. capital markets were introduced in the 118th Congress, but none of them were passed out of committee to be voted on by the House or Senate. For a full list of this legislative package, go to this link of the website of the Coalition for a Prosperous America (CPA) as there is insufficient space in this article to describe all of these bills.  All of these bills will have to be introduced in the 119th Congress.  As a long-time member of CPA, I join them in urging Congress to pass a legislative package that will “prohibit U.S. capital, economic incentives, and trade preferences from benefitting China and other adversarial nations.” 

Passage of the legislation mentioned in this article would help stop the destruction of American industry and innovation, the loss of high-paying manufacturing jobs, and the collapse of communities. It would d be a big help in rebuilding American manufacturing’s capacity and eliminate dependence on China and other adversarial nations.  It would especially help rebuild manufacturing capacity in industries that are critical to U.S. economic and national security. It would help to create prosperity for our children and grandchildren and ensure that they will continue to live in a free country. 

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What do Manufacturers Need to Succeed and Grow?

Tuesday, November 12th, 2024

Now that we have re-elected President Trump for a second term to work on achieving his goal of Making America Great Again, it’s time to focus on how to rebuild America’s manufacturing industry because we can’t be great again without a strong domestic manufacturing industry.

My book, Rebuild Manufacturing – the Key to American Prosperity, provides detailed ways to rebuild American manufacturing based on my over 40 years in the manufacturing industry.  As a start on the path to rebuilding American manufacturing, here are a few suggestions on what manufacturers need to succeed and grow:

 Restoration of Patent Rights

 Manufacturers mainly fall into one of three groups:

 Original Equipment Manufacturers – selling a finished product such as a motor vehicle, ship, airplane, satellite, etc.

Suppliers – manufacturing a component, subsystem, or assembly for a finished product, such as a motor, power supply, semiconductor, etc.

Fabricators – perform a manufacturing process to make a particular part or assembly for a finished product such as an enclosure, bracket, panel, gasket, seal, etc. 

During my career, I have worked for OEMs and suppliers, but currently represent fabricators as a sales rep.  Each of these manufacturers requires a unique selling point (USP) or unique value proposition (UVP) that is part of a company’s marketing strategy to inform customers about how their brand, product, or service is superior to its competitors.

One or more patents are often an important component of the USP/UVP for products, components, and subsystems incorporating new technologies. While fabricators rarely have patents, many have trade secrets covering their manufacturing processes.

 My previous blog articles have shown how patent rights have been eroded by the America Invents Act (AIA) of 2011 and why patent rights must be restored to help technology-based companies have the strong patent protection they need to be successful. The threat of having their patent invalidated by the Patent Review and Trial Board (PTAB) established by the AIA is discouraging inventors from applying for a patent, and they are going to other countries to get their patents.  In addition, the lack of secure patent rights is also hindering the willingness of angel investors to invest in new technologies for startup companies. We must also continue to protect trade secrets because China uses espionage to steal both patented technologies and trade secrets.

 Protection from Unfair Trade Practices

In an increasingly interconnected global economy, American manufacturers face significant challenges, particularly from China’s trade practices. As concerns over unfair trade continue to rise, it’s crucial to understand the implications these practices have on U.S. businesses and the broader economy. Common examples of mercantilist trade practices by China are:  currency manipulation, rampant intellectual property theft, product dumping (selling products at below-market prices), and government subsidies for Chinese companies.  These unfair trade practices have created an uneven playing field. According to the U.S. Trade Representative, these practices have contributed to a substantial trade deficit with China, severely impacting American manufacturing sectors.

 Several industries have borne the brunt of these practices. For instance, the U.S. steel industry has faced aggressive pricing from Chinese manufacturers, which has led to factory closures and job losses across the country. In the textile sector, similar patterns have emerged, where Chinese imports flood the market at prices that domestic producers cannot match, resulting in significant downturns in American jobs.

The U.S. government has implemented various measures to counteract these unfair practices, such as tariffs and trade negotiations to foster fair competition. Addressing unfair trade practices is essential for the survival and growth of American manufacturing. We need fewer imports and more domestic production. Now is the time to take a stand and implement strategies that ensure a fair playing field for American manufacturers. The following strategies should be considered:

  • Establish Tariffs on all Chinese Products – read my previous article on “Why we Need Tariffs on Chinese Products”
  • Strengthening Enforcement of Trade Laws: Increasing the capacity of trade enforcement agencies to investigate and combat unfair practices can deter such actions.
  • Promoting Domestic Production: Incentives for manufacturers to produce locally can help rebuild industries affected by unfair competition.

 Access to Affordable Energy

In the modern manufacturing landscape, access to affordable energy is not just a necessity; it is a fundamental pillar of success. As industries strive to remain competitive in a global market, the cost of energy can significantly impact operational efficiency, profitability, and innovation. Energy costs represent a substantial portion of manufacturing expenses. From powering machinery to heating facilities, energy consumption is intrinsic to production processes. When energy prices rise, manufacturers face difficult choices: pass costs onto consumers, reduce labor, or cut back on investment in technology and innovation. These decisions can hinder growth and competitiveness.

Lower energy costs can lead to reduced overall production expenses, enabling companies to offer more competitive pricing and improve profit margins. For example, industries such as steel and chemicals, which are energy-intensive, benefit tremendously from stable, low-cost energy sources. This advantage can be a deciding factor for companies considering where to locate new facilities or expand existing operations.

Affordable energy is also crucial for fostering innovation. Manufacturers need access to reliable energy sources to invest in new technologies and processes that enhance efficiency and reduce waste. By keeping energy costs low, regions can attract and retain manufacturing businesses, leading to job creation and economic development.

Access to affordable energy is vital for the health and growth of the manufacturing industry. It influences operational efficiency, competitive advantage, innovation, and job creation. Policymakers, industry leaders, and communities must work together to foster an environment where affordable energy is a reality for all manufacturers.

 Reasonable Corporate Tax Rates

Tax policies that govern businesses can significantly influence manufacturers’ operational success and growth potential. Reasonable corporate tax rates are essential not only for maintaining profitability but also for fostering innovation and job creation.  Manufacturers often operate on thin margins, making it crucial to manage costs effectively. Lower tax liabilities provide manufacturers with the capital needed to expand operations, upgrade equipment, and develop new products.

High corporate tax rates can place an additional financial burden on these businesses, reducing their ability to reinvest profits into operations, technology, and workforce development. When manufacturers are forced to allocate a significant portion of their earnings to taxes, they may struggle to remain competitive, especially against international rivals with lower tax obligations. In a global marketplace, manufacturers often compete not only with domestic companies but also with foreign firms that may benefit from more favorable tax regimes.

By implementing reasonable corporate tax rates, governments can level the playing field, allowing American manufacturers to compete effectively against their international counterparts. This is particularly important in industries where price competitiveness is key to success.

Reasonable corporate tax rates can stimulate investment in the manufacturing sector. For example, when businesses have more disposable income, they are more likely to invest in research and development, which is essential for driving innovation and maintaining a competitive edge in the market.

To support the manufacturing sector, policymakers must consider tax reforms that prioritize reasonable corporate tax rates. This can include reducing rates, closing loopholes that disproportionately benefit large corporations, and creating incentives for small and medium-sized manufacturers. A balanced approach to taxation can foster a more equitable environment that encourages growth and investment across the sector.

Reasonable corporate tax rates are crucial for the health and vitality of the manufacturing industry. They enable manufacturers to invest in growth, create jobs, and compete effectively on a global scale. As policymakers consider tax reforms, it is essential to recognize the significant role that reasonable taxation plays in supporting American manufacturers and, by extension, the broader economy. A commitment to fair corporate tax rates will help ensure a robust and thriving manufacturing sector for years to come.

Regulatory Relief in Manufacturing

The burden of overregulation can stifle the potential of manufacturers, hindering productivity and competitiveness. Overregulation refers to the imposition of excessive or unnecessarily complex rules and standards that can burden businesses. For manufacturers, compliance with these regulations often requires significant time, resources, and financial investment. This can divert attention away from core operations, stifling creativity and limiting growth opportunities.

Excessive regulations can make it difficult for U.S. manufacturers to keep pace with competitors who operate in more business-friendly environments. Lowering the regulatory burden can enhance competitiveness, allowing manufacturers to focus on innovation and efficiency.

The costs associated with compliance can be substantial. From hiring specialized staff to implementing new technologies for regulatory adherence, manufacturers often find their budgets stretched thin. This financial strain can lead to higher product prices, which may result in lost sales and reduced market share. A more streamlined regulatory environment can foster a culture of innovation, allowing companies to focus on creating cutting-edge solutions that meet market demands.

While regulations are essential for ensuring safety, environmental protection, and fair labor practices, it is crucial to strike a balance. Policymakers should engage with industry leaders to understand the unique challenges manufacturers face and develop regulations that protect public interests without imposing undue burdens. Streamlining regulatory processes, simplifying compliance requirements, and providing clarity in regulations can significantly benefit manufacturers. A collaborative approach to regulation that prioritizes both public welfare and the needs of manufacturers will pave the way for a robust and resilient manufacturing sector.

Manufacturing is not only vital for the U.S. economy but also plays a crucial role in driving innovation, job creation, and economic prosperity. Manufacturing provides millions of Americans with jobs, both directly in manufacturing plants and indirectly through supporting industries such as logistics, finance, and technology. Manufacturing has a vast supply chain that includes raw materials, components, and finished goods, supporting a wide range of businesses and services across the country. The manufacturing sector is a hub of innovation and research and development (R&D), driving technological advancements and creating new products and processes that can benefit various industries.

Manufacturing exports contribute significantly to the U.S. trade balance, helping to generate revenue and create a favorable balance of trade. The manufacturing sector often leads to economic growth by attracting investment, generating tax revenue, and increasing productivity. Most importantly, a robust manufacturing sector is essential for national security, as it ensures domestic production of critical goods and reduces reliance on foreign sources during times of crisis.

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What Can Individuals Do to Rebuild American Manufacturing?

Tuesday, September 24th, 2024

You may feel that there is not much you can do as an individual to rebuild American manufacturing to create jobs and protect our national security.  This isn’t true?  Remember that our country was founded by a small group of people that did indeed change the world by forming the United States of America. American activist and author, Sonia Johnson said, “We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.” Eleanor Roosevelt echoed this sentiment saying, “Never doubt that a small group of thoughtful, committed citizens can change world; indeed, it’s the only thing that ever has.”

Here are suggestions of what each one of us can do:

As a Consumer:  It matters if we buy American-made products.  Our addiction to imports has played a major role in creating our high trade deficit, especially with China, where most of the consumer goods we import are manufactured.

We lost 5.8 million manufacturing jobs from 2000 – 2010 because of importing so many goods from China and other Asian countries.  In contrast, American-made products create American jobs, reduce our trade deficit, and reduce our budget deficit from increased tax revenue. Each time you choose to buy an American-made product, you help save or create an American job.

When you shop in person, look for the country-of-origin labels of goods. Most imported goods are required to have these labels.  Don’t throw things into your shopping cart without checking labels. The most important step is to make a commitment to buy American made products. Commit to make a fair effort to find made in the USA products. Make a promise to yourself to buy the “Made in USA” product even if it costs more than the imported product. It is a small sacrifice to ensure the well-being of your fellow Americans. The price difference you pay for “Made in USA” products keeps other Americans working.

If the product you are looking for is no longer made in America, then buy the product from another country besides China, which has nuclear warheads aimed at American cities. By buying Chinese imports, American consumers have provided the funds for the bulk of China’s military buildup. American service men and women could one day face weapons mostly paid for by American consumers. Instead, you could patronize impoverished countries such as Bangladesh or Nicaragua, which have no military ambitions against the United States.

In addition, by buying a product “Made in USA, you would reduce the “carbon footprint” caused by shipping the product thousands of miles by container ship, using a greater amount of fossil fuel than shipping within the United States.

If you are willing to step out of your comfort zone, you could ask to speak to the department or store manager of your favorite store and tell them that they need to start carrying more “Made in USA” products if they want to keep you as a customer. If you buy products on line or from catalogs, you could contact these companies via email with a similar message. Your communicating with a company does have an effect because the rule of thumb in sales and marketing is that one reported customer complaint equals 100 unreported complaints.

If you think that Americans no longer care about where goods are made or have concerns about the safety of foreign products, you may be surprised to learn that poll after poll shows that the majority of Americans prefer to buy American.

A survey of 1,000 U.S. adults by Morning Consul  in  May 2023 with regard to their views of  products made by American companies vs. Chinese companies revealed the following:

  • 65% of U.S. adult consumers claimed to sometimes or always buy “Made in America” products intentionally
  • 43% prioritize purchasing American-made products rather than prioritizing other options like quality, sustainability, or affordability
  • 48% are willing to pay higher amounts for U.S.-based products. 39% responded they would pay between 6%-10% more for said products

If you are having trouble finding “Made in USA” products, you can search “buy American” on the internet.  A few of the sites you will find are:

www.madeinusa.com

www.ionlybuyamerican.com
https://www.themadeinamericamovement.com/made-in-usa-companies/
https://www.madeinamerica.co/pages/thelist
https://madeinamericastore.com/home/

www.buyamericanmart.com

www.americansworking.com

www.shopunionmade.org

www.MadeInUSAForever.com

www.stillmadeinUSA.com

There are also brick and mortar stores springing up around the country that are either stocking only “made in America” products, such as the Buy American Store  and the Urban Outfitters stores. Even stores like Wal-Mart and Target are carrying more “Made in USA brands due to customer demand.

As American consumers, you have many choices to live safely and enjoy more peace of mind with American products. It’s high time to stop sending our American dollars to China while they send us all of their tainted, hazardous, and disposable products. If 200 million Americans refuse to buy just $20 each of Chinese goods, that’s a four-billion-dollar trade imbalance resolved in our favor – fast!

As a Voter:  Voter apathy is partially responsible for the state of our affairs as a country. Too many people have decided that there is nothing they can do on an individual basis and have stopped voting.

Americans have been “sold down the river” by politicians on both sides of the aisle – Democrats and Republicans. Democrats profess to support “blue collar workers” and unions, yet NAFTA and the WTO treaties were approved and went into effect under the presidency of Democrat Bill Clinton. Republicans have professed to support business, yet they have voted to approve harmful trade agreements like NAFTA and have primarily supported policies that benefit large, multinational corporations rather than the small businesses that are the engine of economic growth in the U.S. and the foundation of the middle class.

Remember that the U.S. President isn’t a king or dictator; there are only a limited number of actions a president can do by Executive Order.  It’s the job of the President’s administration to set policies, but Congress turns the policies into laws. This makes it just as important to choose to vote for the right person for your Congressional Representative and Senator as it to vote for the President because very few of the policies proposed by the President will be turned into law if Congress is controlled by the opposition party.

In order to help manufacturers succeed and grow to rebuild our domestic manufacturing industry, manufacturers need affordable corporate tax and interest rates because manufacturing is a capital-intensive industry. They need affordable and reliable energy sources because it takes energy to manufacture every product.  They need protection from the unfair trade practices of China, such as:

  • Currency Manipulation – undervaluing the yuan against the U.S. dollar to capture market share with lower prices
  • Product Dumping – selling at or below cost to destroy their American competitors. 
  • Trans-shipping – shipping to an intermediary country before shipping to the U.S. from that country in order to hide that the product was made in China.

When you choose who to vote for President or Congress, examine both their campaign promises and their track record. It’s important to support candidates that would support and protect American manufacturers.  Here are a few questions you can ask:

  • Do they support more harmful trade agreements?
  • Will they increase enforcement of current Agreements to reduce trade cheating?
  • Will they enforce penalties on trans-shipping of steel and aluminum?
  • Will they continue the tariffs on Chinese steel, aluminum, solar panels and add tariffs on other goods imported from China?
  • Will they support “Buy America” for all government agencies and not just the military?
  • Will they keep tax rates at an affordable level?
  • Will they institute policies to provide affordable and reliable energy produced in the U.S.?

We cannot afford to export our wealth and be able to remain a first-world country. We cannot lose our manufacturing base and be able to remain a “superpower.” In fact, we may not be able to maintain our freedom as a country because it takes considerable wealth to protect our freedom.

You can play a role as an individual in saving our country ? the company you save or the job you save by your actions may be your own in the future. It’s time to shed apathy, become involved, and vote for the candidate that will best protect American manufacturers and help rebuild American manufacturing.

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What is the Progress on Rebuilding American Manufacturing to Create Prosperity

Tuesday, August 6th, 2024

People have forgotten that there are only three ways to create tangible wealth — mine it, grow it, or make it. Manufacturing is the term now used to describe “making it.” The problem with the current economy of the United States is that we have been outsourcing all three ways to create wealth to other countries for the past 25-30 years, primarily to China after the country was granted Most Favored Nation status in the year 2000.  

As a result, we are now dependent on other countries for the energy, food, and manufactured good we need to sustain the modern way of life, protect the health and welfare of American citizens, and provide the goods needed to protect the national security of our country.

This outsourcing caused a dramatic loss of jobs in the manufacturing industry, namely, 5.8 million high paying jobs from 2000 – 2010.

Let’s consider what progress has been made on a few of the simpler and faster to implement strategies and policies to accelerate the rebuilding process.  In my 2017 book Rebuild American Manufacturing – the key to American Prosperity, I quote recommendations made by the Information Technology& Innovation Foundation (ITIF) and the Coalition for a Prosperous America (CPA) and make many my own recommendations of what needs to be done to rebuild American manufacturing.

Two of the ITIF recommendations were: “Create a network of 25 Engineering and Manufacturing Institutes performing applied R&D across a range of advanced technologies and support the designation of at least 20 U.S. manufacturing universities.”

While the Manufacturing USA Network was formally established in 2014 when “Congress passed the Revitalize American Manufacturing and Innovation Act (RAMI Act) into law, it took three years of planning and competition to form the 16 institutes. Each of these institutes has a unique technological concentration, but is also designed to accelerate U.S. advanced manufacturing as a whole.  The April 2024 edition of Design2Part magazine provides good description of the technological advances facilitated by several of the institutes.

Another ITIF recommendation was:  Lower the effective U. S. corporate tax rate” because at that time, the United States had the highest statutory corporate tax rate at almost 39 percent (when state and federal rates are combined) of any OECD nation.”

The Tax Cuts and Jobs Act (TCJA) of 2017 “reduced the federal top corporate income tax rate from 35 percent to 21 percent, bringing the combined US federal and state rates to about the average for most other Organisation for Economic Co-operation and Development countries, and eliminated the graduated corporate rate schedule (table 1). TCJA also repealed the corporate alternative minimum tax.”  However, the TCJA expires in 2026, so Congress will need to address this issue in 2025.

The ITIF also recommended” “Better promotion of reshoring.”

Thanks to changing economic factors and supply chain disruptions caused by the COVID pandemic, the work of Harry Moser of The Reshoring Initiative to help manufacturing companies do a Total Cost of Ownership Analysis to return manufacturing to America, reshoring has dramatically accelerated in the past three years.  As the chart below shows, we have been able to reshore nearly two million manufacturing jobs (1,898,404) as shown on the chart below:

However, at this rate, it would take another 20 years to recoup the 5.8 million we lost from 2000 – 2010.  To rebuild American manufacturing in a faster way, we must focus on other policies besides reshoring.

The Coalition for a Prosperous America (CPA) released a white paper, titled, “A Competitiveness Strategy for the United States – America at a Crossroads,” in November 2015 that included an even longer list of recommendations.  As a member of CPA since 2011, I quoted all of their recommendations in my 2017 book and have written blog articles in the past several years about many of the specific strategies and policies the report included.

  • Impose offsetting tariffs to neutralize foreign government subsidies to industries and supply chains that compete with ours.
  • Counter foreign government policies that force offshoring by conditioning access to their markets on transfers of technology, research facilities and/or production to their countries, as well as compliance with export performance and domestic content.
  • Develop a national trade strategy and increase funding for U.S. trade policymaking and enforcement agencies. (blog article)
  • Combat foreign currency manipulation through a Market Access Charge (blog article)
  • Congress should strengthen and tighten procurement regulations to enforce “Buy America” for all government agencies, not just the Department of Defense. (blog article)
  • Prevent sale of strategic U.S.-owned companies to foreign-owned companies (blog article)
  • Ensure that domestic manufacturing and agriculture benefit fully from an expanded supply of low-cost US produced energy” (blog article)

President Trump took action on the tariff recommendation in January 2018 by imposing tariffs on solar panels and washing machines of 30 to 50 percent. In March 2018, he imposed tariffs on steel (25%) and aluminum (10%) from most countries. In June 2018, this was extended to the European Union, Canada, and Mexico. However, with the ratification of the United States–Mexico–Canada Agreement (USMCA), the North American trade deal set to replace the North American Free Trade Agreement (NAFTA), the tariffs on Canada and Mexico were rescinded on steel and aluminum.  Since then, Argentina, Australia, Brazil, and South Korea have successfully negotiated a permanent exemption from the steel tariffs. In addition, the Trump Administration Enforced penalties on trans-shipping of steel & aluminum.  Thankfully, the Biden administration has kept these tariffs in effect, essentially saving the U.S. steel and aluminum industries.

The Coalition for a Prosperous America (CPA) asserts that further tariffs are needed to balance trade, and on July 24, 2024, CPA “released a new economic analysis showing that a global 10% tariff on all U.S. imports would generate U.S. economic growth, increase real wages, increase employment, and raise additional revenue to lower taxes for lower- and middle-class Americans. 

Our analysis finds that a 10% tariff would stimulate domestic production and raise economic growth to produce a 5.7% increase in real income for the average American household,” said CPA Chief Economist Jeff Ferry. “Further, the $263 billion raised in tariff revenue could be used to provide tax refunds to all households with income below $1 million a year, creating a progressive tax refund.”

We have a long way to go on implementing some of the other recommended policies to rebuild American manufacturing..  How these issues should be addressed should be one of the main criteria of who to vote for in November, both for President and Congressional candidates.

Since I started writing the first edition of my previous book, Can American Manufacturing be Saved?  Why we should and how we can in 2007, I have made it my mission for the rest of my life to do as much as possible as I can to rebuild American manufacturing to create jobs and prosperity. The future of the American middle class and, more importantly, our national security depends on the choices we make and the actions we take now.

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Why Manufacturing is Important to the U.S. Economy

Tuesday, April 9th, 2024

The recent opinion article by Kenneth A. Reinert titled “Time to end America’s obsession with manufacturing” posted on Microsoft Start presents several reasons why our “obsession with manufacturing is misplaced” in his opinion  This article will focus on why manufacturing is important to the U.S. economy and why we need to be obsessed by manufacturing.

His first reason is that “for the high-income countries of the world, the share of manufacturing as a percent of gross domestic product (GDP) is currently approximately 13 percent. In the U.S., it is approximately 11 percent, very close to the average of high-income countries.” In comparison, Germany’s manufacturing industry was

22.2 %, China was 28.4 %, and Japan was 20.6 % with the world average being 17.5 % in 2021, which was more like the percentage the U.S. previously had prior to so much manufacturing being offshored to Asia.

His second reason is that “in high-income countries, the share of the labor force in manufacturing …the share is approximately 13 percent. In the United States, it is approximately 8 percent. This reflects the increased labor productivity in American manufacturing.”

Even at this low percentage, manufacturing still “drives 20 percent of capital investment, 30 percent of productivity growth, 60 percent of exports, and 70 percent of business R&D.”

Manufacturing employment was relatively constant from 1960 through 1990, but began declining in the late 1990s.  However, manufacturing employment was at an all-time peak of 19.6 million in June 1979, representing 22 percent of the labor force. The biggest drop in employment occurred from 2000 – 2010 after China was granted Most Favored Nation status, and American manufacturers started offshoring manufacturing overseas to China. One-third of U.S. manufacturing workers (5.8 million people) lost their jobs as shown by the chart below:

Thirdly, Reinert says that ”services, or more precisely producer services, are at the heart of the increase in manufacturing productivity. Economists and business analysts have noted the increased “servitization” of manufacturing; it is now very difficult to disentangle manufacturing from producer services given their symbiotic relationship.”  The problem with this reasoning is that the less manufacturing that is done in the U.S., the fewer producer services you have to offer domestically and for export.  Services are even easier to offshore than manufacturing, so it is no surprise that many technical services in IT, customer service and communication have been offshored to India in particular.

His fourth reason is “manufacturing can no longer be envisioned as a single stage. Rather, it is spread out over multiple stages and countries in complicated global value chains (GVCs), held together by, you guessed it, producer services: transport, logistics, information and communication technologies, insurance and many others. Rather than a single stage, manufacturing is now a network.” 

The global value chains are exactly what caused the supply chain disruptions and shortages during the COVID pandemic.  Manufacturers learned that they can’t be dependent on components and parts being shipped from overseas to the U.S. to be assembled into their products. This is one of the main reasons more manufacturers are reshoring manufacturing to the U.S. Moreover, as a country, we can’t be dependent on another country, particularly China, for the components and parts that go into products for our defense and national security industries as well as our pharmaceutical and medical supply industries.

His fifth reason is that “what really matters for economic success is high value added… high value added tends to be found at the beginning and end of GVCs, in research and development, branding, design, distribution, marketing and after-sales services. The actual assembly stage of GVCs is often where the least value added is to be found.” The error of this reasoning is that R & D, distribution, and after-sales services have also been offshored to other countries so that our exports of advanced technology products has also been reduced.  In fact, “the trade deficit in advanced technology products is accelerating, growing from $128 billion in 2019, to $195 billion in 2021, to $244 billion in 2022.”

Reinert opines that “U.S. is currently involved in a bipartisan experiment to throw “an extraordinary amount of subsidies at particular manufacturing sectors, including semiconductors and green energy. Estimates of the total subsidies reach as high as $1 trillion. Manufacturing subsidies area way of being seen to be “doing something” in the economic realm and signal “standing up to China.” 

His conclusion is that “We need to end our obsession with manufacturing and focus on high value added wherever it is found. We also need to limit manufacturing subsides and allow them to be subject to WTO disciplines that the U.S. has developed and utilized intensively. Otherwise, long-run growth and prosperity will be diminished.”

The only correct opinion in his article is that “national security requires producer services along with manufacturing. There is a saying among military analysts that “amateurs talk strategy, but experts talk logistics.” These “logistics” are producer services. In the words of one researcher, these include “the construction, maintenance and operation of military bases; equipment maintenance; food service; transportation; communications and IT support; and supply chain management.” This is exactly why we need to strengthen our domestic manufacturing supply chain of goods and materials needed by our military and our defense industry and not a reason to end our obsession with manufacturing.

Last week, I discussed this article with a friend who is a fellow member of the Coalition for a Prosperous America, Dr. John R. Hansen. He is a retired economist who worked with the World Bank for over 30 years. We agreed with Reinert that using subsidies to drive manufacturing growth with can be expensive and wasteful, but believe he is wrong to dismiss the importance of manufacturing to America and wrong to assume that massive subsidies would be required for a renaissance in American manufacturing. I asked him to email me a few comments on Reinert’s article that I could include in my article.  He wrote:

“The importance of manufacturing for America lies in the following: We need to be able to produce and export internationally tradeable goods to pay for the goods we import. For the past two years, our trade deficit in goods has exceeded 1.0 trillion USD. Yes, we could continue borrowing and printing money to cover our trade deficits, but this is a dead-end strategy. The only sustainable strategy is to develop our ability to produce a surplus of internationally tradeable goods.

Producing more services is not the answer. They tend to be very labor intensive, and we cannot compete against countries like India where well-educated people receive very low wages compared to the average American. Furthermore, most services require physical presence.

The services highlighted by Reinhart suffer the same problems. They are very hard to export, especially if you don’t produce enough tradeable exports like manufactured goods into which the services can be embedded.

Our only real hope of paying for the imports we need is to first increase the production of tradeable manufactured and agricultural goods before we can stimulate the production of services that can be embedded in these goods. Both are highly tradeable, and we have a basic comparative advantage in both. We have abundant agricultural land, much of which is supplied with high technology that helps offset our higher labor costs. We also have one of the most advanced manufacturing sectors in the world.

The main reason we cannot reduce our imports and increase our exports of manufactured goods is that other countries producing such goods have currencies that are seriously undervalued compared to the US dollar. For example, the currencies of  China and Japan, two of our biggest competitors and sources of trade deficits, have currencies that are undervalued by 40% and 60% against the US dollar. This makes the prices of the goods that these countries produce 40-60% lower than if the foreign currencies were valued at exchange rates that would balance trade.”

John and I agree that the only real solution to this problem is the Market Access Charge that John has proposed and I have written about in several previous articles.  The MAC would do this by imposing a small charge that would be collected on all foreign-source money entering America’s financial market (averaging USD 90 trillion every year)  For more details, read my article , “Why a Market Access Charge is Urgently Needed,” from this past January. 

We need to stop the destruction of American industry and innovation, the loss of high-paying manufacturing jobs, and the collapse of communities.  We need to rebuild American manufacturing to create prosperity for our children and grandchildren.  

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How High Interest Rates Affect the Manufacturing Industry

Tuesday, February 20th, 2024

Rising interest rates have been making frequent headlines since they started rising in 2022 when inflation reached the historic level of 8% for a sustained period of time.  When inflation rates rise substantially, the Federal Reserve raises interest rates as part of their aggressive monetary policy to bring it down.

The effect on manufacturing is serious because manufacturing is an asset-driven industry sector, and assets are expensive. It is necessary for manufacturing companies to finance the cost of new machinery, equipment, vehicles, and infrastructure.  As interest rates rise, the cost of financing grows higher, which means manufacturers end up paying significantly more to expand operations.

This creates a dilemma for manufacturers: They must either spend more to borrow or spend more to maintain assets beyond their original life expectancy. This is an added expense for the industry when they are already facing significant increases in material prices. It also comes at a time when manufacturers are being pressured by the market to implement Industry 4.0 technologies, such as sensors, automation, robotics, new ERP software, and AI, all of which require capital expenditures.

The inflation of the past couple of years was mainly caused by supply chain shortages and disruptions due to the COVID pandemic shutdowns.  Once the supply chain recovered, the supply of goods would have increased, reducing inflation.  Instead, the Fed raised interest rates, causing business contraction and less consumer spending.

I’ve never been able to understand the rationale for raising interest rate to reduce inflation. Raising interest rates only adds to the cost of doing business, reduces capital expenditures and investment by companies, and reduces consumer spending.  Reducing industrial and consumer spending causes businesses to contract, which leads to layoffs. Layoffs cause less consumer spending leading to more business contraction.  It becomes a vicious cycle.

Confirming my opinion about the negative effect of high interest rates, the August 28, 2023 article by Matthew Fox in Business Insider titled “’Interest rates are killing our industry’: Here’s what businesses are saying about the Fed’s impact on the economy” states:

“’High interest rates are affecting industrial production like never before… interest rates have placed an inverted incentive to grow due to a major slowdown in capital equipment expenditures. This is the time to stop raising interest rates,’ one survey respondent in the computer and electronic product manufacturing industry said.”

“For the first time in a long time, we are seeing customers reduce or cancel orders due to softening end-use demand. We expect this trend to continue over the next few months” and “Customer orders came to a sudden halt. The overall volume dropped 51% year-over-year.”

“A respondent from that sector [machinery manufacturing industry] said, “The phone is not ringing. Our sales team is working harder with less results. Projects are being postponed and, perhaps even more telling, payments are increasingly protracted.”

The latest press release from The Association For Manufacturing Technology (AMT) reported:  “Orders in 2023 totaled $4.94 billion, 11.2% behind the $5.56 billion recorded in 2022… Contract machine shops decreased their 2023 orders just over 21% compared to 2022… aerospace sector’s 2023 orders decreased nearly 9% from 2022.”

My sales agency, ElectroFab Sales represents small American manufacturers that perform fabrication services for Original Equipment Manufacturers in a variety of industries in southern California, and I can confirm that business started contracting significantly in the third quarter of last year and hasn’t rebounded so far this year.

We’ve also had significant layoffs in the past two years. The February 12, 2024 article in TechCrunch reports “The final total of layoffs for 2023 ended up being 262,735, according to Layoffs.fyi. Tech layoffs conducted in 2023 were 59% higher than 2022’s total, according to the data in the tracker. And 2024 is off to a rough start despite not reaching the peak of last year’s first quarter cutbacks.:

A review of Historical Data

The following chart shows the relationship between Fed rates and recessions (shaded vertical lines show recessions). 

While some of the recessions started after the Fed started to reduce rates from being high, there may be a lag time in the effect of high interest rates and the start of a recession.  When businesses have contracted significantly, it takes a period of time to turn the economy around towards expansion, depending on how significantly the economy has contracted.  I believe there is evidence to indicate that the longer the duration of high Fed rates, the longer the recession lasts.  The following chart shows the duration of the recessions:

People think that the “Roaring 20s” was a period of prosperity and expansion, but there were actually three recessions in the 1920s prior to the crash of the stock market in 1929, leading to the Great Depression that lasted 43 months, followed by a shorter recession of 13 months prior to the beginning of WW II.

The recession that began in the fall of 2008 was the longest lasting recession since the recession that began in 1981. The cause of the brief, two-month recession of 2020 was the shutdowns of non-essential manufacturing during the beginning of the COVID pandemic.   

Judging by the number of recessions since 1913, I don’t think that the monetary policies of the Fed have been successful in preventing “booms and busts.”  However, it has protected the banking industry from widespread bank failures.

We need to understand that contrary to what many people think, the Federal Reserve is not a government-owned national bank. The Federal Reserve was established by Congress in 1913 with the enactment of the Federal Reserve Act. It was established to be the central bank of the U.S. “Its primary purpose is to enhance the stability of the American banking system. The Federal Reserve System is composed of a central, independent governmental agency, the Board of Governors, in Washington, D.C., and 12 regional Federal Reserve Banks located in major cities throughout the U.S…. The Fed introduced Federal Reserve notes, which became the predominant form of U.S. currency and legal tender.”

According to the website USA Facts, “The Fed is an independent body and is not tied to an administration or partisan agenda. The system has three key entities: The Board of Governors, the Federal Reserve Banks, and the Federal Open Market Committee (FOMC).

The Fed oversees five key functions. These five key functions laid out by the Fed are “…to conduct the nation’s monetary policy, promote the stability of the financial system, promote the soundness of financial institutions, facilitating US dollar transactions, and promoting consumer protection.

The president appoints the Board of Governors, pending Congressional confirmation. The Board of Governors is tasked with supervising the five functions, overseeing 12 Federal Reserve banks, and creating financial regulations.”

What is the Outlook for the Future?

On January 29, 2024, the article “When Will the Fed Start Cutting Interest Rates?” by Preston Caldwell, on MorningStar, states “We expect the Fed to start cutting rates beginning with the March 2024 meeting. The Fed will pivot to monetary easing as inflation falls back to its 2% target and the need to shore up economic growth becomes a top concern…since July 2023, the Federal Reserve has kept the federal-funds rate at a target range of 5.25% to 5.50%, far above typical levels over the past decade. But we expect the Fed will begin cutting rates in March 2024—bringing the federal-funds rate to 3.75%–4.00% by the end of 2024.”

We can only hope that when the Fed does cut rates, it will not lead to a recession of equal time. The sooner that the Fed reduces its fund rates, the better. 

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What is the State of the U.S. Economy?

Tuesday, December 12th, 2023

There are many different opinions on the state of the U.S. economy. This is normal when we are entering an election year.  The political party in power wants the economy to appear good or better than the previous administration, and the opposing political party wants it to appear worse than when they were in power.

Let’s examine what are the key economic indicators as well as other data to determine the true state of the U.S. economy.  According to the website, USA Facts, the key economic indicators are:  GDP, inflation, Federal Reserve interest rates, workers’ average hourly wages, unemployment rate, ratio of unemployed people related to job openings, labor force participation rate, trade deficit (imports vs. exports), and Federal debt. USA Facts only reports the figures at the end of the year so the data shown is for 2022 since 2023 hasn’t ended yet.

Gross Domestic Product 1970 – 2023

Labor Force Participation Rate

The rate is calculated as the labor force divided by the total working-age population. The working age population refers to people aged 15 to 64. This indicator is broken down by age group and it is measured as a percentage of each age group.

The labor force participation rate was 66.0% in 2008, and gradually dropped down to 63.3% by January 2020.  As a result of the COVID-19 pandemic, it dropped to a low of 61.5% in November 2020 before gradually rising to 62.8% in November 2023.

Ratio of Unemployed People to Job Openings

According to the Bureau of Labor Standards, “The ratio of unemployed people to job openings ranged from 0.8 to 1.0 during 2018 and 2019. Over the past 5 years, the number of unemployed people per job opening reached a high of 4.9 in April 2020, when there were 23.1 million unemployed people and 4.7 million job openings. Since October 2021, the ratio has been 0.5 or 0.6 every month…When ratios equal 1.0, there is approximately 1 unemployed person per job opening. When less than 1.0, the labor market is tight, as job openings outnumber the unemployed. When greater than 1.0, there are more unemployed people than available jobs..”

The unemployment rate of the United States which has been steadily decreasing since the 2008 financial crisis, but spiked to 8.1 percent in 2020 due to the COVID-19 pandemic. The annual unemployment rate of the U.S. since 1990 can be found here.

Federal Fund Interest Rates

The Federal Reserve raised interest rates seven times in 2022 and four times in 2023, increasing the target rate from nearly zero (0.25%) in 2020-2021 to 5.25%-5.50% currently. The Fed is expected to hold rates steady when they meet this month. The Fed rate affects the consumer interest rates for mortgages and installment loans for things like cards, home furnishings, and other consumer goods.  Mortgage rates have risen from 2.75-3.25 in 2021 to 6.0%-7.9% in 2023.  This has stagnated sales for homes and automobiles.

National average wage indexing series, 2001-2022

Year  Annual Wage YearAnnual Wage
2001$32,921.92 2012$44,321.67
2002$33,252.09 2013$44,888.16
2003$34,064.95 2014$46,481.52
2004$35,648.55 2015$48,098.63
2005$36,952.94 2016$48,642.15
2006$38,651.41 2017$50,321.89
2007$40,405.48 2018$52,145.80
2008$41,334.97 2019$54,099.99
2009$40,711.61 2020$55,628.60
2010$41,673.83 2021$60,575.07
2011$42,979.61 2022$63,795.13

Data source:  https://www.ssa.gov/oact/cola/AWI.html

It looks like wages have nearly doubled in 21 years, but the value of the dollar has changed over time. According to the CPI Inflation Calculator, the ”U.S. dollar has lost 42% its value since 2001; $100 in 2001 is equivalent in purchasing power to about $173.73 today…The dollar had an average inflation rate of 2.54% per year between 2001 and today, producing a cumulative price increase of 73.73%.” This we need to deduct 42% from the 2022 wage to compare it to 2001 ($63,795.13 – $27,431.91 = $42,363.23). Thus, the wages only went up by 34% while inflation increased 73.73%. 

U.S. Private Sector Job Quality Index

The November Job Quality Index report by The Coalition for a Prosperous America states, “The Job Quality Index measures job quality for U.S. production and non-supervisory workers by comparing workers’ weekly wages to the mean weekly wage for all non-supervisory workers. Those jobs above the mean are classified as high-quality and those below the mean are low-quality…Over the past three decades, the JQI declined because the U.S. economy created more low-quality jobs than it has high-quality jobs. As shown in Figure 1, the JQI is down 12.8% from 1990 illustrating the disproportionate growth in low-wage, low-hour jobs.”

The last year that the U.S. had a positive trade balance by exporting more than we imported was 1979. The trade deficit grew gradually from 1980 – 1999, but accelerated after China was granted Most Favored Nation status in the year 2000.  In 2022, the trade deficit of $948.1 billion a 3.9% increase from 2021.

For my industry of manufacturing, there are two other measures that can be examined to determine the true state of the economy.  They are:

US ISM Manufacturing PMI

The Institute of Supply Management Purchasing Managers Index “is a diffusion index summarizing economic activity in the manufacturing sector in the US. The index is based on a survey of manufacturing supply executives conducted by ISM. Participants are asked to gauge activity in a number of categories like new orders, inventories, and production and these sub-indices are then combined to create the PMI… A PMI above 50 would designates an overall expansion of the manufacturing economy whereas a PMI below 50 signifies a shrinking of the manufacturing economy.

US ISM Manufacturing PMI was at a level of 46.70 on November 30, 2023, unchanged from 46.70 for October and down from a recent high of 64.70 in March 31, 2021.  The PMI dropped to 49.00 for the November 30. 2022 report, so we have been in a shrinking economy for 13 months.  

U.S. Manufacturing Technology Orders  

According to the November report published by AMT, The Association For Manufacturing Technology, “orders for manufacturing technology…continued to fall relative to 2022. Through October 2023 orders totaled $4.05 billion, 13.5% behind the total for the first 10 months of 2022.  

Conclusion:  Adding to the above data is the fact that vehicle gas prices have escalated since 2020.  According to Finder, “Gas prices in over the last 12 months are well above the national average over the last six years, hitting $4.99 a gallon in the week of June 16, 2022 — a week in which Californians paid a whopping $6.43 per gallon…The national average gas price this week [December 7th] is $3.22, down from $3.27. US gas prices over the last year are among the highest since 2018. California has the highest gas prices in the nation, followed by Hawaii as a close second, and Washington, Nevada, and Oregon making up the top five.  Texas has the lowest gas price ($2.68) in the nation followed closely by Mississippi ($2.72) and Oklahoma ($2.74). 

According to the U.S. Government Accountability Office, “Last year, U.S. consumers saw the largest annual increase in food prices since the 1980s. While food prices generally increased about 2% in prior years, they increased about 11% from 2021 to 2022…Food prices increases also varied by locality. For example, the highest increase between 2021 and 2022 was seen in Detroit Michigan (about 14.5%). The lowest (about 5%) occurred in the Miami-Fort Lauderdale, Florida metro area…Finally, food price increases from 2021 to 2022 varied by food group. For example, prices for grains and bakery products increased by about 13%, while fruits and vegetables increased by about 9%.  Similarly, dairy products increased by about 12%, but meats, poultry and fish increased about 10%.”

I am not an economist qualified to do an educated analysis of all of the above data, but it is obvious to me that the U.S. economy has some serious problems that need to be urgently addressed if we want to avoid a prolonged recession. The question that voters ask themselves in an election year, “Am I better off now than I was under the previous administration.”  The answer to that question will determine the outcome of the next election.     		 

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How Could we Reduce Inflation and Balance Foreign Trade & the Federal Budget?

Tuesday, August 1st, 2023

We are now nearing the end of the second year of high inflation, and many are wondering why has it been so hard for the Fed to kill inflation.  Could the Fed improve the efficiency of its inflation fighting and avoid causing a recession? Could it do so in a way that balances both foreign trade and the federal budget?

“Yes” is the answer given by one of my fellow members of the Coalition for a Prosperous American, John R. Hansen, PhD, Economic Advisor, The World Bank (retd.) and Founding Director of Americans Backing a Competitive Dollar (ABCD), He wrote me that he believes the Fed could do all of this plus fulfill its mandate of economic growth with stable prices more successfully – and brighten the future for all Americans, both now and for generations to come with only a small policy tweak.”

He explained that “each of America’s ten recessions since the late 1950s has been preceded by inflation and significant increases in the Fed Funds Rate (FFR). Higher interest rates and tighter credit obviously increase costs and reduce demand for American goods resulting in inflation. Reduced demand reduces both output from U.S. producers and growth. By increasing the cost of doing business, higher Fed interest rates force businesses to reduce output and fire workers, leading to recessions.”

In his opinion, “today’s Fed faces a key challenge because when the Fed raises the Fed Funds Rate, inflows of foreign-source money dilute the Fed’s efforts to reduce the availability and increase the cost of capital. This makes it harder for the Fed to control inflation. Also, excessive stocks of domestic credit tend to reduce the Fed’s ability to raise banks’ lending rates by normal margins.

He added, “When foreign speculators buy up dollars, they raise the dollar’s exchange rate. This makes foreign goods cheaper than those produced in America, destroying demand for American products both here and abroad. U.S. producers find it increasingly difficult to compete with foreign-made goods and many may go out of business.”

Dr. Hansen has developed a solution to moderate inflows of foreign money to make the Fed’s traditional inflation-fighting tools more effective. — a Market Access Charge (MAC) “on any purchase of U.S. dollar financial assets by a foreign entity or individual. As a one-time charge, the MAC would discourage short-term investors, overseas private investors, and return-sensitive official investors such as sovereign wealth fund managers from excessive speculation and trading in U.S. dollar assets.”

He believes that the Fed “can efficiently and effectively use the MAC as a tool to fix the undervaluation of foreign currencies against the dollar. Implementing the MAC could eliminate the U.S. budget deficit, sharply reduce the threat of future debt-ceiling crises, and increase resources available for important industrial policy initiatives, especially those related to national security such as chip manufacturing.”

Furthermore, he wrote that “implementing the MAC would markedly increase the Fed’s ability to control inflation with higher interest rates and tighter monetary policies. With the MAC in place, the Fed’s efforts would no longer generate the massive inflows of foreign-source money inflows that today are triggered by high U.S./foreign interest rate spreads.”

The MAC would be a small fee that would be collected by U.S. banks on all foreign-source money seeking entry to America’s financial markets. The fee, which would be adjusted periodically to eliminate the spread between higher average U.S. interest rates and lower average foreign interest rates, would sharply reduce the speculative gains of foreign-source money. Last year, $90 trillion worth came into America’s capital markets, which was about four times GDP!

Dr. Hansen’s latest calculations indicate that “a 2% MAC charge – about half the spread between U.S. and foreign interest rates that is drawing in foreign cash and making U.S. goods and workers too pricy to compete internationally – would generate about $1.8 trillion of new net revenues per year out of the pockets of foreign speculators – enough to eliminate the U.S. budget deficit and to allow America to start paying down its largest-in-the-world national debt.”

Such revenues would have fully covered the $1.4 trillion deficit for FY2022 with $400 billion left over to support important services, cut taxes, and/or pay down the national debt. Fewer Fed interest rate increases would lower the cost of borrowing for the government. Implementing the MAC tomorrow might not save America from defaulting on its debt this year, but doing so would greatly improve America’s fiscal position, sharply reduce the risk of a recession, stimulate economies of scale, reduce inflation, and reduce America’s growing debt.

Here are a few of the many benefits that America would enjoy if Congress were to approve this trade policy initiative – a policy based on 21st century realities, not 18th century theories.

  1. Reduce the incentives of foreign countries like China and Japan to manipulate the value of their currencies against the dollar.
  2. Increase domestic and foreign demand for Made-in-America goods, thereby creating at least 3-5 million well-paying middle-class jobs, mainly in manufacturing and associated sectors.
  3. Trigger domestic and foreign investments in American manufacturing that would increase output and productive efficiency.
  4. Generate about ten times as much Government revenue per year as import duties on merchandise trade currently generate. And unlike import duties, the MAC would be paid by foreigners, not by people living in America.
  5. Be far more effective than tariffs in reducing overall U.S. trade deficits with countries like China. Tariffs can be evaded rather easily with a large number of widely known tricks like shipping through third countries, rebranding, and under-invoicing.
  6. Make it possible for the U.S. Government to implement important national security, infrastructure, environmental protection, and social investments without raising taxes or increasing the public debt.
  7. Reducing America’s debt service burden would further increase the Government’s ability to invest in high priority programs such as skills training, childcare, and other initiatives that would help the average American and increase America’s productivity without increasing the public debt.
  8. By implementing the MAC, America could roughly double its current rate of economic growth. The MAC would stimulate domestic production and exports while reducing our excessive dependence on imports.

Dr. Hansen and the Coalition for a Prosperous America believe that the MAC would be sufficient to discourage foreign inflows of investment with no material impact on foreign direct investment in factories and other directly productive activities. The MAC or something like it is urgently needed. Implementing the MAC would greatly improve America’s fiscal position, sharply reduce the risk of a recession, stimulate economies of scale, reduce inflation, and reduce America’s growing debt.  Our top priority today should be to protect our national security to remain a free country to ensure the well-being and safety of our children and grandchildren in the future.  

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Posted in Currency Misalignment/Munipulation, Economy, Legislation, Trade Policy | No Comments »

Economic Indicators Report Reveals a Shrinking Middle Class

Tuesday, May 23rd, 2023

A long-time acquaintance of mine, Charles Shor, contacted me recently to inform me that he had founded a new non-profit organization, Blue Collar Dollar Institute.  Charlie has been a long-time reader of my blog articles, and we share a common concern — the shrinking middle class.  We also shared the same opinion of the main reason for the cause of the shrinking middle class:  the loss of higher-paying manufacturing jobs by American manufacturers outsourcing manufacturing to foreign countries, particularly China. 

We agreed that the problem is, “By offshoring much of our manufacturing base, the United States has developed a dependency on importing consumer goods, amassing debt in the private and public sectors, and relying on critical goods from abroad in times of crisis such as pandemics and wars.”

We both feel that the middle class is in trouble.  “The Blue Collar Dollar Institute aims to understand how the United States’ decision to subsidize foreign manufacturing is decreasing the size of our middle class, increasing the amount of Americans in poverty and catapulting forward the wealth in both the top 5% and foreign competitors.”

The Institute’s Mission Statement is: “The Blue Collar Dollar Institute believes that the United States cannot offer a middle-class lifestyle to a large majority of Americans without possessing a strong and vibrant manufacturing sector.  Our non-partisan mission is to research data, inform the public, and advocate for policy in order to help strengthen US manufacturing and goods-producing sectors. 

Prior to founding Blue Collar Dollar Institute, Charlie’s original foundation, The Charles Shor Foundation, collaborated with  Dr. David Perkis, Purdue Center for Economic Education, Krannert School of Management, to prepare a 200-page Economic Indicators Report.

Charlie encouraged me to contact Dr. Perkis, and we had a long conversation when I connected with him last week.  He explained that the report’s purpose “is to provide a picture of the economic and social wellbeing of the United States in comparison to five other industrialized nations:  China, Japan, Germany, South Korea, and Singapore… Special attention is given to the manufacturing sector due to its perceived ability to offer high paying jobs and to create additional jobs in communities.”

One of the most serious facts the report reveals is: “Since 1945, the percentage of jobs in manufacturing, construction, and mining has dropped from 40% to 14%, eliminating some of the highest paying jobs for high school graduates.”

The result is: “The dreams of Americans obtaining the basics of a middle-class lifestyle, such as owning a home, sending their kids to college, and obtaining affordable housing, have become more and more out of reach for the average household.”  I’ve seen this in my own family as my two adult children have not been able to buy homes in San Diego, CA.

The results of the research revealed that “Although the United States is still the world leader in total output, it has some dubious distinctions in comparison to the other countries of this study.” The other countries are China, France, Germany, Japan, South Korea, and the United Kingdom.  In comparison to these countries, the United States has:

  • The least amount of trade as a share of GDP
  • The largest trade deficits
  • The highest level of adult wealth
  • The most significant wealth inequality
  • The highest level of health care spending (without the best outcomes).
  • The largest level of military spending
  • The lowest GDP share of manufacturing

Needless to say, I only had time to read through the first 40 pages of the lengthy report, so I will only point out some key findings related to manufacturing and trade issues.

As I have written previously in my books and blog articles, the U.S. has trade deficits since 1976, so it was no surprise to me that the report states: “From 1992 – 2019, deficits in manufactured goods have totaled $16.3 trillion (2010 USD), with the bulk of the deficit occurring since 1992 ($15.5 trillion). Since 1992, our largest deficits in manufactured goods have been with China ($4.6 trillion) and Japan ($2.5 trillion).”

Another noteworthy point is “The United States is still the world leader in output as measured by Gross

Domestic Product (Figure 1). In 2019, GDP measured $21.4 trillion USD, compared to $14.4 trillion from its next closest rival, China.”


I’ve long said and wrote that manufacturing jobs are the foundation of the middle class, and if we lose sufficient manufacturing jobs, we will lose the middle class. The loss of middle-class jobs in the U.S. is demonstrated by the fact that “the United States is no longer the leader in average income ($62 thousand USD). That distinction belongs to Singapore ($101 thousand USD).” The result has been “Income inequality in the US has increased significantly over the past 50 years (Figure 10). Income growth for the lowest 60% of income earners fell from the late 1990s through 2015.”

This may be due to the fact that the percentage of jobs in producing goods went down from 39% in 1964 to 15% in 2019, while the percentage of jobs in services increased from 62% in 1964 to 85% in 2019.  The average non-supervisory wage of goods jobs was $944/week I 2019, while the services wage was $699. However, service jobs in retail paid even lower in 2019 —$594/week.

With regard to budgets and deficits, “Except for a four-year period at the end of the Clinton administration, the United States has run a national budget deficit every year since 1970…The governments of Japan and the US carry the most debt…Japan has managed to accumulate the largest government debt as a percentage of GDP, totaling 232% (Figure 22). The United States is a distant

second carrying debt just over 100% of GDP…However, total government debt does not tell the whole story as some may be owed to a country’s own citizens while some will be due to foreign entities. For

instance, of Japan’s 232% debt, 208% is owed to domestic entities with a small portion due overseas (Figure 23). Within our comparison group, the United States government maintains the greatest holdings of debt to foreigners (37%).” 

As I have written in previous articles, there is a relationship between budget deficits and trade deficits.  When a country is buying more imports than selling exports, this produces less revenue for the government, so the country goes into debt to pay its expenses.  We lost 5.8 million manufacturing jobs between 2000 and 2010, and have only added back 1.2 million manufacturing jobs from reshoring and Foreign Direct Investment.  If these manufacturing workers had to get service jobs, they would be receiving lower wages and thus paying lower taxes.  In addition, the higher percentage of workers being paid lower wages for a service job results in their paying less taxes, again reducing the government’s revenue.

The report also mentions the benefits of manufacturing for a town, region, state, and the country as a whole.  This is because

1) “Most goods can be traded anywhere in the world, creating more exports and

generating income from overseas, whereas services are typically limited to

local markets.

2) Manufacturing positions create more additional jobs in the local community

than do service oriented positions. This is the multiplier effect of manufacturing.”

The report explains, “Job multipliers indicate how many total jobs will be created within a region due

to a new position in a particular industry.”  The job multiplier effect for manufacturing jobs ranges from 2.2 to 4.0, whereas the multiplier effect for service jobs ranges from 1.3 to 1.9.

The goals of the Blue Collar Dollar Institute to have strong manufacturing, construction, and mining sectors would help middle-class households have a prosperous life in the following ways: 

  • “By creating high-paying jobs for individuals without a college education. 
  • By selling more products overseas than we buy overseas, bringing net funds into the country. 
  • By making our nation less dependent on foreign countries for critical goods in times of crisis such as pandemics and wars, thus reducing risk for the average American.”

I look forward to continuing my discussions with Dr. Perkis to explore ways in which Industry Reimagined 2030 can collaborate to achieve the goals we have in common, such as adding 5 million middle-income manufacturing jobs and $1 trillion to the economy by 2030.

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Posted in Economy, Jobs, Manufacturing | No Comments »

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