|The Five Myths of Made in USA: The truth will surprise you|
|News - Latest|
Economists shares some facts that put the United States’ manufacturing prowess in perspective. Contrary to popular belief, the United States is a world leader in manufacturing capacity and sophistication.
Myth No.1: Nothing is made in the United States anymore.
Myth No. 2: The United States can’t compete with countries that pay their workers a dime on the dollar.
Myth No. 3: Energy costs are hurting the U.S. economy.
Myth No. 4: The U.S. Dollar can’t compete with other world currencies.
Myth No. 5: Buying Made in USA is good for our economy.
Myth No.1: Nothing is made in the United States anymore. Actually, the United States is at the very top of the world’s manufacturing chain, running neck and neck with China for the top spot. “In 2010, the United States produced nearly $2 trillion in manufactured goods and could exceed China’s manufacturing value in 2011. What’s more, our manufacturing workforce is 10 percent of the size of the manufacturing workforce in China,” explains Mark Perry, professor of economics at the University of Michigan-Flint and scholar at the American Enterprise Institute.
To put the United States’ manufacturing production capacity in perspective, it’s equal to the manufacturing heavy hitters of France, Italy, United Kingdom, South Korea and Brazil combined. Economists share some facts that put the United States’ manufacturing prowess in perspective.
Myth No. 2: The United States can’t compete with countries that pay their workers a dime on the dollar. “That’s rapidly changing,” reports Jeff Dietrich, senior analyst at ITR Economics. “China has pledged to raise worker wages by 15 percent annually in many provinces and by as much as 22 percent in other provinces every year for the next five years. When you balance those wage increases against flat levels of China’s increased productivity, their products become more expensive and manufacturing costs will fall more in line with developed countries.”
Myth No. 3: Energy costs are hurting the U.S. economy. As the price of gasoline and diesel fuel exceeds $4 a gallon, it’s easy to obsess about escalating fuel costs and what that does to every input we buy. But Perry points out that increase in transportation costs encourages sourcing products closer to their point of use.
The higher energy prices have also opened up new energy sources in North America. We’re now getting oil from shale formations in North Dakota and natural gas from Ohio, Pennsylvania and other areas of the Appalachia Mountains. This natural gas coming on the market is driving natural gas prices to extremely low levels. “Natural gas from this area provides a cheap, efficient and clean source of energy for manufacturing operations. Today, natural gas in the United States costs about 15 percent of what it costs in other countries. That’s quite an economic advantage that will drive manufacturing and economic growth throughout the Rust Belt and the Midwest,” says Perry.
Myth No. 4: The U.S. Dollar can’t compete with other world currencies. The Board of Governors at the Federal Reserve System has developed a trade-weighted index of the U.S. Dollar with U.S. major trading partners’ currency values. In the last 10 years, the indexed U.S. Dollar has decreased 32 percent. “At face value, that sounds ominous, but when the U.S. Dollar is extremely strong, those who buy our products have to pay more for them and usually leads to trade deficits. When the U.S. Dollar is more in line with the values of other currencies or a bit lower, buying from the United States is more of a bargain and our exports generally improve. That’s important because we are in a world economy and 95 percent of the consumers in the world are outside the United States,” Perry says.
Myth No. 5: Buying Made in USA is good for our economy. That’s true only to a point, report leading economists. Buying made in U.S.A products does encourage employment on our shores, but going so far as to buy products solely on their country of origin can have short-term effects on budgets and long-term effects on product innovation.
In today’s extremely competitive bidding environment, increasing tool or supply costs by even one percent can mean the difference between getting a job or keeping work crews idle. Those short-term effects are crippling to any contractor.
In the longer term, protectionist policies tend to protect inefficient producers and create hard diplomatic feelings between trading partners.
“Economists overwhelming agree that putting incentives or disincentives in the place of market decisions about what materials to use winds up costing the economy jobs. Inevitably, the benefits accrue to a small number of firms, while all taxpayers or customers pay the higher prices. It's not a given that the protectionist policies will result in more jobs: the owners or the existing workers of the favored firms may pocket the higher revenues in the form of profits, wages and benefits. Protecting the U.S. supplier from competition may also result in inferior or less innovative products,” says Ken Simonson, chief economist at the Associated General Contractors of America.
In fact, the “Buy American” component that was part of the ARRA Stimulus funds actually held up contracts that could have put construction workers back to work sooner. ”Water and sewer projects across the country were held up, sometimes for months, because there was no U.S. supplier of certain equipment or components. In other cases, suppliers or contractors had to go through a lot of rigmarole to determine the origin of components in a product assembled in the U.S. and whether the cost of foreign or indeterminate components exceeded the ‘de minimis’ threshold that would allow them to be used without a special waiver. The ‘shovel-ready’ objective of putting construction workers back on the job quickly while making sensible use of tax dollars was clearly frustrated. In addition, Canadian municipalities started to retaliate by blocking purchases of U.S. products. This is another way Buy-American requirements cost the U.S. economy and displace U.S. workers,” Simonson adds.