MANUFACTURING

IN

AMERICA

A Comprehensive Strategy to Address

the Challenges to U.S. Manufacturers

U.S. Department of Commerce 
MANUFACTURING

IN

AMERICA

A Comprehensive Strategy to Address

the Challenges to U.S. Manufacturers

U.S. Department of Commerce

Washington, D.C.

January 2004
ISBN 0–16–068028–X

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January 2004
Contents

Introduction ................................... 7

One

Competing—and Winning—in a 

Global Economy ............................... 13

Two

Challenges Facing American 

Manufacturing ................................. 33

Three

Recommendations and 

Next Steps ...................................... 59

Appendix

List of Manufacturing Roundtables 

and Participants ................................ 81

MANUFACTURING IN AMERICA 3

President Bush is committed to making sure every American who wants to work can find a

job. In the third quarter of 2003, the U.S. economy grew at 8.2 percent—the strongest

growth in nearly 20 years. Over the past five months, more than 250,000 new jobs have

been created and the December 2003 unemployment rate of 5.7 percent was significantly

below the 30-year average of 6.4 percent. Thanks to the President’s pro-growth policies,

America’s economy is strong—and growing stronger.

The recent economic downturn hit the U.S. manufacturing sector particularly hard,

but now our manufacturers are beginning to experience the benefits of the President’s progrowth policies. Factory activity is at its highest level in 20 years and new orders are at the

highest level since 1950. 

Strengthening American manufacturing is a top priority for the President. America's

manufacturers provide our nation and our people with good jobs, a better quality of life,

and inventions that have established our national identity. Manufacturing is the backbone

of our economy and the muscle behind our national security.

To make sure the administration is doing everything possible to help American manufacturers, last year I ordered a comprehensive review of our manufacturing sector. Our

goal is to help the American manufacturers compete and win in the 21st century. Through

the Manufacturing Initiative, we will redouble the administration’s efforts on behalf of the

millions of Americans who work in the manufacturing sector.

The Initiative organized over 20 public roundtables to solicit input from American

manufacturers. Our question was simple: How can government help manufacturers 

compete?

This report includes a series of recommendations aimed at unleashing the full potential

of American manufacturers. It is an important first step toward strengthening American

manufacturing and creating new jobs. In the coming weeks and months, the Department of

Commerce will continue to work with manufacturers, other state and federal agencies, and

Congress to help U.S. manufacturers become more competitive in the global marketplace.

American manufacturing has a rich history. After traveling the country and meeting

with hundreds of factory workers, executives, and experts, I am confident it will have an

equally rich future.

Donald L. Evans

Secretary of Commerce

MANUFACTURING IN AMERICA 5

Message from the Secretary of

Commerce

A cutting-edge manufacturing techniques.

Perhaps most importantly, productivity in

manufacturing has continued to rise significantly.

Even as U.S. manufacturers engage in

global competition with singular

strengths, they also face unprecedented

challenges. These challenges are both

cyclical and structural. The most recent

recession in the business cycle—a downturn that first began to be felt in 2000—

hit U.S. manufacturers and their workers

hardest. Output fell 6 percent in manufacturing even though the recession was

relatively shallow overall. Employment

fell by 2.6 million jobs in manufacturing,

accounting for all of the net job losses

from the fourth quarter of 2000 through

the third quarter of 2003.

Today, as the overall U.S. economy

expands strongly, much of the manufacturing sector continues to operate well

below its previous peak. For example,

while automobile production remains

strong, many of the industries that support this production, such as the machine

tools and tool and die industries, continue to lag behind the rest of the economy by a wide margin.

As difficult as the recession has been

for U.S. manufacturers, the sector faces

American manufacturers are a cornerstone

of the American economy and embody

the best in American values. They enhance

U.S. competitiveness while improving lives

domestically and internationally.

President Bush’s concern for the men

and women who work in manufacturing

and the critical contribution they make

to the U.S. economy is the driving force

behind this report. Manufacturers are full

partners in the effort to build the future

of the country in the marketplace for new

products and ideas. Simply put, a healthy

manufacturing sector is key to better jobs,

fostering innovation, rising productivity,

and higher standards of living in the

United States.

The United States is the world’s leading producer of manufactured goods.

Standing alone, the U.S. manufacturing

sector would represent the fifth-largest

economy in the world—larger than

China’s economy as a whole.1 The U.S.

manufacturing sector also leads in innovation, accounting for more than 90 percent of all U.S. patents registered annually.2 Investments in technology create

new industries and careers in manufacturing as U.S. firms introduce products and

MANUFACTURING IN AMERICA 7

Introduction
create the economic conditions that foster

a healthy and competitive manufacturing

sector and spur economic growth? What

are the best means of removing the impediments that government action has

contributed to in the form of increased

energy and healthcare costs and high or

distortionary tax and regulatory compliance burdens that make it harder for U.S.

manufacturers to attract investment and

compete? How can government policy

foster an environment in which American

manufacturers and their workers are the

best trained in the world? And, equally

important, how can America ensure that

success in the global marketplace is based

on economic strength, rather than on

government intervention that creates artificial advantages?

The Manufacturing Initiative

In a March 2003 speech to the National Association of Manufacturers in

Chicago, U.S. Secretary of Commerce

Donald Evans launched the Manufacturing Initiative to begin answering those

questions. Secretary Evans called for a

comprehensive review of issues affecting

the competitiveness of the U.S manufacturing sector. The goal of the review was

to develop a strategy designed to ensure

“that the government is doing all it can to

create the conditions” necessary to foster

U.S. competitiveness in manufacturing

and stronger economic growth at home

and abroad.

Secretary Evans directed the U.S. Department of Commerce to seek the help of

American manufacturers themselves in

identifying the roots of the manufacturing

sector’s current challenges and the specific

obstacles that government policy might

pose to U.S. manufacturing competitiveness. To that end, the Department of

Commerce held over 20 roundtable events

with manufacturers, in which the advice

of individual attendees was sought and

obtained. These nationwide discussions

included representatives from the aeroeven more significant structural challenges from the effects of rapidly changing technology and adjustment to a

global economy. Barriers to trade have

fallen rapidly over the past decade. Innovations in communications, computing,

and distribution have accelerated the design, production, and delivery of goods.

Improved production processes have

spread rapidly throughout the world. Private investment now flows largely unimpeded across national borders as investors

seek the highest rates of return. All these

factors equate to unprecedented global

competition for capital and markets. Because manufactured goods make up the

bulk of international trade, the competition is especially strong. Taken together,

the effects of technology and globalization accelerate the competitive pressures

to lower costs and increase productivity.

The challenges facing U.S. manufacturers raise important questions for both

industry and government. For industry,

the question is how best to reinforce the

sector’s strengths and maintain its competitive edge in an increasingly competitive global economy. The competitive

pressure on U.S. manufacturers has forced

them to cut costs, to adopt lean manufacturing techniques, and to implement

quality assurance programs that guarantee

zero defects in production. Innovation in

products, processes, and services has become a key determinant for success.

Fostering a competitive manufacturing sector also requires a different way of

looking at government policy. The right

policies in Washington, D.C.—and across

the nation—can unleash the great potential of the U.S. economy and create the

conditions for growth, prosperity, and job

creation. For government, the ultimate

question is whether the actions that it

takes help or hinder American manufacturers as they compete in global markets.

What steps should government take to

8 U. S. DEPARTMENT OF COMMERCE
Manufacturers Association, Motor and

Equipment Manufacturers Association,

Aerospace Industries Association, Association of Equipment Manufacturers, American Foundry Society, American Forest

Products Association, and others.

The following report is divided into

three chapters. The first chapter provides

an overview of the domestic and international economic issues facing American

manufacturing and identifies the powerful trends shaping the environment in

which U.S. manufacturers compete today.

The second chapter draws on the experience of U.S. manufacturers themselves

in identifying the challenges government

must tackle. Small, medium-sized, and

large manufacturers all stated that the first

priority should always be to eliminate government policies and practices that hinder

U.S. competitiveness. They identified immediate priorities such as spurring higher

economic growth and creating incentives

for investment, including research and development, as well as long-term efforts

such as the reliability of energy supplies,

reducing healthcare costs, and tort reform

needed to reduce the indirect costs imposed on manufacturers by government

action or inaction.

On the international front, manufacturers stressed the importance of breaking

down the barriers that other governments

erect against U.S. exporters and eliminating the practices that distort trade and investment. With respect to both finance

and trade, manufacturers stressed that the

goal of U.S. foreign economic policy

should be to ensure that competition is

free and fair. They also emphasized the

need to reinforce U.S. trade promotion efforts in markets opened by recent trade

agreements, particularly in China.

Manufacturers also emphasized the

importance of looking to the future and

investing in activities that have given

U.S. manufacturers their competitive

edge. In practical terms, that means ensuring that government does not impede

space, auto and auto parts, biotechnology,

semiconductor, chemical, pharmaceutical,

plastics, and tool and die industries,

among others. The manufacturers attending the roundtables represented a broad

mix of small, medium-sized, and large

companies, as well as minority-owned and

women-owned enterprises.

To demonstrate Secretary Evans’

commitment to meeting the challenges

facing the manufacturing sector, the

Commerce Department’s senior managers

led the roundtables,3 with help from the

Commerce Department’s local Export Assistance Centers and private sector District Export Councils. Commerce Department industry specialists attended the

roundtables to listen to and report on the

discussions to Commerce Department

leaders, thus ensuring follow-up action

with any companies needing information

or assistance. 

In addition, the Commerce Department set up a Web site to gather and disseminate information regarding the initiative as broadly as possible. This Web

site—www.export.gov/manufacturing—was

used to provide information on events

and activities, and to encourage those

who could not attend the roundtables to

contact the Commerce Department regarding manufacturing issues.

The process also benefited from discussions with industry association representatives who reflected a broad crosssection of the American manufacturing

community. The Commerce Department

received considerable help from both the

personnel and member companies of the

National Association of Manufacturers,

Manufacturers Alliance/MAPI, Association

for Manufacturing Technology, Society of

Plastics Industries, Alliance of Automobile

Manufacturers, National Tooling and Machining Association, American Forest and

Paper Association, American Furniture

MANUFACTURING IN AMERICA 9
with manufacturers across the country, to

address the challenges identified, and to

help set immediate priorities that will

benefit American manufacturing.

In the meantime, the challenges

confronting American manufacturers and

manufacturing workers are urgent, and

President Bush has already taken action.

He has implemented a jobs and growth

agenda and outlined a six-point plan:

1. To make healthcare costs more 

affordable.

2. To reduce the lawsuit burden on the

U.S. economy.

3. To ensure an affordable, reliable 

energy supply.

4. To streamline regulations and reporting requirements.

5. To open markets for American 

products.

6. To enable families and businesses to

plan for the future with confidence.

The necessity of acting on these reforms was reflected in the roundtable discussions: each proposal would improve

the U.S. manufacturing sector’s competitiveness in the years and decades to come.

One final point deserves emphasis.

Despite the challenges faced by American

manufacturing, there is one fundamental

reason for optimism about the future of

American manufacturing: the talent and

motivation of the men and women who

work in and manage America’s manufacturing companies. More than anything

else, manufacturers participating in the

Commerce Department’s roundtables expressed their commitment to roll up their

sleeves and address the challenges they

face in doing business in an increasingly

global and competitive environment.

American manufacturers are enthusiastic

about meeting the competition, but they

need a fair international playing field and

a domestic environment free from impediments to investment and growth. This

the development of new technologies

that will create the industries and jobs of

the future, as well as improving the competitiveness of America’s existing manufacturing base. Manufacturers stated that

this effort would require government research and development funding and the

creation of a highly educated and motivated workforce.

The third chapter of this report sets

out a series of recommendations designed

to address the challenges identified by

U.S. manufacturers. The recommendations represent a first step toward crafting

the comprehensive strategy Secretary

Evans called for in March 2003.

The recommendations respond to

the call by U.S. manufacturers for a

greater focus within the federal government on manufacturing competitiveness,

including the creation of an Assistant Secretary of Commerce for

Manufacturing and Services.

President Bush announced

on Labor Day 2003 that the

creation of this position

would help keep the federal

government focused on issues relating to manufacturing and would drive the

Manufacturing Initiative

forward. The recommendations also address the challenges identified by U.S.

manufacturers on both the domestic and

international front, as well as reinforcing

American manufacturing’s competitive

edge in the development of new technologies and a workforce that can meet

the needs of modern manufacturing.

These recommendations represent

the start of a process, not the end. From

the outset, Secretary Evans has viewed

this report and its recommendations as

an opportunity to work closely with U.S.

manufacturers to develop a sound strategy for American competitiveness in

manufacturing. The Commerce Department intends to review these proposals

10 U. S. DEPARTMENT OF COMMERCE

American manufacturers are

enthusiastic about meeting the

competition, but they need a fair

international playing field and 

a domestic environment free

from impediments to

investment and growth
3 They included Secretary Donald Evans; Deputy

Secretary Samuel Bodman; Under Secretaries Grant

Aldonas, Philip Bond, and Kathleen Cooper; Assistant

Secretaries Linda Conlin, Bruce Mehlman, and David

Sampson; Directors Arden Bement, Ronald Langston,

and John Maxon Ackerly; and Deputy Assistant Secretaries Joseph Bogosian, Kevin Murphy, and Michelle

O’Neill. Officials of the U.S. Department of Labor (including Assistant Secretary Emily DeRocco) co-hosted

a roundtable focused specifically on workforce, education, and training issues, to which the U.S. Department of Education contributed as well.

report and its recommendations represent

a commitment on the part of the Bush

administration to foster an environment

for the continuing success of American

manufacturing.

Notes

1 See “Total GDP 2002,” World Development Indicators database, World Bank, July 2003.

2 Jeff Werling, The Future of Manufacturing in a

Global Economy, December 2003.

MANUFACTURING IN AMERICA 11
Abbreviations and Acronyms

FDA Food and Drug Administration

GATT General Agreement on Tariffs and Trade

GDP gross domestic product

HSA health saving account

IRC Internal Revenue Code

ITA International Trade Administration

ITC International Trade Commission

MEP Manufacturing Extension Partnership

NAFTA North American Free Trade Agreement

NAM National Association of Manufacturers

NIST National Institute of Standards and Technology

NTMA National Tooling and Machining Association

OECD Organization for Economic Cooperation and Development

OEM original equipment manufacturer

OMB Office of Management and Budget

ONR Office of Naval Research

OSTP Office of Science and Technology Policy

PCAST President’s Council of Advisors for Science and Technology

R&D research and development

R&E research and experimentation

SBA Small Business Administration

SBIR Small Business Innovation Research

STTR Small Business Technology Transfer

TRIPS Agreement on Trade-related Aspects of Intellectual Property

TPCC Trade Promotion Coordinating Committee

TPSC Trade Policy Staff Committee

USPTO U.S. Patent and Trademark Office

USTR Office of the U.S. Trade Representative

WTO World Trade Organization

12 U. S. DEPARTMENT OF COMMERCE
T in mid-2000, before the overall economy

took a downward turn. Although rapid

monetary and fiscal responses kept the recession in check, the cyclical changes

flowing from the recession hit the manufacturing sector with unusual force.

In fact, the general economic downturn that first appeared in the manufacturing sector in mid-2000 may have

masked the far more powerful underlying

structural changes affecting manufacturing. With rapid advancements in technology, lower barriers to trade, and the entry

of significant new competitors into global

markets, the past five to 10 years have

been marked by rapid change for America’s manufacturers, even as they continue

to adapt to the global market.

Importance of

Manufacturing to the

Economy

Manufacturing is crucial to the U.S.

economy. Every individual and industry

depends on manufactured goods. In addition, innovations and productivity gains

in the manufacturing sector provide benefits far beyond the products themselves.

There is no dispute over the significant contribution that manufacturing

The following discussion sets out a framework for understanding the challenges

identified by U.S. manufacturers. This

chapter highlights the critical contribution manufacturing makes to the U.S.

economy and details the many underlying

strengths of the manufacturing sector.

The manufacturing sector’s rapidly

rising productivity is its greatest strength

and a major contributor to the growth of

the U.S. economy. Higher productivity offers multiple benefits: stronger competitiveness in manufacturing and other sectors of the economy, higher real wages,

and a rising standard of living. That same

productivity growth, however, has also

been largely responsible for the gradual

decline in employment in manufacturing:

manufacturing employment has declined

even as U.S. manufacturers have become

more efficient both in absolute terms and

relative to other sectors in the economy.

The manufacturing sector’s overall

performance in the past 25 years has been

very strong, despite difficult periods of adjustment through the 1970s and 1980s. It

remained strong despite shocks to the

world economy, including those in some

of the strongest U.S. export markets during the Asian financial crisis of 1997.

However, the manufacturing sector

was hit by a particularly harsh recession

MANUFACTURING IN AMERICA 13

One

Competing—and

Winning—in a Global

Economy
as a whole. For example, improvements in

cotton harvesting equipment, manufactured in the Midwest, help improve the

productivity of cotton growers in California and Texas. And expanding the power

of computers makes on-line banking and

other financial services possible.

A recent study by the National Institute of Standards and Technology reinforces how the benefits of improved manufacturing productivity extend to other

sectors in the economy. The NIST study

detailed the service sector’s reliance on

U.S. manufacturers for the goods and

technology that spur service sector

growth. It emphasized “the substantial dependency of services on manufacturing

firms for technology” and the “critical

role” manufacturing plays in stimulating

growth in the services sector, which now

makes up more than 70 percent of the

U.S. economy.5

From the perspective of the average

American worker, rising productivity translates into higher real wages and a broader

range of higher-quality, lower-cost goods,

meaning each additional dollar earned

goes further. This makes it is easier to buy

a home, save for a child’s college education, or set aside money for retirement.

The manufacturing sector has generated many of the innovations that have

led to significant productivity gains over

the past 25 years in manufacturing and

throughout the economy. Increases in

manufacturing productivity have consistently outpaced other sectors of the U.S.

economy. From 1977 to 2002, productivity in the overall economy increased 53

percent, while manufacturing sector productivity rose 109 percent. The greater

than 50-percent increase in overall productivity represents a tremendous gain in

the U.S. standard of living, and the more

than 100-percent increase in manufacturing productivity is a remarkable achievement. As Figure 1 reflects, labor productivity in manufacturing has doubled since

1977. The rate of change has increased

makes to the U.S. economy and to America’s standard of living. The sector continues to account for 14 percent of U.S. GDP

and 11 percent of total U.S. employment.

Those statistics, however, do not adequately convey the importance of the

manufacturing sector to the U.S. economy

and to America’s future. Manufacturing is

an integral part of a web of inter-industry

relationships that create a stronger economy. Manufacturing sells goods to other

sectors in the economy and, in turn, buys

products and services from them.

Manufacturing spurs demand for

everything from raw materials to intermediate components to software to financial, legal, health, accounting, transportation, and other services in the course of

doing business. According to the Bureau

of Economic Analysis, every $1 of final

demand spent for a manufactured good

generates $0.55 of GDP in the manufacturing sector and $0.45 of GDP in nonmanufacturing sectors.1

The automotive sector provides a

good example. The production of automobiles stimulates the demand for everything from raw materials in the form of

coal and iron to manufactured goods in

the form of robots to the purchase of services in the form of health insurance for

the automobile companies’ employees.

A healthy manufacturing sector is

critical to America’s economic future for

other reasons as well—innovation and

productivity.2 Innovation holds the key to

rising productivity, and productivity gains

are the key to both economic growth and

a rising standard of living.3 As one leading

economist put it:

A nation’s standard of living in the long term

depends on its ability to attain a high and

rising level of productivity in the industries in

which its firms compete.4

Rising productivity is the key to maintaining U.S. competitiveness in manufacturing, but the benefits of rising manufacturing productivity extend to the economy

14 U. S. DEPARTMENT OF COMMERCE
over time, with productivity growing

faster (14.2 percent) in the past two and a

half years, since the beginning of the last

recession, than in any two-and-a-half-year

period in the past 50 years.

Further, U.S. productivity strongly exceeds that of America’s principal trading

partners (Figure 2). The United States

leads all countries in the absolute level of

labor productivity, both per hour and per

employee. This position has enabled the

United States to maintain its labor cost

advantage over these trade competitors

despite the higher wages and benefits paid

to American workers. The recently

stronger performance of U.S. manufacturing in raising its productivity represents

one of the causes for optimism for the

sector’s ability to adjust to rising levels of

competition at home and abroad. The

ability to raise productivity, even in the

midst of recession and recovery, reflects

that U.S. manufacturers have made

changes in their operations and production methods to put themselves in a

stronger position than manufacturers in

other industrialized nations.

The growth in productivity has also

had a profound effect on the U.S. standard of living. The 31-percent productivity advantage of the U.S. economy over

OECD members accounts for three-quarters of the per capita income difference.6

One important vehicle for the rising

productivity in manufacturing has been

technological innovation. In manufacturing, technological innovation comes in

two forms. First, new inventions provide a

leap forward in technology. Consider the

first integrated circuits and the astonishing array of products that are directly related to its development. Many of those

inventions derive from large investments

in research and development in the manufacturing sector: manufacturing firms

fund 60 percent of the $193 billion that

the U.S. private sector invests annually in

R&D.7 Those technologies are absorbed by

the much larger service sector and drive

MANUFACTURING IN AMERICA 15

0.5

1.0

1.5

2.0

2.5

Manufacturing Sector

Total Economy*

1977 1980 1985 1990 1995 2000

Figure 1. Productivity in Manufacturing and the Total 

U.S. Economy, 1977–2002

* Excludes government and agricultural sectors.

Index: 1977 = 1.0

Source: U.S. Department of Labor, Bureau of Labor Statistics.

20

40

60

80

100

United Kingdom

West Germany

France

United States

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Figure 2. Per-Capita Manufacturing Output in Western Europe 

Relative to the United States, 1950–2000

Index: U.S. level = 100

Note: ”West Germany“ data are for West Germany throughout, even after 1990.

Source: U.S. Department of Labor, Bureau of Labor Statistics; Groningen Growth and Development

Center, International Comparisons of Output and Productivity by Industry.
and manufacturing processes within major

technology life cycles. Such improvement

involves many less dramatic innovations,

but collectively these innovations have a

significant effect. For example, incremental improvements in the ability to etch a

higher number of functions on a microprocessor or to multiply the number of

calls a fiber-optic cable can transmit have

a remarkable effect over time.8

Both major and incremental innovations improve the competitiveness of the

manufacturing sector and the U.S. economy as a whole. Because productivity has

risen faster in manufacturing than in the

services sector, prices of manufactured

goods have risen more slowly than prices

of services. At times, manufactured goods

prices have even declined. That pricing

pressure helps keep production costs in

check for both the manufacturing sector

and other areas of the economy.

In the past 25 years, prices in the

overall economy have increased more than

140 percent, while prices in manufacturing

have increased only slightly more than 60

percent (Figure 3). That also explains why

manufacturing’s share of nominal private

output has declined from around 27 percent in 1977 to around 16 percent at present, even while the sector’s contribution to

real private output growth has remained

roughly the same since 1977.

Real manufacturing output, adjusted

for changes in prices, provides the best

representation of manufacturing output

over the past 25 years relative to the rest

of the economy. Real manufacturing output since 1977 has grown nearly as fast as

real output of the private economy as a

whole (Figure 4).

Another way of measuring the similarity between manufacturing’s growth in

real terms and that of the broader economy is to look at the sector’s contribution

to the growth of real private output. Measured that way, the manufacturing sector’s

contribution has remained roughly steady

at 0.6 percentage points for each 10-year

the increasing rates of innovation and

productivity growth in that sector.

The other form of innovation comes

from the steady improvement in products

16 U. S. DEPARTMENT OF COMMERCE

1.0

1.4

1.2

2.0

1.8

1.6

2.6

2.4

2.2

0.8

Manufacturing Sector

Total Economy

1977 1980 1985 1990 1995 2000

Figure 3. Prices in Manufacturing and the Total U.S. Economy,

1977–2002

Index: 1977 = 1.0

Sources: Total economy: U.S. Department of Commerce, Bureau of Economic Analysis;

manufacturing sector: U.S. Department of Labor, Bureau of Labor Statistics.

0.8

1.0

1.6

1.4

1.2

2.0

1.8

2.4

2.2

Manufacturing Sector

Total Economy

1977 1980 1985 1990 1995 2000

Figure 4. Output in Manufacturing and the Total 

U.S. Economy, 1977–2002

Index: 1977 = 1.0

Source: U.S. Department of Commerce, Bureau of Economic Analysis.
average annually from the 1977–1987 period to the most recent 1992–2002 period

(Figure 5).

Compensation and Employment

Historically, the manufacturing sector

has had the reputation of providing a way

for blue-collar workers to find good-paying jobs. Even today, the average hourly

total compensation of production workers

in manufacturing is higher than the average in all other sectors.

However, manufacturing’s advantage

in total compensation is based on benefits, rather than higher hourly wages. Average hourly earnings of production workers since 1967, when measured on an

inflation-adjusted basis, suggest that manufacturing as a sector has offered an average, rather than high, hourly wage. There

are, of course, specific sectors such as

autos and steel that have offered wages far

above the average, but these are balanced

by others that have offered below average

wages. In fact, the average hourly earnings in the wholesale trade, finance, and

service sectors have surpassed those in

manufacturing over the past 10 years;

only retail trade remains lower.

The advantage of working in the

manufacturing sector has derived, instead,

from the higher level of average benefits

received ($8.89 per hour for manufacturing versus $5.94 for non-manufacturing).

Manufacturers contribute an average of

$0.81 per hour more for health insurance,

$0.66 more for overtime and supplemental pay, $0.62 more for leave, $0.29 more

for retirement, and $0.34 more for other

benefits (Figure 6).9 

Because productivity gains in manufacturing have outstripped the growth in

demand for manufactured goods, manufacturing employment has been falling for

the past three decades. Manufacturing

employment was significantly lower in

2002 than in 1977, falling from 22 percent of the non-farm economy to under

12 percent. Partial data for 2003 indicate

MANUFACTURING IN AMERICA 17

0

1

2

3

4

5

Manufacturing sector Total real private output

1987 1989 1991 1993 1995 1997 1999 2001

Figure 5. Manufacturing as a Percentage of Average U.S. Private

GDP Growth, 1987–2002 (Ten-Year Averages)

Note: “Total real private output” is the same as total real U.S. private GDP—that is , GDP minus the

government sector. The top bars show the 10-year growth of private GDP, annualized to singleyear averages. The bottom bars show 10-year moving averages: for a given year, contribution to

private GDP growth by the manufacturing sector for that year is averaged with the previous nine

years.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

100

150

200

250

300

350

Benefits

Wages & Salaries

Compensation

1980 1985 1990 1995 2000

Figure 6. Employment Cost Index, 1980–2002

Index: 1980 = 100

Source: U.S. Department of Labor, Bureau of Labor Statistics.
that the share has fallen further to about

11 percent (Figure 7).

Given that manufacturing represents a

stable part of the economy while enjoying

outsized productivity gains, the gradual decline in manufacturing employment is not

surprising. Expressed another way, given

the more rapid gains in labor productivity,

manufacturing’s share of total output

would need to increase dramatically to

maintain a given level of employment.

While the number of U.S. manufacturing jobs has fallen since 1979, other

advanced economies have experienced

the same trend. In the 1990s, manufacturing’s share of employment fell at least as

fast, if not faster, in Western Europe than

in the United States (Figure 8).

On average, U.S. manufacturing employment has fallen 0.4 percent annually

over the past 35 years. But that average

rate of decline masks large fluctuations.

Manufacturing employment rises and

falls sharply in each business cycle. With

each recession, manufacturing employment falls slightly lower than the previous trough. When the business cycle

turns up and manufacturing firms begin

hiring again, manufacturing employment

rises, but it does not quite reach its previous peak.

These trends provide a useful transition to discuss the more recent developments in manufacturing.

Cyclical Effects of Recession

and Recovery

After seeing prospects improve for

more than a decade, American manufacturers have, in the past five years, faced

harsh economic conditions. Recessions are

typically hard in manufacturing. Of the

eight recessions since 1950, real GDP has

declined, on average, about 2 percent,

whereas manufacturing output has declined 7 percent.

By the standard of overall output,

the recession of 2001 was relatively mild;

18 U. S. DEPARTMENT OF COMMERCE

0.8

0

1.0

1.6

1.4

1.2

1.8

Manufacturing Sector

Total Economy

1977 1980 1985 1990 1995 2000

0

15

20

24

14

19

23

13

18

22

12

17

16

21

Percent

1977 1980 1985 1990 1995 2000

Manufacturing Share

of Total Employment

Figure 7. Total Employment Growth and Manufacturing Employment Decline, 1977–2002

Source: U.S. Department of Labor, Bureau of Labor Statistics.

Index: 1977 = 1.0

Source: U.S. Department of Labor, Bureau of Labor Statistics.
however, it hit the manufacturing sector

particularly hard. Manufacturing output

declined about 6 percent from the fourth

quarter of 2000 to the third quarter of

2001, over which time real GDP fell 0.5

percent.

What has been striking about the

most recent recession in manufacturing,

however, was not the sharp drop in output, but the slow pace of recovery. In all

but the most recent recession since World

War II, manufacturing output has increased nearly 15 percent in the first two

years of economic recovery. However, over

the past two years, a period during which

GDP rose nearly 6 percent, manufacturing

output declined slightly (Figure 9). Total

manufacturing production is still down

some 4 percent below its previous peak of

mid-2000.

The recession and the slow pace of

recovery in manufacturing have been particularly hard on workers in manufacturing. Since the onset of the manufacturing

employment downturn, the sector has

lost 2.6 million jobs, while employment

in other sectors has been relatively stable.

In the third quarter of 2003, manufacturing employment remained 15 percent

lower than in the period immediately before the recession. Perhaps more significantly, employment in manufacturing has

fallen 8 percent since the recovery began.

This decline was widespread across all

manufacturing sectors (Table 1).

There were several features of the recent recession that made its effect on the

manufacturing sector more pronounced.

First, there was a significant retrenchment in business investment in technology following a surge in such investment

throughout the preceeding decade. It is

generally accepted that the high-tech sector spurred the economy in the late

1990s. High-tech production peaked,

however, in late 2000 (Figure 10). Output

in the sector declined 12 percent by the

summer of 2001, decreasing considerably

MANUFACTURING IN AMERICA 19

0

15

20

25

30

35

Netherlands

United Kingdom

Italy

Germany*

France

United States

1980 1983 1986 1989 1992 1995 1998 2001

Figure 8. Manufacturing Employment as a Percent of Total Civilian

Employment in Europe and the United States, 1980–2001

* “Germany” data are for West Germany through 1990, and for unified Germany thereafter.

Source: U.S. Department of Labor, Bureau of Labor Statistics.

1.00

1.04

0.96

0.92

0.90

1.08

GDP

Manufacturing

2003-Q3

2003-Q2

2003-Q1

2002-Q4

2002-Q3

2002-Q2

2002-Q1

2001-Q4

2001-Q3

2001-Q2

2001-Q1

2000-Q4

Figure 9. GDP and Manufacturing Output, 2000–2003

Index: Fourth quarter 2000 = 1.00

Sources: GDP: U.S. Department of Commerce, Bureau of Economic Analysis; manufacturing output:

Board of Governors of the Federal Reserve System.
further than the average for the manufacturing sector as a whole.

The drop-off in high-tech spending

that led the decline affected the high-tech

sector worldwide. Data on global semiconductor sales, for example, indicate a sizable

drop beginning in late 2000 and continuing for the next year as businesses spent

considerably less on communications and

computing technology (Figure 11).

Two manufacturing sectors that experienced among the largest percentage job

declines were precisely those industries

most affected by the decline in high-tech

spending. Employment in computers and

electronics fell 24 percent from the fourth

quarter of 2000 to the third quarter of

2003, and the decline in employment in

electrical equipment was of similar magnitude—23 percent. Both decreases were

larger than the 18-percent average for

manufacturing as a whole.

The second feature of the recession

that deserves attention was the sharp drop

in inventories that accompanied the

downturn. Inventory imbalances are typical for recessionary periods. Demand falls,

and excess inventory is left on the

shelves. Businesses respond by cutting

back orders, shipments, and production

until demand returns.

In the most recent recession, businesses reacted to a modest increase in inventory-to-sales ratios during 2000 by

cutting back production in 2001 to get

supply under control. The extent of the

resulting relatively drastic inventory liquidation was much more severe in the

2001 recession than it was in the

1990–1991 recession.

The third feature of the recession

worth noting is the uncertainty caused by

the events of September 11, 2001, which

depressed investment and demand. In addition to the direct effects on demand for

manufactured goods, the decline in the

demand for services such as tourism had

subsequent effects on other manufacturing sectors such as autos and aircraft.

20 U. S. DEPARTMENT OF COMMERCE

Table 1. Net Change in Manufacturing Employment, Fourth Quarter

2000 to Third Quarter 2003

Percent Number of Jobs

Total Manufacturing -15.1 -2,599,000

Food -1.8 -29,000

Beverage and Tobacco -6.7 -14,000

Textile Mills -29.5 -109,000

Textile Product Mills -15.8 -34,000

Apparel -37.4 -178,000

Leather and Products -34.1 -22,000

Wood Products -9.6 -57,000

Paper -12.3 -74,000

Printing -14.0 -113,000

Petroleum/Coal Products -3.9 -5,000

Chemicals -6.3 -62,000

Plastics/Rubber -11.9 -112,000

Nonmetallic Minerals -9.4 -52,000

Primary Metals -22.7 -140,000

Fabricated Metals -16.6 -293,000

Machinery -19.6 -285,000

Computers and Electronics -25.1 -467,000

Electrical Equipment -21.3 -125,000

Transportation -12.8 -260,000

Furniture -15.5 -105,000

Miscellaneous -8.6 -63,000

Source: U.S. Department of Labor, Bureau of Labor Statistics.

0

10

20

30

40

50

60

70

80

Percent change from year ago

1996 1997 1998 1999 2000 2001 2002 2003

Percent Change

0

100

200

300

400

500

600

700

800

Index Level

Index level

Figure 10. High-Tech Industrial Production, 1996–2003

Notes: High-tech industries are defined for this analysis as computers, communication equipment,

and semiconductors.

Source: Board of Governors of the Federal Reserve System.
A fourth feature of the recession is

the extent to which slower growth at

home was compounded by the effects of

slower growth abroad, particularly the

dramatic drop in U.S. manufacturing exports to our principal export markets.

Stronger growth abroad helps cushion the

effects of recession at home.

Unfortunately, although they have

shown recent signs of growth, both Europe and Japan have grown considerably

slower than the United States since the

beginning of the recovery. Slower growth

among the industrial economies has magnified the effect of slower growth in

emerging economies in Asia since the

onset of the Asian financial crisis in mid1997. Although several Asian economies

have recovered, the region’s growth, with

the principal exception of China, has yet

to approach the levels reached before to

the financial crisis.

Continued slow economic growth

abroad produces less demand for U.S.

manufactured goods than would otherwise be the case. Figure 12 covers a period

that includes the last three U.S. recessions:

in 1982, 1991, and 2001. The pattern of

the most recent recession resembles that

of the 1982 recession, which was marked

by stagnation among America’s major

trading partners.

What the trend lines reflect is that

the U.S. economy in general, and the

manufacturing sector in particular, received little support from growth among

major U.S. trading partners over the past

two years.

However, the U.S. economy as a

whole has responded to both monetary

and fiscal stimulus in the past year. The

economy grew at an annual rate of 8.2

percent in the third quarter of 2003,

which translates into stronger demand for

all goods and services, including manufactures. In addition, there are signs of growing strength in a number of markets

abroad. That stronger growth, combined

with the continued competitiveness of the

MANUFACTURING IN AMERICA 21

10

11

12

13

9

8

15

14

16

17

19

18

20

Billions of dollars

1996 1997 1998 1999 2000 2001 2002 2003

Figure 11. Worldwide Semiconductor Sales, 1996–2003

(Billions of Dollars)

Notes: Data are based on a three-month moving average, wherein each month’s sales figure is an

average of its total sales and those of the subsequent two months. Data for 2003 are through

October.

Source: Semiconductor Industry Association.

-3

-2

-1

0

1

2

3

4

5

6

7

8

United States

World

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Figure 12. Economic Growth: History and Forecast, 1980–2004

(Percent Change)

Sources: World: International Monetary Fund; United States: U.S. Department of Commerce, Bureau

of Economic Analysis.
reduction in barriers to trade, particularly

with respect to trade in manufactured

goods. The third is the end to political divisions that have segmented markets for

more than 70 years and the corresponding

emergence of Russia, China, and other

countries in the world trading system.

Each of these trends has significant implications for U.S. manufacturing, both in

the form of new market opportunities as

well as stronger competition.

Role of Technology

Global manufacturing has been fundamentally reshaped by the remarkable

improvements in computing, communications, and distribution. Each factor, standing alone, would have greatly expanded

the opportunities for trade, investment,

and global production. Taken in combination, however, the rapid changes in all

three influence many of the trends that

have most reshaped manufacturing from

the shop floor to the loading dock to the

final customer. What these factors have

also done is raise the bar to compete in

today’s manufacturing environment.

In 1987, in a review of the book Manufacturing Matters, Nobel Prize-winning

economist Robert Solow famously observed, “You can see the computer everywhere but in the productivity statistics.”10

In the latter part of the 1990s, however,

the evidence of the computer’s effect on

productivity finally surfaced. Compared

with the relatively slow rates of productivity growth experienced between 1973 and

1995, labor productivity grew “roughly

1.2 percentage points [faster] a year from

1995 through 2000, a rise of more than

80 percent” above the previous trend

line.11 Investments in information technology are estimated to account for 60

percent of that increase in productivity.12

The dramatic expansion of computing power and its application to an ever

greater range of tasks in the business environment is without a doubt the single

most powerful technological change

U.S economy, has improved the prospects

for exports of U.S. manufactured goods.

The manufacturing sector has recently begun to participate in the broader

recovery under way in the U.S. economy.

The Institute of Supply Management’s

Purchasing Manager’s Index has remained

above 50 (indicating continuing growth

in future orders for manufactured goods)

since August 2003.

Furthermore, rising productivity remains a bright light. Since the end of the

recession, productivity in manufacturing

is up 9.7 percent. Measuring from the period immediately before the recession,

productivity is up 14.2 percent.

Those increases in productivity speak

to the ability of American manufacturing

to meet the competitive challenges and

make a contribution to the rising standards of living in the economy. What the

manufacturing sector can control—to invent, to innovate, and to combine resources to produce quality merchandise—

it does quite well.

Structural Changes Shaping

the Competitive Environment

With renewed growth in the U.S.

economy, rising production numbers in

the manufacturing sector, and significant

gains in productivity even in the face of

the recent recession, the manufacturing

sector is poised for what could be a strong

recovery. Nevertheless, the cyclical effects

of the recession and the strengthening recovery are only part of the manufacturing

story. In some respects, the recent recession has obscured the more fundamental

structural changes under way in the manufacturing sector globally.

Over the past two decades, three separate, powerful trends have reshaped the

manufacturing sector globally. The first is

the revolution in technology that has been

under way for two decades, raising productivity in manufacturing and reducing costs

worldwide. The second is the significant

22 U. S. DEPARTMENT OF COMMERCE
Similarly, new communications

technologies allow engineers to conduct

real-time product development discussions with colleagues around the world.

In addition to the videoconferencing capability, communications technologies

use operating systems that allow anyone

participating in the discussion to manipulate the same computer-generated design on the screen.

The revolution in communications

has fundamentally changed the way manufacturers do business. Wireless communication means that a cellular

phone and a laptop computer can replace a salesperson’s office. Not only does

the cellular phone allow for

greater contact and consultation with customers about

their needs, but it also contains the necessary functions to place an

order and begin the manufacturing

process directly from the point of sale.

The communications revolution has

also significantly changed the delivery of

finished goods to customers. For instance,

in trucking, the combination of a global

positioning system transmitter and a cellular phone has meant less waste, greater efficiency, and a lower cost to manufacturing customers. New communications

devices also ease the distribution of goods

by creating an interface with government

agencies that may require information for

security or regulatory reasons. By reducing

the costs of distribution, new communications technologies have reduced the cost

of the end products.

The application of technology has

also transformed the distribution of manufactured goods and reduced the costs of

transportation. Obviously, air travel has

contributed much to making the competitive marketplace for manufactured goods

a single market. In addition, significant

changes in shipping since World War II,

such as the rise of containerization and

affecting manufacturing today. Moore’s

Law—that computing power will double

every 18 months—still prevails and is

likely to continue for some time to come.

One useful way to think about the explosion in computing power is the fact that

the microchip in today’s talking greeting

cards contains more computing power

than existed worldwide in 1945.13

Even skeptics of the contribution of

information technology to productivity

gains, such as Robert Gordon, generally

have conceded its impact on manufacturing.14 The increase in computing power

touches every part of the manufacturing

process. It has revolutionized product design by introducing computer-assisted design that allows much of the product development and testing to be done at a far

lower cost in a virtual environment. Computing power has revolutionized manufacturing by creating a whole new family of

multiple-axis machine tools that offer unmatched precision, quality, and efficiency.

Computers have also made possible

most of the revolutions in business

processes as well. In the absence of the

computing power available today, concepts such as “just-in-time” production

and “demand-pull” manufacturing

processes could not exist in their current

forms.15 The dramatic increase in computing power has created an ever more

powerful tool for developing new products, lowering production costs, raising

quality, measuring performance, and

managing business.

Communications technologies are essential to running high-performance manufacturing operations. New communications technologies create the ability to

manage just-in-time inventories and demand-pull manufacturing. Real-time communication is critical to feeding information back into a system that is designed to

yield zero defects. Interoperable communications systems provide opportunities

for manufacturers and their customers to

collaborate in product development.

MANUFACTURING IN AMERICA 23

manufacturing has been fundamentally reshaped by the remarkable improvements in computing,

communications, and distribution
The post-World War II investment in

R&D paid enormous dividends in the

form of new products, new industries, and

improved growth and competitiveness of

U.S. manufacturing. But, increasingly, it is

private industry that is making the investments driving innovation. By 1980, industry had become the lead investor in U.S.

R&D activities, investing more than the

federal government for the first time.

Today, robust private sector investment in

R&D outpaces federal R&D funding by a

ratio of more than two to one, effectively

reversing the ratio that prevailed throughout the Cold War and the space race.

The lesson that the post-World War II

revolution in science and engineering in

the United States flowed from investments

in R&D was not lost on foreign nations.

Today, nations everywhere recognize the

link between technology, economic

growth, and job creation. They are, as a

consequence, increasingly establishing research institutes and key technology programs; creating incentives for partnerships

among industry, academia, and government; and boosting training for scientists

and engineers.

That dynamic is reflected in the

sharp decline in the U.S. share of total

world R&D spending. Through the 1960s,

the U.S. share of global R&D ranged between 60 and 70 percent. Today, by contrast, the U.S. share is 30 percent.

Equally important is the proportion

of a nation’s output that is reinvested in

R&D, as this ratio is an indicator of an

economy’s commitment to competing on

the basis of new technology in the future. In this regard, the R&D intensity of

the U.S. economy has remained essentially constant for 40 years, during which

time the surge in foreign R&D investment has occurred.

The change in R&D funding patterns

in technology has led to the broad dispersion of technology worldwide. The increase in foreign direct investment by

many global firms has reinforced that

roll-on/roll-off cargo allow for a smooth

transition from container ship to rail to

truck and dramatically increase efficiency.

Distribution is also aided by new cargo

handling facilities operated by express delivery services. For example, this enables

computer manufacturers to operate

overnight repair facilities and deliver repaired computers to their owners in fewer

than 24 hours.

The combination of the trends in

computing, communications, and transportation has generated a new service of

door-to-door logistics. Logistics has become essential to meet the demands of

the market and has been fundamental in

lowering the costs of manufacturing to remain competitive. The competitive environment has been reshaped by such advances, which grew out of post-World War

II defense research.16 The Office of Naval

Research funded the research of a number

of engineering professors at the nation’s

premier research institutions. Those professors had been instrumental in solving a

wide range of practical technical problems

attendant to the war effort during World

War II and continued to receive ONR

funds after the end of the war in 1945.

24 U. S. DEPARTMENT OF COMMERCE
eliminated tariffs and many non-tariff barriers applicable to the largest three-way

trade in the world.

The value of world trade has grown

enormously as a result. Since the creation

of the GATT system, world

exports grew from $58 billion in 1948 to $5.98 trillion

in 2001. According to data

compiled by the WTO, the

volume of world exports increased at a compound annual rate of 5.8 percent in

the past 25 years alone, a pace that was

more than twice as fast as growth in the

world economy as a whole.18

Most of the growth in world trade

has been in manufactured goods. The sector now accounts for approximately threefourths of all trade in goods and 60 percent of all trade, in goods and services

combined.19 One reason for the predominance of manufacuring trade is that the

United States and its trading partners

have reduced barriers to trade in manufactured goods further and faster than in

other sectors. While trade in agricultural

goods, for example, has grown at a relatively strong annual rate of 3 percent over

the last 20 years, exports of manufactured

goods advanced at nearly twice that rate,

averaging 5.7 percent per year.

The growth in trade over the past 50

years, fueled by falling trade barriers, has

contributed directly to the most rapid,

sustained economic growth in U.S. history. Output in the United States increased fivefold and real GDP tripled. U.S.

real GDP, expressed in 2000 dollars, grew

from $11,672 in 1950 to $34,934 in 2002.

Trade continues to contribute significantly to U.S. economic growth. In the

past decade alone—which included the

creation of NAFTA, the conclusion of the

Uruguay Round of GATT talks, and the

creation of the WTO—world trade grew

by 87 percent.20 Between 1990 and 2000,

U.S. exports were up 98 percent and the

share of world trade represented by U.S.

trend. Advanced, state-of-the-art manufacturing facilities capable of producing

high-quality, low-cost goods are now

available worldwide. American manufacturers face competition not only from

manufacturers of low-cost commodity

products, but also from manufacturers of

sophisticated products and the tools to

make them.

Thus, U.S. manufacturers will face

constant pressure not only to lower prices,

but also to increase the value that they add

to their products. Competition from lowcost producers creates an incentive to

move up the value chain in the direction

of higher-margin goods, where the conditions of competition are not based on price

alone. Increasingly, success in manufacturing will depend on the ability to integrate

new technologies rapidly into both products and operations. That ability puts a premium on continuing R&D as the primary

means of gaining a competitive edge.

Lowering Barriers to Trade

The second trend reshaping the environment in which U.S. manufacturers

compete is the significant reduction in tariff and non-tariff barriers to trade in manufactured goods globally. Successive rounds

of multilateral trade negotiations under the

General Agreement on Tariffs and Trade

and its successor, the World Trade Organization, for example, have cut the average

tariff on manufactured goods worldwide by

30 percent. For industrialized countries the

results are even more remarkable. According to a 1999 study published by the Organization for Economic Cooperation and

Development, the average tariff rate for

OECD countries, which was 40 percent at

the end of World War II, is now 4 percent.17

The more recent creation of free trade

agreements, such as the North American

Free Trade Agreement between the United

States, Canada, and Mexico, has reinforced

the trend. Over the past 10 years, NAFTA

MANUFACTURING IN AMERICA 25

U.S. manufacturers face

considerably higher compliance

costs than do many of America’s

trading partners 
The benefits from import competition are not limited to the final consumer.

Access to the highest-quality, lowest-cost

components is an essential element of the

U.S. manufacturing sector’s competitiveness. Imports stimulate competition and

spur American manufacturing to increase

its own quality and productivity. It is

worth underscoring that during the past

decade, while trade was expanding significantly, the U.S. manufacturing sector was

growing faster and in more dynamic ways

than it had in decades.

None of those results are surprising

in economic terms. A more open economy has moved the United States toward

the position of its greatest comparative

advantage. This openness has brought

about increasing returns and a more efficient use of resources. Both are consistent

with stronger economic performance. Indeed, some of the latest research suggests

that the broad engagement of the United

States in the world economy—particularly

the adjustment of the U.S. economy toward a more competitive state—has actually helped retain employment in the

manufacturing sector that would have

otherwise been lost.28

In fact, to the extent that other countries are currently examining the health of

their own manufacturing sectors, they

have identified the United States as the

model. In its recent study of manufacturing in the United Kingdom, for example,

the British government essentially benchmarked the U.S. manufacturing sector as

the best measure of its own progress and

policies.29 Similarly, the European Union

articulated a vision of aerospace manufacturing that expressly contrasted the development of their aerospace industry with

that of the United States.30 Many developing countries also use the United States as

a model.

These developments point to the

basic benefits to the U.S. economy, and to

its manufacturing sector in particular,

from participating in an increasingly open

exports actually grew from 11.4 to 12.2

percent.21 In other words, rather than having a negative impact on the U.S. economy and manufacturing sector, the most

recent round of trade agreements appears

to have allowed U.S. exports to grow at a

faster pace than world trade overall.

The U.S. economy grew rapidly over

those same years, exceeding the pace of

most other industrialized nations. From

1990 to 2002, the economy expanded at

a 3-percent annual rate: the economy

grew from $7 trillion in 1990 to $10 trillion in 2002.22 During that time, the

growth in U.S. exports accounted for onesixth of all growth in the U.S. economy.23

In sectors such as machinery, computers

and electronics, and transportation equipment, exports now make up between 50

and 60 percent of all sales.24 In one-third

of U.S. manufacturing industries, exports

account for one in every five manufacturing sales. According to the most recent

figures available, exports now support

more than 12 million jobs, and those

jobs pay between 13 and 18 percent

higher than the average U.S. wage.25

The benefits of trade, of course, flow

from imports as well as exports. Reductions in tariffs on imports into the United

States represent a

cut in regressive

taxes. This cut offers significantly

higher benefits to

low-income

households than

to those with

higher incomes.

By some estimates, NAFTA

and the Uruguay

Round agreements raised the average annual income of an American family of four

by $1,300 to $2,000.26 A further reduction

in global barriers by just one-third would

increase that family’s annual average income by an additional $2,500 a year.27

26 U. S. DEPARTMENT OF COMMERCE
The United States has led the way in

reducing trade barriers worldwide and

has, in past negotiations, proved willing

to cut its tariffs and limit other forms of

its own intervention in the market to a

greater extent than a number of America’s trading partners. While noting that

there are significant exceptions, including in the manufacturing sector, the average

U.S. tariffs on a trade-weighted

basis are now less than 1.7 percent.31 While many major industrial trading partners have also reduced their tariffs to comparable rates, in

other parts of the world U.S. exporters

still face heavy tariffs. In addition, the

United States is far less likely to subsidize

its manufacturers directly than is the case

in many other countries.

Wholly apart from the basic regulation of trade or the imposition of specific

protective barriers lies the question of

costs imposed by government. U.S. manufacturers face considerably higher compliance costs in labor, environmental, and

other regulatory areas than do many of

America’s trading partners, particularly in

the developing world.32 But there is little

doubt that the disparities in certain

highly visible areas drive the perception of

unfairness that permeates many of the

concerns of U.S. manufacturers about the

current trade rules.

In today’s global economy, a policy

of protection simply does not work. A

good example is the tool and die industry.

While the U.S. tool and die industry has

sought protection from import competition, particularly from China, the industry was also among the most vociferous

opponents of President Bush’s imposition

of tariffs on imports of steel into the

United States in 2002. What the tool and

die industry’s position reflects is that protection invariably involves costs and can

injure other U.S. industries, including

many manufacturers. Instead, what U.S.

manufacturers seek is simply to ensure

trading system governed by a common set

of rules. They also point to the benefits

that can be derived, both for U.S. manufacturers and for the country, from the

current effort to open markets through

trade negotiations. Furthermore, vigorous

enforcement of agreements is needed to

ensure that U.S. manufacturers, together

with the nation’s farmers and service

providers, receive the benefit of the bargains negotiated.

Given the concerns expressed

throughout the U.S. manufacturing sector

about the current trade rules, it is worth

reiterating the extent to which the rules

adopted in recent trade agreements have

served, rather than undercut, U.S. economic interests, including those of U.S.

manufacturers. Reducing tariff barriers, improving investment rules, and developing

stronger intellectual property protections,

for example, mainly benefit the small

manufacturers that were previously locked

out of foreign markets. While larger firms

can afford to invest behind the “tariff

wall” and have the resources, in many

cases, to develop strategies for protecting

their intellectual property, smaller manufacturers have generally had only two options: either export directly or sell to

someone who exports.

In the aggregate, macroeconomic

forces—rates of growth and relative

prices—have the primary effect on our

trade balance and help explain the trade

deficit. These forces, combined with innovation and productivity, underpin our

trade position over the long term.

On the other hand, from the perspective of individual firms, other factors can

be seen as important in global markets

and America’s trade position. Continued

trade deficits, combined with the very visible efforts by some countries to confer a

competitive advantage on their firms, lead

some U.S. manufacturers to question the

fairness of our trade agreements and the

basic tenets of U.S. trade policy.

MANUFACTURING IN AMERICA 27

the United States has led the

way in reducing trade barriers

worldwide
onset of World War I. Even with the rapid

changes in technology and the reduction

of tariff and non-tariff barriers to trade,

the global economy would not be possible

if those divisions still existed.

The numbers bear this theme out.

While the so-called Asian tigers’ share of

world trade grew rapidly over the past 20

years, the biggest gains in share of world

trade in manufactures were captured by

China. China’s manufactured exports increased from only 0.8 percent of world

shipments in 1980 to 5.3 percent in 2001.

With the onset of economic reforms in

1979 and a heavier reliance on market

forces, China has rapidly expanded its

trade in manufactured goods. China now

ranks fourth among exporters of manufactures worldwide.

It is worth underscoring that virtually

all of the market share gains of China and

other Asian nations have come at the expense of Japan and Europe, while the U.S.

share of world exports of manufactured

goods actually increased marginally between 1980 and 2001, from 13 percent to

13.5 percent.33 That increase, in turn, is

due to the ability of U.S. manufacturers to

raise their productivity significantly over

the same period. At the same time, however, U.S. manufacturers in a variety of

sectors were seeing their share of the U.S.

market eroded.

There is another side to the political

and economic revolution that has taken

place over the past two decades; any form

of economic restraint has the effect of creating imbalances between demand and

supply. Consequently, when those restraints are removed, capacity often exceeds demand, and the markets must adjust to bring supply and demand back

into equilibrium.

The end of the Cold War and China’s

reentry into the world economy had a

similar effect. A recent study of trends in

manufacturing employment illustrates

this. The study showed that manufacturthat the rules that apply to U.S. manufacturers apply to their competitors as well,

especially in the case of competition with

companies that benefit from heavy state

intervention.

Overall, the U.S. economy has benefited from import competition, which has

helped maintain the competitiveness of

many manufacturing enterprises and has

dampened inflation considerably. At the

same time, however, stronger import competition has put extraordinary pressure on

manufacturing industries, including steel,

furniture, tool and die, foundry products,

textiles and apparel, and automotive

parts, while touching advanced technology sectors as well.

Increasingly, competition in manufactured goods

has been driven by the evolution of low-cost competitors in emerging Asian markets. In 1980, the United

States, together with the European Community and

Japan, dominated trade in manufactures,

accounting for nearly 75 percent of the

value of world manufactures exports according to WTO statistics. By 2001, however, that share had fallen by almost 15

percentage points, to 60 percent.

Emergence of New Competitors

The third powerful trend affecting

the manufacturing sector globally is both

political and economic. It involves the

increasing reliance of other countries,

notably China and the nations of the

former Soviet Union, on market mechanisms, rather than government planning,

as the principal means of structuring

their economies.

Though not often thought of in trade

terms, the economic consequences of the

end of the Cold War may have had the

most profound effect of all. The end of

the Cold War marked the end of political

and economic divisions that had split the

world in one way or another since the

28 U. S. DEPARTMENT OF COMMERCE

what U.S. manufacturers seek is

simply to ensure that the rules

that apply to U.S. manufacturers

apply to their competitors as well
focusing on what traditionally defined

manufacturing—that is, the process of

turning raw materials into components or

finished products—manufacturers today

think of manufacturing as a system designed to perform the activities required

to deliver the end-product to the customer and meet the customer’s needs,

from design to finance to production to

sales and marketing to after-sales service.

Thought of in that way, the structure

of manufacturing no longer implies that

all of those processes need take place in a

single enterprise. Manufacturers increasingly see themselves as system integrators,

managing a supply chain or “virtual network” that may consist of any combination of the activities mentioned above,

whether or not provided by the “manufacturer” itself.

Adapting to this changing competitive environment has forced U.S. manufacturers to adopt new production, marketing, and management methods, from

“lean manufacturing” techniques, to quality assurance programs that

guarantee zero defects, to international product standards so their goods can be

incorporated in other firms’

global supply chains. It also

means an increasing demand to reach out to customers worldwide in order

to show how a manufacturer

can add value to the customer’s product and its supply chain.

The automotive sector provides a

case in point. Whereas U.S. automobile

manufacturers once provided a ready market for many domestic suppliers of parts

and components, the manufacturers now

operate on a global basis. Thus, automotive parts suppliers must now find niches

in the global supply chains of U.S. auto

companies or their foreign competitors to

succeed in today’s market. That brings

ing employment has fallen not only in

the United States, but also around the

world.34 In fact, China’s manufacturing

employment has actually fallen faster

than that of the United States in percentage terms in recent years.35

This decline in employment largely

reflects the gradual privatization of

China’s many state-owned enterprises and

the subsequent reduction in employment

as they adjust to competing in world markets. However, it also underscores the effect of rising global productivity and the

extent of the excess capacity in manufacturing that continues to put downward

pressure on the price of manufactured

goods worldwide.

Shift toward Global Outsourcing

The practical effect on U.S. manufacturers of the three trends described above

has been to increase the availability of

new sources of low-cost labor and manufacturing capacity. Indeed, the trends

have not only made it available, they

have also made it an important competitive issue. In a global economy in which

both goods and capital are mobile, but

labor is not, manufacturers’ tapping of

lower-cost labor by importing it in the

form of lower-cost parts, components,

and—increasingly—finished goods is

simply a function of trying to stay competitive in a global economy.

Hence, the trend toward sourcing

parts and components globally is driven

by powerful competitive forces and is here

to stay. Manufacturers now have the ability to manage global supply chains effectively, which allows them to source from

the lowest cost supplier globally and, as a

competitive matter, forces them to do so

in order to remain competitive themselves.

In an increasingly global market for

manufactured goods, competition will

largely take place among supply chains,

rather than between individual manufacturers. That implies an entirely different

concept of manufacturing. Rather than

MANUFACTURING IN AMERICA 29

competing in a global marketplace puts a premium on government getting the economic

fundamentals right to create an

environment in which U.S.

manufacturing can flourish
goods were shipped from one manufacturing processor to another, or inputs from other sectors-agricultural products into food manufacturing, crude petroleum into petroleum refining, and iron ore into steel

manufacturing, as well as contributions from the

transportation, financial, and business services sectors.

2 Productivity is defined as the amount of goods

and services produced, adjusted for inflation, per hour

of work.

3 See, for example,William J. Baumol, The FreeMarket Innovation Machine—Analyzing the Growth Miracle of Capitalism (Princeton, N.J.: Princeton University

Press, 2002); see also Michael E. Porter, “Building the

Microeconomic Foundations of Prosperity: Findings

from the Microeconomic Competitiveness Index” in

The Global Competitiveness Report (Geneva: World Economic Forum, 2003).

4 Michael E. Porter, The Competitive Advantage of

Nations, 1st ed. (New York: The Free Press, 1990).

5 Gregory C. Tassey, R&D and Long-Term Competitiveness: Manufacturing’s Central Role in a KnowledgeBased Economy, Planning Report 02-2 (Gaithersburg,

Md.: National Institute of Standards and Technology,

February 2002).

6 R. McGuckin and B. van Ark, Productivity, Employment, and Income in the World’s Economies (New

York: The Conference Board, 2002).

7 Thomas J. Duesterberg and Ernest H. Preeg, eds.,

U.S. Manufacturing: The Engine for Growth in a Global

Economy (Westport, Conn.: Praeger, 2003).

8 Baumol, Free-Market Innovation Machine. Baumol

makes that point a central theme in his recent work

on the determinants of economic growth. He finds

that “the social benefits contributed by the initial innovations are typically smaller than those provided by

the accumulation of subsequent incremental improvements.” Baumol points to the rapid improvement in

performance and reduction in the cost of computers,

which is largely attributable to the incremental improvements in production technology, rather than a

quantum leap in the form of an entirely new way of

computing.

9 U.S. Department of Labor, Bureau of Labor Statistics, “Employment Cost for Employee Compensation” (Nov. 25, 2003).

10 Robert Solow, review of Stephen Cohen and

John Zysman, Manufacturing Matters: The Myth of the

Post-industrial Economy in The New York Times Book Review (July 12, 1987).

11 Roger E. Alcaly, The New Economy (New York:

Farrar, Straus, and Giroux, 2003).

12 Ibid.

U.S. auto parts suppliers into head-tohead competition with parts suppliers

worldwide. The possibility of relying on

increased auto sales in the United States

that automatically translate into increased

orders for parts and components for U.S.

suppliers simply no longer exists. Competition now takes place on a global basis,

and that fact will continue to shape the

prospects for the manufacturing sector in

the future.

The Government’s Role:

Getting the Fundamentals

Right

The changing nature of competition

requires, correspondingly, a different way

of looking at government policy. This

means fostering an economic environment, both domestically and internationally, that encourages growth, rewards

sound investment, controls costs, and fosters innovation and rising productivity. It

also means an aggressive international

economic policy that ensures a level playing field by reducing barriers to trade and

investment and vigorously enforcing the

trade rules when violated.

Competing in a global marketplace

puts a premium on government getting

the economic fundamentals right to create

an environment in which U.S. manufacturing can flourish. It means examining

whether the U.S. government’s actions

and the structure of the U.S. market improve or hinder the ability of American

firms, in manufacturing and throughout

the economy, to compete in an increasingly global marketplace.

Notes:

1 Bureau of Economic Analysis, U.S. Department

of Commerce (2002). Calculations based on total requirements matrix from the BEA Web site,

www.bea.doc.gov. Considered on an aggregate basis,

total manufacturing shipments in the most recent 12-

month period were $4 trillion, but only roughly 40

percent of this was value added in the manufacturing

sector. The rest was either duplicate shipments as

30 U. S. DEPARTMENT OF COMMERCE
31 U.S. International Trade Commission calculations for all goods in 2002, including preferences. Examples of exceptions in the manufacturing sector include tariffs over 50 percent for certain footwear and

over 30 percent for certain apparel.

32 Jeremy A. Leonard, “How Structural Costs Imposed on U.S. Manufacturers Harm Workers and

Threaten Competitiveness,” NAM/MAPI study, December 2003.

33 World Trade Organization, International Trade

Statistics, 2002.

34 Joseph G. Carson in Alliance Capital’s U.S.

Weekly Economic Update (October 2003).

35 Ibid. China’s manufacturing employment declined by 15 percent from 1995 to 2002, while U.S.

manufacturing employment declined 11 percent over

the same period.

13 Diane Coyle, The Weightless World (Cambridge,

Mass.: MIT Press, 1998).

14 Robert Gordon, “Technology and Economic Performance in the American Economy,” National Bureau

of Economic Research Working Paper, no. 8771 (February 2002).

15 Economic Report of the President (January 2001).

16 Ibid.

17 Organization for Economic Cooperation and

Development, Post-Uruguay Round Tariff Regimes:

Achievements and Outlook (Paris: OECD, 1999).

18 World Trade Organization, International Trade

Statistics (Geneva: World Trade Organization, various

editions).

19 World Trade Organization, International Trade

Statistics 2002 (Geneva: World Trade Organization,

2002).

20 International Monetary Fund, Direction of Trade

Statistics (Washington, D.C.: International Monetary

Fund, 1981–2002), data from various editions.

21 Ibid.

22 U.S. Department of Commerce, Bureau of Economic Analysis.

23 Ibid.

24 Bureau of the Census, Annual Survey of Manufactures and foreign trade data in the FT 900 releases

for 2001and 2002.

25 U.S. Department of Commerce, Economics and

Statistics Administration, “U.S. Jobs Supported by

Goods and Services Exports, 1983–94,” staff research

report, November 1996.

26 Drusilla K. Brown, Alan V. Deardorff, and Robert

M. Stern, “Computational Analysis of Multilateral

Trade Liberalization in the Uruguay Round and Doha

Development Round,” Discussion Paper no. 489 (Ann

Arbor, Mich.: Research Seminar in International Economics, 2002).

27 Idem, “Multilateral, Regional, and Bilateral

Trade-Policy Options for the United States and Japan,”

Discussion Paper no. 490 (Ann Arbor, Mich.: Research

in International Economics, 2002).

28 Lori G. Kletzer, “Imports, Exports, and Jobs:

What Does Trade Mean for Employment and Job

Loss?” unpublished paper for the W.E. Upjohn Institute for Employment Research, December 2002.

29 United Kingdom, Department of Trade and Industry, Manufacturing—a Sector Study; the Performance of

Manufacturing Companies within Benchmark Index

(Staffordshire, England: Benchmark Index, 2002).

30 European Commission, Star21: Strategic Aerospace Review for the 21st Century (Brussels: European

Commission Enterprise Publications, 2002).

MANUFACTURING IN AMERICA 31

T 1. Manufacturers perceived a lack of

focus within government on manufacturing and its competitiveness. Manufacturers are looking for a commitment to understanding the challenges that the sector

faces in competing in a rapidly globalizing economy. They want government to

take the steps needed to foster the manufacturing sector’s ability to adjust to that

new competitive reality.

2. Manufacturers want the government to focus on encouraging stronger

economic growth both at home and

abroad. There is a broad understanding

that the recent recession was led by a

sharp drop in business investment and

that both monetary policy and fiscal policy have worked to set the economy on

the route to recovery. But there are still

steps that manufacturers feel are necessary

to encourage business investment, and to

reinforce the recovery under way in the

economy as a whole and in the manufacturing sector in particular.

3. Manufacturers see the need for

government to match the effort that they

have made in controlling manufacturing

costs. As manufacturers have focused on

reducing costs to improve productivity

and ensure their competitiveness, they

often find their efforts eroded by costs

they cannot control—costs that result in

This chapter highlights the challenges facing the U.S. manufacturing sector, as expressed by manufacturers themselves

through the Department of Commerce

roundtables. It also seeks to capture the

priority issues that manufacturers believe

need to be addressed in a comprehensive

strategy to ensure the competitiveness of

U.S. manufacturing. The views reflect a

common understanding of the trends outlined in Chapter 1 that likely will shape

the competitive environment for manufacturing. Manufacturers also recognized

the basic strengths of the U.S. manufacturing sector as it meets the challenge of

competing in a global economy.

If there was one underlying theme

that emerged in the roundtables, it was

the understanding that fundamental adjustments are under way throughout the

global manufacturing sector. Manufacturers asked for an increasing focus by government on these adjustments and

wanted to ensure that government was

taking the steps necessary to create an

economic environment in which U.S.

manufacturers could succeed.

Toward that end, manufacturers attending the Commerce Department’s

roundtables outlined six areas that require

immediate attention:

MANUFACTURING IN AMERICA 33

Two

Identifying the

Challenges Facing

American

Manufacturing
fair. Many manufacturers expressed

concerns regarding China. What manufacturers seek is not protection from competition, but the ability to compete on equal

terms. Toward that end, they strongly

support leveling the playing field internationally by lowering barriers to trade and

eliminating efforts by foreign governments to confer unfair competitive advantages for their manufacturers.

The following discussion explores

each of those themes.

Focusing on Manufacturing

and Its Competitiveness

At every roundtable, U.S. manufacturers made the point that, although the

manufacturing sector represents a cornerstone of the U.S. economy, manufacturing

receives scant attention from the public or

government. To many manufacturers

across the country, it appears that the public and government have lost sight of a

simple truth: you cannot have good jobs if

you do not have strong businesses.

That thought was articulated by Phyllis Eisen of the National Association of

Manufacturers at a roundtable held in

Washington, D.C. She summed up her

conversations with “teachers, educators at

all levels, with kids from seventh grade

through university, with their parents,

with politicians, and with our own manufacturers,” with this statement:

The information we got is not good about

manufacturing. It is invisible to most people.

They don’t equate the table and the spoon

they use and the glass they use... with this

extraordinary industrial strength that we’ve

had for so many years and that we have to

maintain.

Some roundtable participants went

further, describing what they saw as a pervasive bias against manufacturing, based

on an old assembly-line image, causing

the best and the brightest to pursue careers outside the manufacturing sector. At

the roundtable in New Britain, Conn.,

part from government policy. Manufacturers seek a commitment on the part of government to reduce those costs and, in the

process, create an economic environment

that is attractive to investment in manufacturing within the United States.

4. Manufacturers emphasized that enhancing America’s technological leadership was critical to their future. There is

widespread recognition that the United

States remains the world’s leader for investment in research and development,

and that U.S. investments in technology

have paid significant dividends in current

manufacturing competitiveness. It is also

understood by U.S. manufacturers that

technology is now more widely diffused

throughout the world economy and that

this trend risks eroding what has become

the principal competitive advantage of

the United States. What manufacturers

seek is a commitment to encourage research and development and to ensure

that the government reinforces, rather

than creates obstacles to, the process of

bringing innovations to the marketplace.

5. Manufacturers regarded education

as crucial. Manufacturers are extremely interested in addressing the shortcomings of

the U.S. educational system. Roundtable

participants underscored that the evolving

nature of the manufacturing sector relies

on individuals entering the workforce with

greater problem-solving abilities. These

workers must continually sharpen their

skills through lifelong learning. In addition, roundtable participants expressed

concern that the United States risks losing

an innovation infrastructure if the nation

fails to produce scientists and engineers.

Manufacturers seek a renewed emphasis

from all levels of government to invest in

educational and training institutions.

6. Manufacturers also focused on the

need for international trade and monetary

policies that ensure that global competition in manufacturing is free, open, and

34 U. S. DEPARTMENT OF COMMERCE
efforts. While it is widely understood that

the Commerce Department serves as the

principal advocate for manufacturing’s interests, there is no office in the Commerce

Department that is solely responsible for

looking out for the competitiveness of U.S.

manufacturing.

Many roundtable participants thus

requested the establishment of a manufacturing-related position within the Commerce Department at the assistant secretary level or higher to focus

on manufacturing competitiveness and the health of

the manufacturing sector in

general. Manufacturers also

urged stronger coordination

both within the federal government and with state and

local governments to foster

investment in manufacturing, as well as

requesting a regular dialogue between

government and the manufacturing sector

on its competitive challenges.

The administration has therefore

proposed creating an assistant secretary

for manufacturing and services who

would develop and implement a comprehensive strategy on manufacturing. While

maintaining a focus on manufacturing,

strategic planning must include the service sector, which both influences and

benefits from the manufacturing sector’s

competitiveness.

This new position would provide the

focus within the Commerce Department

needed to respond to manufacturers’ concerns. The assistant secretary’s office

would be able to provide regulatory economic analysis essential to assessing the

costs and benefits of government action

on manufacturing competitiveness. This

office would be charged with establishing

a mechanism for coordinating manufacturing-related initiatives among the various executive branch agencies and would

Bruce Thompson of Projects Incorporated

noted that manufacturing had evolved in

ways most people did not know or appreciate. He emphasized that “people need to

get out and see that it’s not a dirty, oily,

old mess anymore. It’s technicians running high-precision equipment.”

The roundtable participants attributed some of the public’s misperception

about manufacturing to the lack of focus

in government on manufacturing. They

pointed out that there was no single advocate for manufacturing within the executive branch departments. “I think the

United States is the only country in the

G8 which doesn’t have a very-high level

department of manufacturing,” said Bob

Brunner of Illinois Tool Works at the

Rockford, Ill., roundtable. “I think that

[establishing such a department] would be

a real positive development in terms of

supporting us manufacturers.”

Manufacturers expressed frustration

that there was no focal point for the

many programs that government supports

at the federal, state, and local levels to assist manufacturers. Bruce Thompson

pointed out that there was no “seamless

interface.” What was needed, in his view,

was “a one-stop shopping mentality,” so

that manufacturers do not have to call on

a lot of different organizations to get the

information and assistance that they

need. As Von Hatley of the Louisiana Department of Economic Development put

it at a roundtable in New Orleans, “We really need a concerted effort between federal and state [governments] to do what it

takes to save manufacturing.” To ensure

accountability, manufacturers sought the

establishment of a single office within

government with responsibility for implementing the Manufacturing Initiative.

Historically there has been little institutional focus on manufacturing in the

federal government. Although various

agencies take into account elements of

manufacturing competitiveness, in practice

there is no mechanism to coordinate these

MANUFACTURING IN AMERICA 35

manufacturers sought the

establishment of a single office

within government with

responsibility for implementing

the Manufacturing Initiative
Relief Reconciliation Act was a “significant achievement,” and the resulting recovery in the U.S. economy would “create sufficient or significant demand for

investment in the industry” to put the

manufacturing sector on the right path.

Despite the reductions in capital

gains and dividend taxes, as well as expensing provisions, many manufacturers

believed that the recent tax cuts did not

go far enough. They underscored the need

to create greater certainty under the tax

code to encourage business investment.

They also emphasized their desire for government to address longer-term issues:

specifically, manufacturers highlighted the

need to reform the tax code to eliminate

the penalties they believe it imposes on

their businesses, such as outmoded depreciation schedules and the overall impact

of the alternative minimum tax.

They also sought simplification of

the tax code, which in its present complexity raises the costs of compliance—

particularly for smaller manufacturers.

Manufacturers further focused on reforms

in the tax code that they believe would

yield a broader and deeper pool of investment capital to the benefit of U.S. manufacturers, particularly for small and

medium-sized businesses. Murry Gerber,

former chair of NAM’s Small and Medium

Manufacturers Group, explained the need

at the New Britain, Conn., roundtable:

They [small and medium-sized manufacturers] haven’t kept up to date with new equipment, and you can’t blame them. They have

had falling sales, their margins are decimated, they don’t have the wherewithal....

An offer of investment tax credits . . . would

drive companies to put on this additional

equipment that’s consistent with the hightech manufacturing in the future.

There is little doubt that reducing

complexity and making the recent tax

enhance the Commerce Department’s

ability to ensure that focus on a government-wide basis.

The Need for Stronger

Economic Growth at Home

and Abroad

Manufacturers attending the roundtables indicated that the single most important economic policy objective from their

perspective was encouraging economic

growth. Stewart Dahlberg of J.D. Street &

Co. described the reality of the global marketplace at the St. Louis, Mo., roundtable:

The world is a very big place. There are lots

of customers out there and lots of niche customers to find. What we would... simply

ask [is] that every possible opportunity to

open up every single possible market be investigated and called out anywhere you can.

Although many of the specific concerns raised by manufacturers focused on

the effect of indirect costs on

the supply side of the economic equation, no one disagreed with the notion that

the first and most pressing

issue was sufficient demand,

domestically and globally, to

stimulate purchases by consumers and businesses of the

goods that U.S. manufacturers produce.

Manufacturers recognized that the

most recent recession was one driven by a

sharp decline in business investment,

rather than a drop in consumer spending.

They also understood that policies designed to encourage business investment

were essential to any recovery in manufacturing. Most manufacturers indicated

that recent efforts to stimulate the economy were paying off, even though they

had not fully filtered through to the

manufacturing sector. As Mustafa Mohatarem of General Motors put it at the

roundtable in Washington, D.C., the recent passage of the Jobs and Growth Tax

36 U. S. DEPARTMENT OF COMMERCE

American manufacturers, both

large and small, understand the

value of promoting economic

growth worldwide and reducing

the barriers to global trade
monetary stability, reducing taxes, and reducing the costs and inflexibility of heavy

regulations that impose limits on growth.

Every country, including the United States,

has room for improvement in terms of the

steps it could take to foster growth and a

rising standard of living.

Another aspect of growth involves

trade liberalization. From the perspective

of U.S. manufacturing, reducing trade barriers and opening markets abroad has

manifold advantages. Liberalization promotes economic growth in foreign markets, which raises the demand for manufactured goods worldwide. It offers the

prospect of higher exports, and the resulting greater efficiencies for American manufacturers and exporters. It also eliminates

the implicit subsidy that tariff protection

extends to foreign competitors.

Significantly, U.S. manufacturers continue to stand behind the effort to open

markets abroad at the negotiating table.

That is true of virtually every industry and

business large and small. Matthew Coffey,

of the National Tooling and Machining

Association, which represents many small

and medium-sized metalworking firms

across the United States, put it this way in

an NTMA policy paper:

The NTMA believes in the free-enterprise system . . . whether it is in the United States, the

Americas, or the world as a whole. That leads

us to the conclusion that competition should

be open. The NTMA is in favor of open markets and getting rid of trade barriers and tariffs and has, therefore, generally supported

free trade initiatives as long as there was a

prospect of fairness over time.

1

In short, American manufacturers,

both large and small, understand the

value of promoting economic growth

worldwide and reducing the barriers to

global trade. They are more than willing

to compete in that environment as long

as the competition is open and fair, and

as long as the same rules governing competition apply equally to all.

cuts permanent would encourage business investment. Greater certainty as to

the tax treatment of earnings is one of

the basic components in any firm’s investment plans.

The other salient point reflected in

the comments of manufacturers was a

clear understanding of the implications

of slower growth abroad. Roundtable participants focused on the need to use both

international monetary and trade policy

to promote growth internationally. They

cited issues such as exchange rates, based

on their understanding of the economics

affecting the value of the dollar. They

made the point that, in addition to doing

everything possible to restore growth at

home, the United States needs to press its

major trading partners for stronger

growth abroad.

Encouraging international economic

growth requires consistent advocacy of

growth-oriented economic policies

abroad. Not only must the United States

promote growth through its own economic policies, but it also must be willing

to “preach what it practices.”

In practical terms for policy-makers,

promoting economic growth abroad

means action on two fronts. The first is

focusing discussions with U.S. trading

partners, whether bilaterally or multilaterally, on policies that will foster growth.

That means continuing to advocate

growth in G7 finance ministers’ meetings,

the G8 summit, and the annual meetings

of the International Monetary Fund and

the World Bank, since growth is not an

issue for the larger, industrial economies

alone. But it also means, most particularly, encouraging the largest economies

in the world to pursue policies that stimulate their growth, since they make up a

significant share of the world economy.

Growth-oriented economic policies

start with the basics, such as promoting respect for private property and observance

of the rule of law, which are essential to all

market transactions. It means ensuring

MANUFACTURING IN AMERICA 37
Keith Guggenberger of Starkey Labs

summed up the perspective of many U.S.

manufacturers, at the roundtable in Minneapolis, Minn.:

Healthcare is a big part of the concerns of

policy that we have in keeping us competitive. . . . At Starkey, we spend almost $8,000

per employee on healthcare in the U.S., and

when half of our people make under

$28,000 a year, it is hard to make those

sorts of ends meet.

The problem is becoming particularly

acute in the automotive industry, which is

central to the health of so many other

manufacturers, particularly in the Midwest. At a Washington, D.C., roundtable,

Mustafa Mohatarem of General Motors

underscored that point:

American companies also face two other challenges that are related to their legacy costs.

The first is pensions, which over time is most

likely to be equalized. That’s something we

have negotiated and we’re trying to address

within that context. The one we don’t have as

good of control on is the medical side of it. As

you know, the cost of medical care has been

rising much more rapidly than other costs in

our economy. So the traditional American

companies that have large healthcare obligations to retirees are being really harmed by

this rapid increase in healthcare costs.

This statement is not merely anecdotal: there is no doubt that healthcare

costs have risen sharply. A 2002 report by

PricewaterhouseCoopers noted that in

2000, the share of U.S. GDP devoted to

healthcare was 13.2 percent, up from 8.8

percent in 1980, and, according to forecasts, that share will continue to rise and

reach 16 percent of GDP during the next

five years.2

The rising cost of healthcare is the

biggest barrier to health coverage. The annual family health insurance premium increased to $9,068 in spring 2003, according to a survey of 2,808 companies by the

Kaiser Family Foundation and the Health

Research and Educational Trust.3 Further,

Reducing the Costs That

Erode Competitiveness

One of the most consistent themes

expressed by manufacturers attending the

roundtables was the need to “keep our

side of the street clean.” For manufacturers mean that government, at all levels,

must understand that it does not have the

luxury of making domestic economic policy choices in a vacuum. Every regulation,

every additional form to be filed, every increase in litigation, and every increase in

healthcare costs can impose unwarranted

costs on American manufacturing.

Manufacturers expressed concern

that, too often, fundamental decisions

about taxation, government spending, environmental regulation, workplace reforms, energy policy, personal injury compensation, and trade policy are made in

isolation. They stated that legislatures, administrative agencies, and courts make decisions without understanding the multiple burdens that those decisions impose

on manufacturers.

Rising Healthcare Costs

Curt Magleby of the Ford Motor

Company underscored this most frequently cited concern at a roundtable in

Washington, D.C.: “Where we really need

help for U.S. manufacturing is some stability in healthcare.” Most manufacturers

indicated that they want to continue to

provide healthcare benefits, because such

benefits made for a motivated and more

productive workforce that contributed to

the success of their firms.

Rapidly increasing healthcare costs

directly affect the bottom lines of U.S.

manufacturers and steadily erode their

competitiveness. John Vaught of Tri-Cast

noted at the Columbus, Ohio, roundtable

that, while the cost of the healthcare he

provides to his employees had been “skyrocketing,” he was only able to raise

prices less than 1 percent a year.

38 U. S. DEPARTMENT OF COMMERCE
become less competitive. However, cost

containment may not be an avenue open

to small manufacturers, which face special

problems in obtaining health insurance.

They commonly must pay higher premiums and, thus, are less likely to offer

health insurance as a benefit.

Employers, both large and small,

have responded to these rising costs in a

variety of ways. Firms are less likely to

offer retiree health coverage; the percentage of large firms offering retiree health

benefits has decreased from 66 percent in

1988 to 38 percent today.9 And many

firms increasingly rely on cost sharing as a

way to increase awareness of cost and

value in healthcare. Tiered reimbursements, often used for drug benefits, have

become a common approach to encouraging the use of generic and lower-priced

medications. Some companies have begun

offering consumer-driven health plans,

which combine high-deductible insurance

with health spending accounts.

What these facts suggest regarding

policy is that there is economic and competitive value for reducing the growth in

healthcare costs that U.S. manufacturing

companies face, particularly for the small

and medium-sized manufacturers that are

the foundation of the U.S. manufacturing

between spring 2002 and spring 2003,

monthly premiums for employer-sponsored health insurance rose 13.9 percent—

the third consecutive year of double-digit

premium increases and the highest premium increase since 1990. Small firms,

with three to nine workers, faced the

largest increase of all: a 16.6-percent surge

in premiums.4

Rising healthcare costs are not

unique to the United States. While overall

spending on healthcare is higher in the

United States, the growth rate of spending

is similar to that of other nations. The average real annual rise in healthcare spending in this country was 3.2 percent from

1990 through 2000, which is comparable

to the 3.3-percent rate in OECD countries,

and the 3.1-percent growth rate among

countries in the European Union.5

However, what is unique to the

United States is the extent to which it relies on businesses as the primary providers

of healthcare coverage and the burdens

they bear as a consequence.6 Employersponsored health insurance is a cornerstone of healthcare financing in the

United States. Three out of every five

Americans receive some type of employersponsored health benefits.7

According to the National Association of Manufacturers, 97 percent of its

members continue to voluntarily support

employer-provided healthcare in spite of

the growing cost of these benefits and the

sluggish economy for manufacturing.8 The

percentage of employers providing coverage has not declined substantially, and in

spite of rising costs, employers have not

increased the percentage of the premium

paid by the employee.

To avoid shifting more of the costs to

the actual consumers of healthcare services, employers, particularly those in small

and medium-sized manufacturing firms,

have to find ways to contain costs or they

MANUFACTURING IN AMERICA 39

Commerce Secretary

Donald Evans, Labor

Secretary Elaine Chao,

and Treasury Secretary

John Snow discuss

U.S. manufacturing

with factory workers

at Harley Davidson

headquarters in Milwaukee, Wisconsin.
Addressing the underlying causes of

rising healthcare costs would, of course,

complement the effort to improve cost

containment. In that regard, tort reform,

discussed below, is vital. Current malpractice litigation often fails to compensate

people who should be compensated and

rewards those who do not experience malpractice. In the process, it also dramatically raises the costs of all doctors and

healthcare providers, regardless of their

records, by increasing liability insurance

premiums. Equally important, it raises the

cost to the consumer and to the employer

in manufacturing by encouraging costly

and wasteful “defensive” medicine.

Need for Tort Reform

Perhaps no single issue drew more

heated comments from manufacturers

than the need for tort reform. Manufacturers pointed to a system that drove insurance costs higher even for firms that

had never had lawsuits filed against them

or had never put hazardous products on

the market. Rick Kelly of Pellerin Milnor

Corp. explained at a roundtable in New

Orleans, La., that his firm had recently renewed his product liability insurance and

was obliged to pay an annual premium

worth 30 percent of the coverage itself. As

Kelly put it:

We need tort reform real bad. We just recently

had our insurance renewed for the following

year. A $1-million product liability insurance

premium gives you $3 million in coverage.

That’s insane. That’s absolutely insane.

These comments only begin to describe the ways that tort costs debilitate

businesses. Manufacturing firms pay “tort

taxes” in several ways. First, manufacturers pay significantly higher costs for employee healthcare benefits, due to increasing medical liability costs. Second,

manufacturers pay as product liability and

other tort claims increase the cost of general liability insurance. And third, manufacturers pay in the form of legal fees even

sector. One means of addressing their

needs, as well as those of larger firms,

would be to encourage the development

of association health plans and other

joint purchasing arrangements that

would increase firms’ bargaining power in

the market for health insurance and

healthcare services.

The historic Medicare reform legislation, which was enacted following the

roundtables, provides assistance to firms

offering health insurance to retirees and is

an important step in controlling healthcare costs. This legislation also established

health savings accounts to help employees pay for their healthcare expenses by

combining the purchase of a high-deductible health insurance plan with taxfree savings accounts. Employees will use

the accounts to pay for their healthcare

needs, with any remaining balances rolled

over from year to year. HSAs ensure that

workers have the health insurance coverage they need plus the money to pay for

day-to-day medical care, all while providing them with an incentive to save for

their future health care needs.

40 U. S. DEPARTMENT OF COMMERCE
manufacturer was dubious or nonexistent. From these types of tort claims, it is

difficult to reach any conclusion other

than that the company in question was

targeted simply because the plaintiff’s

counsel identified it as the deep pocket

from which the lawyer could maximize

the award.

Consumers, workers, and investors all

pay for excessive claims of the current tort

system. Tort costs amount to a tax on

consumption, wages, and investment.

Clearly, tort costs make U.S. manufacturers less competitive, increase the risk of

bankruptcy, and are a significant drag on

the American economy.

Just as important is the fact that the

current system also fails to deliver for

those who are injured and deserve compensation. Only 20 percent of direct tort

costs actually go to claimants for economic damages, such as

lost wages or medical expenses.10

The U.S. tort liability

system is already the most

expensive in the world; its

cost is more than double

the average cost of such

systems in other industrial nations, as

measured in GDP share. The consulting

firm of Tillinghast-Towers Perrin published findings that in 2002, the U.S. tort

system cost $223 billion—approximately

2 percent of the nation’s GDP.11 Similarly,

the U.S. Chamber of Commerce recently

released a study showing that a state’s tort

liability system has a “statistically significant” impact on its economic development, which in plain terms means slower

economic growth and fewer jobs, particularly in manufacturing.12

It is crucial to understand that none

of these studies capture anything more

than the direct outlays of existing firms,

such as the payment of liability insurance

premiums. Although those costs continue

to rise dramatically, they understate the

impact on manufacturers and the cost to

when there is no merit to claims and

manufacturers ultimately prevail in litigation—a problem that is only exacerbated

by the growth of frivolous shareholder

class-action suits.

The indirect costs of tort litigation

are also significant—particularly the time

spent by managers and employees, who

would otherwise focus on improving operations, raising productivity, and expanding sales. Giff Kriebel of BAE Systems put

that part of the tort system in perspective

at the roundtable in Manchester, N.H. He

said, “I can think of nothing that is more

non-value-added than all the litigations

that all of us have to go through. . . . The

time it takes and distraction that it causes

is absolutely huge.”

The basic reason for manufacturers’

concern about the civil liability system is

the dramatic increase in tort claims and

awards. Manufacturers have become outsized targets, as plaintiffs’ lawyers consider

operating companies’ “deep pockets” of

insurance and capital. From a personal injury lawyer’s perspective, manufacturers

represent desirable defendants because juries can more easily sympathize with a

claimant by assigning blame to a seemingly impersonal corporation regardless of

fault, assumption of risk by the plaintiff,

or contributory negligence.

The tort system significantly undermines the competitiveness of U.S. manufacturers. The awards have driven insurance premiums higher and, in instances

when liability insurance proved cost prohibitive, the insurance premiums have

driven firms out of business.

The examples of tort claims cited by

manufacturers attending the Commerce

Department’s roundtables were striking.

In many instances, the connection between the plaintiff’s injury and the product put on the market by the defendant

MANUFACTURING IN AMERICA 41

the basic reason for manufacturers’

concern about the civil liability

system is the dramatic increase in

tort claims and awards
The comments of Dow Chemical’s

Gene Reinhardt at a New Jersey roundtable put the problem in context:

Asbestos litigation that continues after so

many years . . . is a problem for society in

that... the victims of asbestos are not the

ones getting the help. We’d like to see that we

get some legislation that would protect the

victims now and in the future and make the

system fair. It is chaos now, with litigation

coming from all directions that is damaging

the economy and undermining the security of

jobs and pension systems.

Tort reform should focus on three

areas. The first is the critical need to cap

medical malpractice awards in ways that

ensure that those deserving compensation

get compensated. The second is the need

to restore the balance that previously existed in tort law: meaningful reforms are

required that would hold individuals accountable for their own actions in the use

of products, rather than holding manufacturers strictly liable for any injury suffered

in proximity to their products. And the

third area is the need to resolve the litigation over asbestos-related injuries by ensuring that those deserving compensation

receive it. Such class-action suits remain a

contingent liability for U.S. manufacturers,

making it hard to attract capital and liability insurance for their current operations.

Reducing Regulatory Costs

At the roundtables, manufacturers

frequently mentioned the issue of regulatory costs and the relative burdens they

place on U.S. firms versus their competitors. An OMB study found that regulatory

costs were 3.7 percent of GDP in 1997.13

Since manufacturing tends to bear a

greater share of regulatory costs than

other sectors, it is safe to assume that

roughly 4 percent of manufacturing GDP

goes to compliance. Of this, about half of

the U.S. economy as a whole. These studies do not capture the value of the products that otherwise would have been developed or other opportunities that

manufacturers have forgone because of litigation risk.

Manufacturers stated that commonsense legal reforms are crucial to bolstering manufacturing competitiveness. Although tort liability is most often a

function of the common law of each

state, a better balance needs to be struck.

In fact, individual states are already developing models of tort reform in an effort

to maintain their manufacturing bases.

Wisconsin’s efforts at reform were

touted at the Commerce Department’s

roundtable in Milwaukee as one of the

reasons for manufacturing firms staying

despite higher taxes and relatively broad

regulation. As explained at the roundtable, the reforms in Wisconsin did no

more than restore some of the balance

that previously existed in U.S. tort law, as

opposed to the strict liability standards

enacted in many jurisdictions.

One particular issue on the legal

front dwarfed all others: the ongoing asbestos litigation, which continues to create a great deal of uncertainty for manufacturers in the marketplace. The point

raised by many manufacturers was hard to

dispute. When asbestos was first installed

as a safety device to retard the spread of

fire in many factories, no one knew the

potential danger of long-term exposure to

asbestos. The product was not subject to

regulation by the government, nor was

there any warning to manufacturers regarding the risks inherent in its use.

But now, many years later, the multiple class-action lawsuits filed over the use

of asbestos have created a legal and financial quagmire. While the litigation continues, affected individuals in American society are not receiving any assistance to

cope with the medical bills they face. And

the continuing litigation remains a cloud

over the entire manufacturing sector.

42 U. S. DEPARTMENT OF COMMERCE
Further, taken together, all compliance costs appear to have increased significantly since the SBA’s study of 1997

data. According to a recent NAM study,

the total burden of environmental, economic, workplace, and tax compliance is

$160 billion on manufacturers alone,

equivalent to a 12-percent excise tax on

manufacturing production. This reflects

an increase of about 15 percent over the

last five years.18 In short, regulatory compliance costs are rising faster than income

in the manufacturing sector, which implies a loss of cost competitiveness or, at

a minimum, a negative offset to the benefits of the extraordinary productivity

gains and efforts by manufacturers to cut

costs under their direct control.

Rising Energy Costs

Another point of concern for manufacurers is the rising cost of energy, particularly natural gas. Manufacturers depend

on affordable, reliable energy. Industry

uses more than one-third of all the energy

consumed in the United States, the majority of which is natural gas and petroleum,

followed by electricity. In all sectors, energy prices have a significant effect on operations and product prices.

Manufacturers uniformly criticized

the failure to enact the legislative aspects

of a comprehensive and coherent energy

plan that would increase America’s energy

independence while yielding energy prices

that would help ensure manufacturers’

long-term competitiveness. Don Wainwright of Wainwright Industries put it in

straightforward terms at a roundtable in

St. Louis, Mo., explaining that manufacturing is “one of the biggest users of energy.” He emphasized that, in his view,

the biggest challenge facing his industry is

“energy policy, which is before the Senate

right now.”

As it stands, America “faces the most

serious energy shortage since the oil embargoes of the 1970s,” directly attributable

the cost is for compliance with environmental regulations; the remainder is for

compliance with workplace safety and

product safety requirements, as well as for

the time spent filling out government paperwork and keeping records.

One measure of the economic cost of

compliance is the cost to government of

managing regulatory programs and the

consequent drain on tax revenues which

that effort represents. Total federal budget

outlays for regulatory compliance activities have almost doubled in the past 13

years, from $13.7 billion in 1990 to $26.9

billion in 2003 in real terms.14 Those costs

cover all regulatory activities, from trade

and customs, to consumer safety, to securities laws. They do not include the cost

to the private sector of compliance, which

can be many times greater.

From a manufacturer’s perspective,

particularly that of a small or mediumsized business, the most common compliance costs are related to environmental

regulation, workplace safety, and tax compliance/employment rules. The Small

Business Administration’s Office of Advocacy has conducted the most comprehensive study of those costs.15 The study

found that the total cost of complying

with regulations in those areas in 1997

amounted to $147 billion annually, or a

cost per employee of $7,904. Of the individual categories that made up that total,

environmental compliance costs took the

largest share. Environmental costs accounted for nearly 50 percent of the total:

$69 billion in 1997, or a cost per employee of $3,691.16

Significantly, the cost of compliance

with such rules falls hardest on businesses

with fewer than 20 employees. According

to the SBA study, small manufacturing

businesses reported that compliance with

workplace rules amounted to a cost of

$16,920 per employee. For larger firms,

that cost dropped by more than half, to

$7,454 per employee.17

MANUFACTURING IN AMERICA 43
budgets, consumer spending slows, lowering demand for manufactured goods. That

contraction in demand feeds back into

the manufacturing sector in the form of

lower sales, lower use of capacity, and an

inability to take advantage of the

economies of scale that manufacturers’

existing capital investments would otherwise afford.

For energy-intensive industries such as

paper products, plastics, and chemicals, the

impact of rising energy costs, particularly

the cost of natural gas, is compounded. At

the Commerce Department’s roundtable in

Trenton, N.J., Gene Reinhardt, of Dow

Chemical Company, explained:

Those of us in the chemical sector are getting a

double hit with natural gas, since we use it

both for our fuel and as raw material for our

chemicals.... Natural gas prices are the highest in the world and drain all of the industry.

Consumers are spending $70 billion more in

natural gas costs in 2003 than they did last

year in 2002. So it is not only an emergency or

an emergent issue for Dow Chemical; it is really an issue for all of the industry in America.

Additionally, energy supply disruptions can pose a significant problem even

in industries in which energy is not an

important component of the total cost of

the goods or services produced. Many

businesses require a high-quality, reliable

source of power. Even a brief loss of power

can impose significant costs on technology firms. Products or product inputs may

be damaged or destroyed, or production

runs may be interrupted.

The effects of the blackouts in California several years ago illustrate this. A survey of small businesses, which was conducted by the National Federation of

Independent Business in February 2001,

found that more than half of the firms

surveyed that had experienced blackouts

in California were forced to reduce or shut

down business operations altogether during the blackouts. About one-third of the

firms surveyed lost sales. Roughly one-fifth

to a “fundamental imbalance between

supply and demand.”19 From 1991 to

2000, Americans consumed 17 percent

more energy than they had in the previous 10 years. During that same period,

U.S. production rose only 4.9 percent; the

difference accounted for by imports.20

America’s energy challenge will continue to grow as the U.S. economy grows.

Energy consumption in the United States

is expected to rise “by about 32 percent

by 2020.”21 While the Bush administration has pursued successful executive actions to increase domestic access and production, there is no prospect, in the

absence of congressional action, for significant new U.S. production.

Conservation and efficiency can

help, and U.S. manufacturers lead the way

in producing and implementing

technologies designed to foster

efficiency and reduce costs.

Those efforts pay big dividends.

Today, it takes only 56 percent of

the energy required to produce a

dollar of GDP as it did in 1970.

The nation’s “energy intensity”

(the amount of energy required

to produce a dollar of GDP) has

declined in recent years and is expected to

decline further, at a rate of 1.5 percent

yearly, through 2020.22 With appropriate

capital investments, conservation could

reduce that figure even further. Yet in the

short run, rising energy prices and disruptions in energy supply reduce profits, production, investment, and employment for

U.S. businesses. In practical terms, absorbing the cost of high and rising energy

prices means deteriorating profit margins.

And by reducing a manufacturing company’s cash flow, high energy costs restrict

a firm’s access to capital needed for new

plants and equipment.

The impact of high energy costs on

the demand side also negatively affects

manufacturers. With rising energy costs

taking a greater percentage of consumers’

44 U. S. DEPARTMENT OF COMMERCE

rising energy prices and

disruptions in energy supply

reduce profits, production,

investment, and employment

for U.S. businesses
American manufacturing. Manufacturers

attending the roundtables stressed the importance of cutting taxes in a way that

would stimulate consumer demand and

business investment, which has lagged

even during the recovery from the recent

recession.

The other frequently made point is

the need for certainty. What manufacturers attending the roundtables see in the

marketplace is an unwillingness of their

customers to make the investments that

will lead to purchases of capital equipment and a strong recovery throughout

the manufacturing sector. That unwillingness is inconsistent with the strong consumer demand that continues to pull the

economy along through the recession and

into a stronger recovery.

Manufacturers explained that the

other forces inhibiting investment are related to the general uncertainty regarding

the strength of the recovery, concerns regarding the effect of the events of September 11, 2001, the rising cost of security in

their aftermath, and to the more uncertain

international economic environment. However, the one concern manufacturers identified that is entirely within the control of

said materials were aged or destroyed. And

nearly two-fifths absorbed additional costs,

such as in wages and benefits, for work

that was not completed.23

Plainly, the problems manufacturers

face because of rising energy costs and

disruption have been a long time in the

making. They are the product, like many

of the other issues manufacturers raised

during the roundtables, of nearly a

decade of neglect. To put it in perspective, it helps to understand that not a

“single major oil refinery has been built

in the United States in nearly a generation.” By some estimates, the United

States needs “38,000 miles of new gas

pipelines, along with 250,000 miles of

distribution lines” to match the demand

for natural gas with supply.24

It will take a comprehensive, longterm strategy to address the energy challenges facing America’s manufacturing

sector, and an equal attention to modernizing the U.S. energy infrastructure, increasing energy supplies, and improving

energy conservation and efficiency. And it

will require a multifaceted approach. The

nature of the problem requires first that

government ensure that energy markets

work well; for example, by moving ahead

with the restructuring of electricity markets where necessary to ensure that energy

savings are passed on to the consumer.

The problem may also merit a hard look

at increased federal funding for research

and development of renewable energy resources and energy-saving manufacturing

techniques and products, tax incentives

for the development of new technologies,

and greater coordination among the various levels of government involved in the

approval and development of new energy

supplies and infrastructure.

Taxes

Manufacturers pointed to federal,

state, and local taxes as one of the key

factors inhibiting future investment in

MANUFACTURING IN AMERICA 45
identified numerous ways in which the

code may distort investment decisions.

They cited the alternative minimum tax,

which imposes significant extra costs on

manufacturers and results in almost no

additional revenue for the federal government. In addition, depreciation schedules

in some sectors may not reflect high rates

of innovation.

Assessing the full impact of the investment distortions contained in the current IRC requires an understanding of how

the IRC’s impact reaches well beyond the

federal system of taxation. Because many

state tax codes are ultimately based on definitions of income that flow from the federal tax code, the distortions of the IRC

perpetuate themselves at the state level.

Several manufacturers went considerably further with respect to state and local

taxation, suggesting changes to the most

prevalent forms of state and local taxation. Many states and localities rely more

heavily than the federal government on

property and other taxes that are fixed in

dollar amounts or in the form of a fixed

percentage of asset value. Those taxes become far more regressive in an economic

downturn; although revenues and income

fall, the liability for tax does not. The net

effect is an increase in tax on manufacturing firms as a percentage of income. The

manufacturers’ comments suggested a

need to shift from taxes based on fixed

values to those tied to income, and to rely

more heavily on consumption as the basis

for defining income subject to taxation.

Lastly, with respect to taxes, there is

broad recognition of the advantage conferred on foreign manufacturers by the interrelationship between the current U.S.

tax system and international trade rules.

American manufacturers are well aware

that most of their competitors are located

in countries that rely more heavily on consumption, rather than income, as the basis

for taxation. In practical terms, foreign

governments apply taxes solely to income

the federal government is the uncertainty

created by frequent changes in the tax code

and the often-conflicting policies that the

tax code represents. U.S. manufacturers put

a premium on getting the right rules and

rates in place and then making them permanent so businesses can invest with

greater certainty in terms of the treatment

of income earned on their investments.

Interestingly, the most salient but

least-understood tax issue involves the international provisions of the Internal Revenue Code. Far from encouraging companies to move offshore, manufacturers

believe the IRC contains significant penalties on income derived from foreign investment that sometimes lead to the double taxation of foreign-source income. In

a global economy, manufacturers understand that their successes

will increasingly depend on

their ability either to export

(which often requires investment abroad in marketing)

or to sell to U.S. firms that

compete in global markets

(which also increasingly depends on the ability to invest, produce, source, and sell abroad). In

short, manufacturers recognize that the

government should not impose penalties

on those American companies that are the

best U.S. competitors in world markets,

even when the exact penalties imposed by

the Internal Revenue Code are not always

apparent to purely domestic producers.

The basic point in support of tax reform was made by Curt Magleby of Ford

Motor Company at a roundtable in Washington, D.C.:

Our tax code internationally was developed in

the 1940s and 1950s [and] updated in the

1980s and represented a completely different

environment. For us to be competitive domestically, we’ve got to update the tax code on

the international side.

In addition to the IRC’s outdated international provisions, manufacturers

46 U. S. DEPARTMENT OF COMMERCE

manufacturers attending the

roundtables stressed the importance of cutting taxes in a way

that would stimulate consumer

demand and business investment
ica’s contined leadership in technology

and its ability to produce the workforce

needed to maintain U.S. excellence in

manufacturing. Manufacturers continually

emphasized the important role that technology plays in serving customers and ensuring cost competitiveness. Lou Auletta of

Bauer, Inc., made that point at the New

Britain, Conn., roundtable:

We’re in the process of developing new technologies that are going to save our customers

money, and also technologies and enhancements that are going to make us more efficient

in production, both from the design aspect and

the manufacturing side.

Manufacturers understand that leadership in innovation and technology are key

to their future competitiveness. William

Fee of Magnesium Elektron, Inc., at the

Trenton, N.J., roundtable spoke for many

in describing the process that his company

had gone through to remain competitive,

and the extent to which it increasingly depends on investment in technology:

Our response has been to shift our business

towards more technically sophisticated applications, for example, catalysts, high-tech 

ceramics, and water treatment. To achieve

competitive advantage in these new markets,

we corner a strong commitment to research

and development and ongoing innovation in

products and the processes needed to manufacture them. To be successful, this strategy

requires significant investment in scientific

talent, laboratories and analytical equipment, intellectual property patents, and following the pursuit of same information technology to control manufacturing processes,

and even the most difficult of all is step

change in the level of detail engineering support necessary to manufacture products to

ever-tightening specifications and consistency

demanded by our customers.

From the perspective of manufacturers, there is a need for continuing investment in research and development of

new products so that manufacturers remain one step ahead of the competition.

earned on sales in their jurisdictions and

will rebate any taxes that apply to exports.

By relying more heavily on income

as the basis for taxation, and in taxing

U.S. manufacturers on their worldwide income, the U.S. system contains no simple

means of ensuring that U.S. exporters receive comparable treatment. The international trade rules reinforce that disparity

because they allow the rebate of indirect

taxes (that is, taxes on consumption such

as value-added taxes) but prohibit the rebate of any direct taxes on income, on

which the U.S. system relies so heavily.

Although manufacturers believe recently

passed changes in federal tax law have

helped, manufacturers maintained that

those changes do not go far enough to

offset the underlying inequity between

the tax treatment of most foreign manufactured goods and those produced in the

United States.

The basic lesson to draw from the

roundtables regarding tax is the need for

both short- and long-term efforts to reduce the cost and uncertainty that the

IRC creates for American manufacturers in

their operations and their pursuit of investment capital needed to maintain their

competitiveness. In the short term, the

most significant step would be to make

the recent tax cuts permanent in order to

increase the certainty of the business environment in which manufacturers operate

and the relative attractiveness of investing

in manufacturing in the United States. In

the long run, manufacturers called for an

intense focus on tax reform—reform that

reduces rates, reduces investment distortions, and simplifies the IRC to reduce the

cost of compliance.

Reinforcing America’s

Technological Leadership

At every roundtable, American manufacturers expressed their concern for AmerMANUFACTURING IN AMERICA 47
this for years and years, and it’s critically important because if you want to know where

manufacturing is going to be in 20 years; it’s

going to be involved with the highest-tech

work that’s possible in the world that can’t be

done in other nations where they pay 80 cents

a day or whatever to lesser skilled workers.

As noted at the outset, U.S. manufacturers continue to invest in innovation

and technology, accounting for the majority of R&D dollars spent in any given year.

The roundtable participants also emphasized the importance of government’s investment in the basic sciences that lead to

later innovations in manufacturing. They

view government’s role as catalytic—sparking many of the ideas that manufacturers

later transform into consumer products.

Manufacturers expressed concern over

the declining commitment of federal government funds for directed basic or generic

technology research of the sort that drives

innovation in manufacturing. At the

Washington, D.C., roundtable focused on

the future of manufacturing, many of the

attendees highlighted the well-known role

that the Defense Department and the National Aeronautics and Space Administration played in research on electronics,

computing, and communications. What

manufacturers seek is focus within the

government’s budget on research that

would yield the same spillover effects that

the earlier work on defense applications

and the space program provided.

U.S. manufacturers suggest that the

federal government’s ability to provide the

means necessary to maintain the technological edge of the United States needs to

be strengthened. At the roundtable in Minneapolis, Minn., which focused on manufacturers in the medical device industry,

many of the participants commented on

the need to improve the responsiveness of

the Food and Drug Administration to the

requirements of a rapidly evolving indusThe fact that technology and innovation

are key to the future of manufacturing

simply reinforced the concern many

manufacturers had for the declining investment in research and development as

a percentage of GDP, both in industry

and in government. Mike Mauer of Sikorsky Aircraft Group made that point at

the roundtable in New Britain, Conn.,

noting that U.S. manufacturing’s competitive edge depends on “great new technology . . . that’s a result of some of the

investments that were made 20, 30 years

ago.” Mauer described the decline in investment in research and development as

“worrisome,” recognizing that future

competitiveness is “really about the technology and the investment up front

and... the engineering and development

that ends up leading” manufacturing toward a more competitive future.

Many of the comments focused on

making the Internal Revenue Code’s research and experimentation credit permanent. At the roundtable in New Britain,

Conn., Murry Gerber, former chair of

NAM’s Small and Medium Manufacturers

Group, stated what was a uniform opinion among manufacturers:

One is the R&D tax credit, which should be

made permanent. We’ve been arguing about

48 U. S. DEPARTMENT OF COMMERCE
sophistication. The United States, until recently, consumed 40 percent of the world’s

semiconductor production, meaning that

American firms were manufacturing goods

containing 40 percent of the world’s semiconductors. In the past two years, the U.S.

share has dropped to 20 percent, whereas

Asia now represents 40 percent of the

world’s semiconductor consumption.27

One of the principal advantages Asia

now holds is a very well-educated technical workforce. Both China and India are

graduating high numbers of talented scientists and engineers. In 2002 alone, 58

percent of all the degrees awarded in

China were in engineering and the physical sciences, compared with 17 percent in

the United States. China’s 219,600 engineering graduates accounted for 39 percent of all college graduates, whereas U.S.

engineering graduates, a total of only

59,500 engineers, represented a mere 5

percent of all college graduates in the

United States.28

Particularly troubling is that comparative advantage in today’s manufacturing

sector has less to do with physical endowments, such as natural resources, than it

has to do with human capital. According

to some U.S. firms’ estimates, by 2010, as

much as 90 percent of their research and

development, design, and manufacturing

will be conducted in either China or

India. There is frankly little government

can do through tax, cost reduction, and

other policies to prevent this shift toward

Asia if the United States is not at the same

time providing the talent pool necessary

to continue spurring innovation.

The discussions of education, training, and workforce needs in manufacturing at the Commerce Department’s roundtables raised the same concerns. Beyond

the incentives needed for investment in

research and development, manufacturers

stressed the importance of a skilled workforce in maintaining America’s technological leadership. Chris Bollinger of Bollinger

Shipyards, Inc., at the roundtable in New

try. Currently, the FDA is grappling with

the question of how best to regulate the introduction of biotechnology into the marketplace. In the view of some manufacturers, the inability to match the speed of

innovation in industry with innovation in

government is becoming a drag on what

provides the United States its primary

advantage in the manufacturing sector—

continuing innovation.

Education and Skills

The President’s Council of Advisors

on Science and Technology (PCAST) recently completed the first phase of a study

gauging the health of U.S. high-tech industries. The PCAST report emphasizes a

concern that motivated many of the participants in the Commerce Department’s

roundtables: with continued outsourcing

of manufacturing functions to lower-cost

alternatives outside the United States, the

United States risked losing the “innovation infrastructure of design, research and

development, and the creation of new

products and industries.”25

George Scalise, president of the Semiconductor Industry Association and chairman of the PCAST subcommittee that

drafted the report, put it this way:

Foreign governments—and especially China—

have done an effective job of creating a rich

environment for the manufacture of electronics and semiconductors, and the implications

are that U.S. high-tech leadership is not guaranteed. That is all there is to it. We have it.

We enjoy it. We have been here forever, but it

is not guaranteed going forward. If we lose

that leadership and if we don’t have that as a

driving force in our economy, it will have an

impact on our ability to maintain and further

improve our standard of living in the future.

That is a reality.26

The numbers bear out that other

countries are increasing their technological

MANUFACTURING IN AMERICA 49
Manufacturers stressed the need to

concentrate increasingly on readying

students for the requirements of modern

manufacturing and the modern marketplace. They emphasized the potential

threat to U.S. technological leadership

from declining numbers of engineering

graduates and high school graduates

with adequate technical skills to qualify

for even entry-level jobs in manufacturing today.

Phyllis Eisen of the National Association of Manufacturers captured the views

of many when, at a Washington, D.C.,

roundtable, she offered the following

perspective:

We are in a highly competitive state with

other countries that have taken education very

seriously for a very, very long time—from

small countries like Denmark, [which] have

been at the peak of pushing kids in the educational world, to China, [which] graduated

close to 40 percent of engineers as undergraduates last year. We graduated less than 6 percent. Now this should be a frightening thought

to all of us. Manufacturing is an engineeringbased industry, and whether we’re training

technicians at a very high scale or high performance production workers or engineers and

chemists or whatever . . . we’re not doing it

fast enough or good enough, and we have to

put as much pressure on the education community and ourselves to work with them.

The role of talent is critical to the

future viability of America’s manufacturing sector. The 2001 U.S. Competitiveness

Report, published by the Council on Competitiveness and co-authored by Professor

Michael Porter, stated that “the priorities

for sustaining U.S. economic growth and

competitiveness center on strengthening

the nation’s innovative capacity and skills

of the American workforce.”29 The report

further stated that “the nation’s ability to

commercialize innovation—and further

productivity growth—rests on the skills of

its workers. But, the bar for skills is risingand demand for higher skills is outstripOrleans, La., identified the “biggest problem that we see” as the “lack of qualified

labor.” He indicated that this observation

was true even during the recent recession.

He expressed concern about what that

meant as the manufacturing sector recovered, calling the lack of qualified labor

“our biggest issue and our biggest . . . roadblock to continuing to grow.”

From the perspective of most manufacturers, the effort to maintain America’s

leadership in innovation and technology

must begin with improvements in the

basic education delivered by U.S. public

schools. Many manufacturers now spend

a considerable amount of time and resources simply training their workers to

meet the basic skill levels that workers in

other countries have attained by the time

they enter the workforce.

General Motor’s Mustafa Mohatarem

identified the problem at a Washington,

D.C., roundtable, noting, “the auto industry was always considered a high-wage industry that would hire people without

much education. Your physical skills were

much more important than your mental

skills. That clearly has changed.” To meet

the challenge that this change presents

will require continuing improvement in

the basic education America gives all students through high school.

Most manufacturers recognize, however, that even a solid high school-level

education is not enough to remain relevant in today’s manufacturing sector. Tim

Timken of the Timken Company made

that point at a roundtable held in Washington, D.C., concerning the future of

manufacturing. He emphasized that his

company, the world’s leading manufacturer of roller bearings, was increasingly

looking for workers who had training beyond high school, up to and including

four years of college, for entry into the

company’s workforce. The reason for that

shift is the increasingly complex capital

equipment involved in today’s manufacturing processes.

50 U. S. DEPARTMENT OF COMMERCE
derstood that the most valuable training

and retraining occur on the job. Being out

of work, even briefly, means that an individual’s skills are eroding. Programs that

put a premium on helping individuals

find new employment may be the most

important form of adjustment assistance.

Communities and Economic

Development

A separate topic is the adjustment of

communities. Recent stories of plant closures in the hard-hit textile mill towns

throughout the Southeast reinforce the

need to ensure closer linkages between

community economic-development initiatives and workforce development programs. As a practical matter, job training

programs are useful only if

there are jobs available for

those pursuing the training.

Consistent with the need

to upgrade the skills of existing

and dislocated workers is the

need to ensure that there is a

diversified economy capable of employing

those workers. Areas with diversified

economies are more stable and generally

provide for a higher standard of living for

their citizens. Communities that are

overly dependent on a single industry are

at greater risk for economic dislocation.

There is considerable room for communities to engage in thoughtful and

proactive economic-development planning. Establishing a comprehensive

strategic plan for economic development

is a critical element in maintaining a

community that can grow, thrive, and endure changes in the economic environment. Coordinated economic development programs can help build a more

favorable business climate to attract private investment.

Economic development planning is,

furthermore, not just a strategy for adjustment in a particular industry. A sound apping supply.”30 Higher-level skills are

essential to enable productivity and commercialize innovation.

Worker skills and education will be a

dominant, if not decisive, factor in America’s ability to compete in the global economy. The United States’ ability to engage

in the world economy must be accompanied by a commitment to boost the skills

of every worker. Educational institutions

must respond by giving every American

the tools to prosper in the global economy.

The final component that manufacturers focused on in their comments

about workforce needs and training was

the need to ensure lifelong learning.

Nowhere is that need more acute than in

the case of workers faced with a layoff because of changes in the underlying economics of their industry.

Traditional trade adjustment assistance programs, though helpful in those

specific instances, may not actually address the circumstances faced by most

workers laid off during the recent recession who have yet to be called back to

work simply because the manufacturer

has learned to produce the same quantity

of output with fewer workers. That drive

to innovate and raise productivity may or

may not be spurred by competition from

imports, but that debate is increasingly irrelevant in light of the changes under way

in the manufacturing sector. There are a

number of federal as well as state programs directed at training and retraining

workers. The Workforce Investment Act,

passed in 1998, has gone a long way toward streamlining and consolidating the

efforts of a wide variety of federal jobtraining initiatives. However, more

change is needed to make the system

more responsive in a dynamic and rapidly

changing economic environment. As a

part of that effort, it would also be helpful

to work toward programs that actually encourage re-employment. It is widely unMANUFACTURING IN AMERICA 51

worker skills and education will

be a dominant, if not decisive,

factor in America’s ability to

compete in the global economy
tries. Steve Prout of Alpha Q at the New

Britain, Conn., roundtable cited the earlier discussed issue of rising healthcare

cost as contributing significantly to increased indirect costs that affect competition. “Many of our companies have seen

medical healthcare cost increases of 20

percent or greater. You cannot sustain that

year after year . . . it’s just impossible.”

Those and other cost differences confront U.S. manufacturers with stark

choices and create an incentive to shift

manufacturing abroad. As Joe Fusco, of

Novus Fine Chemicals, put it at the

roundtable in Summit, N.J., “I could

throw up my hands. I could shut my factory. I could turn my factory into condominiums . . . and then just ship my manufacturing overseas, and—guess what—I

can make . . . more money.”

What Fusco added was also representative of most American manufacturers.

While acknowledging the differences in

costs that are driving many manufacturers

offshore, Fusco also stressed:

I don’t think that that’s the right way to go.

That’s just my opinion. I’d like to think that

we can be creative and innovative. . . . It’s really about just... doing a good job and

being productive and [competitive]. And we

do... But the only thing I’m complaining

about is this uneven playing field that I see.

Economic and Trade Policy and

Manufacturing Interests

Roundtable participants raised the

issue of exchange rates, in particular

China’s peg of its currency, the yuan, to

the dollar. Many manufacturers expressed

concern that exchange rates with a number

of trading partners are set by government

intervention rather than market forces,

leading to lower U.S. exports and stronger

import competition. American manufacturers pressed for the market to set the terms

of competition, not governments.

proach to economic development can

help promote competitiveness, innovation, and increased productivity among

existing businesses or industries in the

community as well.

One of the development concepts

manufacturers highlighted is the concept

of clustering. Economically healthy regions can often foster competitiveness

and innovation by focusing on industry

clusters—groups of interrelated firms and

industries. America’s ability to produce

high-value products and services that support higher-skill and higher-wage jobs

largely depends on the creation and

strengthening of these competitive clusters. Significantly, the concept of clusters

both draws on and reinforces the benefits

of funding for research universities, which

often form the core of such clusters.

In general, there is a need for a more

aggressive look at how existing economic

development programs could best reinforce a community’s development of a

sound approach to building a more diversified and strengthened local economy.

Reinforcing the focus of communities on

building more diversified economic bases

is one means of both attracting and retaining manufacturing companies.

Leveling the International

Playing Field

Perhaps the key short-term demand

of U.S. manufacturers is for a level international playing field. They stressed the

importance of international economic

policies, on both finance and trade, which

ensure that U.S. manufacturers have a fair

opportunity to compete.

Disparities in the Cost of Doing

Business

According to manufacturers attending the roundtables, one key reason for

leveling the international playing field is

to address the differences in the cost of

doing business within the United States to

the costs of doing business in other coun52 U. S. DEPARTMENT OF COMMERCE
one of those tools is trade negotiations,

and many applauded the U.S. initiative

within the WTO to eliminate tariffs altogether as the most direct route to ending

the current disparity.

Stephen Collins of the Automotive

Trade Policy Council, which represents

U.S. automakers on international trade issues, echoed that basic point at a roundtable in Washington, D.C.:

The greatest levels of growth are going to be

outside of the United States. That’s where the

U.S. government does have an extremely important role in helping to open those markets

through the WTO, through bilateral negotiations, and through regional negotiations. And

the reason it’s so important is because those

governments will try to protect their markets

and try to protect the development of their

markets during that same period.

That basic point is worth underscoring. Manufacturers understand that tariff

protection abroad is not only a barrier to

its exports, but it also represents a means

of subsidizing foreign manufacturers by

limiting the competition they face. In

fact, the disparity in tariff rates applied by

foreign countries compared with the tariffs applied on goods entering the United

States was, apart from the difference in

operating costs, the most common example that U.S. manufacturers

pointed to in terms of the

lack of a level playing field.

Kimberly Hayden of

Supreme Tool & Die at the

roundtable in St. Louis, Mo.,

expressed her strong dismay

at the disparities in tariff

rates, stating what many others voiced at

roundtables across the country:

In 2020, if things don’t change, we may not

be here. That playing field needs to be evened

out in order for us to compete globally. I can

compete in the United States. I can’t compete

with the Chinese imports, and I can’t import

or export my product over there.... Bringing

a die cast tool into the United States, the total

Manufacturers attending the roundtables made the same basic point about

trade. What most manufacturers asked

for was not for protection from international competition, but to level the playing field by lowering trade barriers

abroad. As Jay Jackson of Stuller, Inc., a

privately held jewelry manufacturer and

wholesaler, pointed out at the New

Orleans roundtable:

Mexico went to zero percent [tariffs] on precious jewelry in January of 2002. And first

quarter of this year, we actually had an 8 percent-plus balance of trade surplus of greater

exports going to Mexico than were actually

imported, and that’s the first time. So we can

compete if we’re allowed to compete where we

have the competitive edge, and we can compete with the low labor cost, but we just have

to have that level playing field.

There were serious criticisms of U.S.

trade policy. Some manufacturers expressed continuing concerns about the

impact of trade agreements, such as

NAFTA, and questioned whether continued U.S. participation in the World Trade

Organization is warranted.

Other criticisms reflected dissatisfaction with the terms of the agreements

themselves, particularly the extent to

which they opened the U.S. market to

goods made with low-cost labor. Those

criticisms were offset, to an extent, by the

recognition that, in today’s manufacturing, direct labor costs in the form of

wages actually represent a small portion

of the total cost for most manufacturers,

with certain exceptions such as apparel

manufacturers.

Further, most manufacturers argued

that the global marketplace is here to stay

and that the United States is better off

using the tools available to ensure that

competition in that global marketplace is

on even terms. For most, it was clear that

MANUFACTURING IN AMERICA 53

many manufacturers expressed

concern that exchange rates are

set by government intervention

rather than market forces
Toward this end, the administration

has undertaken a number of significant

initiatives to address this issue: an increased focus on intellectual property

rights enforcement, heightened efforts to

promote the adoption of U.S.-developed

technical standards, focused efforts on enforcement and compliance, particularly

with respect to China, and expanded export promotion activities.

The rapid globalization of world markets presents American manufacturers

with new challenges and opportunities.

Falling trade barriers create opportunities

in two forms. First, lower barriers to trade

open markets for American exports. The

United States is already one of the most

open economies in the world.31 Lowering

barriers to trade largely means lowering

barriers to trade abroad, where significant

barriers still exist.

Second, increased trade brings

stronger competition, which represents a

double-edged sword for U.S. manufacturers. Although it can place stiff demands

on U.S. manufacturers, competition in

trade also ensures that American manufacturers remain competitive. Increased competition demands higher productivity,

greater efficiency, and greater innovation.

In today’s global economy, the industries

that engage in the constant process of innovation—lowering costs, creating new

products, and serving new markets—represent market leaders.

Global competition represents an opportunity for American manufacturers in

one other respect as well. Opening markets abroad allows U.S. manufacturers to

take advantage of economies of scale that

they would not enjoy if they were limited

to the U.S. market alone. It also delivers

high-quality, low-cost inputs that are necessary to maintain the competitiveness of

American manufacturing in many sectors.

In many industries, particularly those

in which American manufacturers maintaxes equal 3.9 percent. Bringing a die cast

tool from the U.S. into China, the taxes equal

30 percent.

Tariffs are not the only trade barrier

that U.S. manufacturers face. Another

salient example is the lack of adequate intellectual property protection and enforcement in the markets of some of America’s

major trading partners. For U.S. manufacturers, protection of intellectual property

is not an abstract concept. America’s competitive edge ensues directly from innovation and rising productivity. Intellectual

property protection is the best means for

ensuring that American manufacturers

enjoy the benefits of their investments in

research and development and of their efforts to raise productivity. It is also the

means best calculated to ensure that they

can enjoy the investment they make in

customer service and creating a brand

name that distinguishes them from other

manufacturers.

As Frank Johnson of the Manufacturing Alliance of Connecticut underscored

at the New Britain, Conn., roundtable:

We understand what free trade was designed

to be, but free trade isn’t free. We want free

trade. If there is a tariff on tea going into

China and not coming into the United States,

that’s not fair. If a manufacturer in China can

steal pictures from a Connecticut manufacturer’s advertising brochure and put them on

their Web site and use the company’s trademark name to sell products in China, that’s

not fair. We want fair trade. We understand

free trade, but we want it to be fair. We want

to level the playing field in every place that we

can. We want the Chinese and other competitors to honor trademark laws. We want them

to respect . . . to show the same respect to U.S.

manufacturers that we show to them.

Indeed, U.S. manufacturers indicated

a willingness to compete in a global market, but they want to make sure that the

ground rules are the same for everyone

and that those ground rules are enforced.

54 U. S. DEPARTMENT OF COMMERCE
agreement under which Mexico had to

undertake far more significant reforms

and was obliged to remove more trade

barriers than Canada or the United States,

simply because the U.S. and Canadian

markets were already largely open to Mexican products.

Even the most ardent critics of U.S.

trade policy, however, were not advocating

protection from import competition, nor

were they looking for subsidies. Rather,

they were looking for a level playing

field—an equal opportunity to compete

for business both at home and abroad.

Manufacturers showed support for an

aggressive trade policy intent

on opening markets. Such a

policy does not require backing

away from current trade negotiations in the WTO or in bilateral, multilateral, or regional

free trade agreements. It does,

however, require that the interests of American manufacturers, as well as U.S. farmers and

service providers, be served by

those negotiations and that the U.S. government be vigilant in ensuring that the

benefits of the bargains reached at negotiating tables are, in fact, delivered.

It also requires an understanding that

trade policy does not take place in a vacuum. During the latter part of the 1990s,

trade policy was in a rut because of a debate about the extent to which future

trade negotiations should be conditioned

on labor or environmental standards.

That debate prevented the previous administration from vigorously pursuing,

much less obtaining, trade negotiating authority. The debate was also one of the

many reasons that the WTO conference in

Seattle in 1999 failed to launch a new

round of multilateral trade talks.

From U.S. manufacturers’ perspective,

the politics of the trade debate largely ignore the need for an ongoing effort, without the threat of coercion, to improve

tain a significant technological or other

competitive advantage, there is growth in

exports. During the roundtables in Chicago

and Minneapolis, several firms indicated

that more than 50 percent of their sales are

now offshore. That trend holds true for

firms throughout the high-technology

sector of the American economy.

Most of the manufacturers with

whom Commerce Department officials

met understand the benefits of trade and

indicated that much of what they produce

is destined for foreign markets. However,

some manufacturers believe that the federal government is not aggressive in defending the interests of American manufacturing in its international economic

and trade policy. They argued that the

broad opening of U.S. markets through

NAFTA was evidence that federal government officials did care about U.S. manufacturing or its competitiveness.

Instead of the terms of the deal, critics of NAFTA focus on Mexico’s subsequent devaluation of the peso, which had

a far more significant impact on the terms

of trade between Mexico and the United

States than did cuts in tariffs or quotas.

That fact is reflected in the movement of

U.S. trade with Mexico from surplus to

deficit in the years immediately following

the implementation of the agreement.

The lesson many in manufacturing

drew from that experience is that the U.S.

government, following the implementation of the trade agreement, failed even to

acknowledge the implications for American manufacturing of the agreement and

the subsequent peso devaluation. The balance of payments adjustment assistance

provided to Mexico after the peso devaluation simply reinforced that impression.

In fact, NAFTA has proved to be a

boon economically to all parties by making the U.S., Canadian, and Mexican

economies more efficient. Indeed, most

critics ignore the actual terms of the

MANUFACTURING IN AMERICA 55

opening markets abroad allows

U.S. manufacturers to take

advantage of economies of

scale that they would not enjoy

if they were limited to the U.S.

market alone
cies is also a central part of the administration’s strategy. Good economic policies

in other countries benefit the United

States and the rest of the world. It is

widely recognized that free markets are

best able to allocate scarce resources to

their most productive uses. The United

States believes that the goals of raising

growth and increasing stability can best

be accomplished in an international financial system that relies on the principles of free trade, free capital flows, and

market-based exchange rates among the

world’s major economies.

The world economy has strengthened over the past year. Outside the

United States, growth in Japan has resumed, and prospects for the euro area

brightened in the second half of 2003.

The United Kingdom and Canada, as well

as many emerging market countries, are

also growing more strongly. Rising U.S.

exports reflect this greater vitality in

America’s trading partners.

However, what the broader trend of

weak export performance should not obscure is the fact that certain industries

have faced, and continue to face, a surge

in imports that, in particular sectors, has a

stronger impact than the decline in exports. Textiles and apparel are primary examples. The most significant feature shaping those sectors has been the gradual

removal of quotas on textile and apparel

products that have protected the two sectors since the textile agreements of the

early 1960s. Quotas had the effect of

maintaining a relatively high level of investment and productive capacity, as well

as supporting higher price levels. They

also allowed for the existence of sectors

characterized by a large number of firms

producing a wide variety of products. In

addition, they provided an incentive for

the establishment of outward processing

arrangements to try to maintain industry

competitiveness.

As quotas were removed pursuant to

the Uruguay round of GATT negotiations,

labor and environmental standards. There

is little doubt that there is much to be

gained by encouraging economic growth

in the developing world. As countries develop, they tend to choose higher labor

and environmental standards for themselves. Trade liberalization is one of the

most promising means by which to

achieve those higher standards.

Concerns Regarding the

Trade Deficit

Many manufacturers point to the

trade deficit, including the rising bilateral

trade deficit with China, as a major concern. While the trade deficit has changed

little over the past year and exports have

been rising, America’s trade and current

account deficits reflect broad economic

forces, strong U.S. growth relative to

growth in America’s major trading partners, and a low-inflation environment.

Sustained, strong U.S. performance relative

to performance abroad has also served to

attract substantial capital to the United

States to finance the current account

deficits. At the most fundamental level,

the current account deficit is related to developments in U.S. national saving relative to

U.S. investment. When investment is higher in the

United States than domestic saving, foreign investors make up the difference, and the United

States has a current account deficit. Increased private saving and

deficit reduction in the United States will

work to reduce the current account deficit.

The Bush administration’s international economic strategy aims for high

economic growth throughout the world.

At the core of this strategy are the growthoriented economic policies being implemented within the United States. But

working with U.S. trading partners to encourage pro-growth and pro-stability poli56 U. S. DEPARTMENT OF COMMERCE

growth in the trade deficit has been

driven by relative rates of economic

growth and consumption, rather

than the competitiveness of

American goods and services
eralization by both developing and developed countries would provide the greatest

overall benefit.

But some manufacturers expressed

concern that the United States has “given

more than it has gotten” out of the world

trading system and that foreign policy,

rather than U.S. commercial interests,

drives trade policy. Those views are based

on the visible difference between the average tariffs in the United States and those

in many markets abroad and on the obvious point that the United States has

proved willing to open its market faster

than the vast majority of its trading partners. Although the broader reach of U.S.

foreign policy certainly was one of the

motivating reasons for pursuing trade liberalization, it is difficult to point to a specific area where, as a result of foreign policy concerns, American negotiators put

more on the table than they otherwise

would have done. The argument also

tends to ignore the active role that Congress has played in oversight of the trade

negotiation process in defense of particular manufacturing industries’ interests.

That oversight alone has ensured that

trade policy has normally been driven by

commercial considerations.

It is also worth reiterating what those

views ignore: the benefits of an open trading environment and the competition it

brings. There is little doubt that open

economies grow faster than closed

economies and that competition is essential. The United States itself has, because

of its openness, grown considerably faster

than it otherwise would have.

Notes:

1 Matthew B. Coffey, “NTMA Manufacturing Policy” (paper adopted by NTMA Executive Team, July,

16, 2003).

2 PricewaterhouseCoopers, “The Factors Feeding

Rising Healthcare Costs” (April 2002).

3 Kaiser Family Foundation and the Health Research Educational Trust, Employer Health Benefits;

2003 Annual Survey (Washington, D.C.: Kaiser Family

Foundation, 2003).

increased competition lowered prices,

dampened profitability, and placed much

of the previous investment in apparel

under pressure from competition from

abroad. In response, apparel manufacturing, which is labor intensive, began to

move offshore. Meanwhile, U.S. textile

manufacturing, which encompasses increasingly capital-intensive enterprises,

began to see its primary customers move

offshore or enter bankruptcy. The resulting decline in demand for U.S. textile production has placed the fabric makers in

the same difficult financial position that

apparel makers faced earlier.

The rise in the trade deficit does not

necessarily indicate that American manufacturing is uncompetitive. As mentioned

above, growth in the trade deficit has

been driven by relative rates of economic

growth and consumption, rather than the

competitiveness of American goods and

services. Many American manufacturers

see the playing field being distorted by

foreign government intervention.

Most discussions of trade begin and

end with a survey of the most recent

round of trade talks and what they mean

for particular sectors of the U.S. economy.

In the past 15 years, a dynamic has unfolded that has complemented and reinforced the impact of trade negotiations in

lowering the barriers to trade worldwide

as well as the opportunities and challenges lower barriers create for American

manufacturers.

U.S. leadership within the context of

post-World War II international economic

institutions was an important component

of the overall effort to ensure the future of

freedom, democracy, and a market-based

economic system in the midst of the Cold

War. Unilateral trade liberalization toward

the developing world formed an essential

element of American foreign assistance

strategy, which was also a tool in achieving broader foreign policy goals. In the

long run, however, multilateral trade libMANUFACTURING IN AMERICA 57
California Small Businesses” (press release, Feb. 26,

2001).

24 National Energy Policy Development Group, Energy for America’s Future.

25 President’s Council of Advisors on Science and

Technology, “Report on Information Technology Manufacturing and Competitiveness” as reported in Manufacturing and Technology News (Oct. 3, 2003).

26 Ibid.

27 Ibid.

28 Ibid.

29 Michael E. Porter and Debra van Opstal., U.S.

Competitiveness 2001: Strengths, Vulnerabilities and LongTerm Priorities (Washington, D.C.: Council on Competitiveness, 2001), p. 37.

30 Ibid.

31 On a trade-weighted basis, the U.S. average tariff

is less than 1.7 percent; the current U.S. simple average

tariff is 3.6 percent on a legally bound basis under the

WTO. Average tariffs throughout much of the world are

significantly higher, with simple average WTO legally

bound rates of 31.4 percent in Brazil, 37.2 percent in

Egypt, 49.8 percent in India, and 39.5 percent for WTO

members overall. The manufacturing sector of the U.S.

economy is also largely free of non-tariff barriers to

trade, such as quotas and trade-distorting subsidies. In

addition, because of requirements of the Commerce

Clause of the Constitution, there are few barriers to

trade within the United States. Taken together, that

makes the United States the most open and contestable

market of any major economy in the world.

4 Ibid.

5 Alliance for Health Reform, Covering Health Issues: A Sourcebook for Journalists (Washington, D.C.: Alliance for Health Reform, 2003).

6 That is not to say that the total cost of healthcare does not take a toll on manufacturers elsewhere.

Even in systems like Canada’s or Great Britain’s,

where the government actually provides the healthcare, taxpayers, including manufacturing companies,

end up paying for it in the form of higher taxes. To

the extent that those taxes take the form of value

added or similar taxes that are rebated upon export of

a manufactured good, the price of the good on international markets may not fully bear the cost of the

healthcare system in a way that U.S. goods must,

since they are built into the cost base of the U.S.

manufacturer itself.

7 National Association of Manufacturers, Health

Care Costs at the Crossroads: Manufacturers’ Agenda for

Lower Costs and Higher Quality (Washington, D.C.: The

Manufacturing Institute, 2002).

8 Ibid.

9 Kaiser Family Foundation, Employer Health

Benefits 2003.

10 Jeremy A. Leonard, How Structural Costs Imposed

on U.S. Manufacturers Harm Workers and Threaten Competitiveness (Washington, D.C.: National Association

of Manufacturers, 2003).

11 Tillinghast-Towers Perrin, U.S. Tort Costs: 2003

Update; Trends and Findings on the Costs of the U.S. Tort

System (New York: Tillinghast-Towers Perin, 2003).

12 Todd Buchholz and Robert Hahn, Does a State’s

Legal Framework Affect Its Economy? (Washington,

D.C.: U.S. Chamber of Commerce Institute for Legal

Reform, 2002).

13 Office of Management and Budget, Office of Information and Regulatory Affairs, Report to Congress

on the Costs and Benefits of Federal Regulations (Washington, D.C.: Office of Management and Budget, September 1997).

14 Leonard, Structural Costs.

15 Thomas Hopkins and W. Mark Crain, The Impact of Regulatory Costs on Small Firms, report no.

PB2001–107067 (Washington, D.C.: U.S. Small Business Administration, Office of Advocacy, 2001).

16 Ibid.

17 Ibid.

18 Leonard, Structural Costs.

19 National Energy Policy Development Group,

Reliable, Affordable, and Environmentally Sound Energy

for America’s Future (Washington, D.C.: National Energy Policy Development Group, May, 2001).

20 Ibid.

21 Ibid.

22 Ibid.

23 National Federation of Independent Business,

“NFIB Poll Reveals Initial Effects of Deregulation on

58 U. S. DEPARTMENT OF COMMERCE
T goods, capital, and labor. They are also designed to foster compliance with the rules

governing the international trading system so that it is competition in the marketplace, rather than government intervention, that determines success.

The recommendations include proposals that demand immediate action by

Congress and new activities that can be

pursued under existing authority to

strengthen current efforts to support U.S.

manufacturers. A number of recommendations also provide direction for broad-based

reforms that will require coordinated effort

over the long term. The new Assistant Secretary of Commerce, called for by President

Bush in his September 4, 2003, Labor Day

address, will be responsible for coordinating the administration’s efforts to implement these recommendations.

The recommendations are divided

into the following six sections:

• Enhancing Government’s Focus on

Manufacturing Competitiveness

• Creating the Conditions for Economic

Growth and Manufacturing Investment

• Lowering the Cost of Manufacturing in

the United States

• Investing in Innovation

• Strengthening Education, Retraining,

and Economic Diversification

• Promoting Open Markets and a Level

Playing Field

The recommendations that follow are designed to address the challenges identified

by U.S. manufacturers over the course of

the Commerce Department’s roundtable

discussions. These recommendations represent a step toward building the comprehensive strategy called for by Secretary

Evans to ensure “that the government is

doing all it can to create the conditions”

that would enhance U.S economic growth

and manufacturing competitiveness.

These recommendations start from

the premise that it is manufacturers and

their actions in the marketplace that will

define their success, spur economic

growth, and create jobs. The government’s

role is not to interfere with that process,

but rather to foster it. For government,

creating the conditions for success in the

marketplace means focusing on economic

fundamentals, such as encouraging economic growth and innovation in the private sector and reducing the cost of government policies on U.S. manufacturers. It

also means regulating only when absolutely necessary and then with a view

toward minimizing unwarranted costs.

This same basic approach informs the

recommendations on international economic policy and trade. The recommendations are designed to encourage governments to open markets and eliminate

trade practices that distort markets for

MANUFACTURING IN AMERICA 59

Three

Recommendations and

Next Steps
assistant secretary would be responsible for

implementing the recommendations contained in this report and for supporting

the Secretary of Commerce in his role as

the federal government’s chief advocate

for the manufacturing sector.

Specific responsibilities of the assistant secretary would include:

Lead a Benchmark Analysis to Measure

Progress toward Achieving the President’s

Goals

One of the key components of any

strategy is a means of measuring progress

toward a defined goal. That requires both

a baseline that sets a starting point for

analysis and the tools to measure progress.

To establish a baseline against which to

measure progress toward improving the

economic environment for manufacturing

in the United States, the newly established

assistant secretary would work with the

Council of Economic Advisers, the U.S.

Treasury and Labor Departments, and

other relevant agencies, to initiate a

benchmark analysis of the U.S. environment for manufacturing.

The study would identify and prioritize those areas of public policy that have

the most impact on manufacturing competitiveness. The findings should be subject to further analysis to determine

what, if any, actions could be taken. In

addition, the study would review initiatives to improve manufacturing competitiveness underway at the state and local

level or abroad.

Create a New Office of Industry Analysis

Through a new Office of Industry

Analysis, the assistant secretary would 

be responsible for assessing the cost competitiveness of American industry and

evaluating the impact of domestic and international economic policy on U.S.

competitiveness, particularly in the manufacturing sector. This effort would require

developing the analytical tools and expertise within the Commerce Department

Enhancing Government’s

Focus on Manufacturing

Competitiveness

One of the major concerns registered

by manufacturers was the long-standing

lack of focus and accountability within

government on manufacturing and its

competitiveness. The following recommendations are intended to sharpen that

focus and to ensure accountability for implementing the recommendations that

make up the Manufacturing Initiative.

Beyond providing greater focus and

accountability, the recommendations are

also designed to enhance coordination

within the federal government and with

state and local authorities to improve the

domestic economic environment for

manufacturing. These steps would establish a mechanism for ongoing dialogue

with the manufacturing sector on the

implementation of the President’s Manufacturing Initiative.

These activities would further the

work begun by this report. One of the first

steps that the newly established assistant

secretary should take is to conduct a study

of the cost competitiveness of U.S. manufacturing relative to its principal competitors. This should include an assessment of

the business environment in terms of supporting innovation, not just in terms of

products and services, but in manufacturing process and business organization.

This work will help determine whether

there are additional steps the government

could take to reduce costs and to enhance

competitiveness.

Create an Assistant Secretary of

Commerce for Manufacturing and

Services

As President Bush called for in his

Labor Day address, the federal government

should establish an assistant secretary-level

position at the Department of Commerce

to serve as the principal point of contact

with the U.S. manufacturing sector. The

60 U. S. DEPARTMENT OF COMMERCE
Foster Coordination and

Cooperation among Federal,

State, and Local Governments

Not all of the steps needed to foster

an economic environment helpful to

manufacturing reside in the jurisdiction

of the federal government. However, the

federal government could serve as a coordinator of activities designed to foster a

healthy manufacturing sector throughout

the United States. The states have traditionally served as laboratories for a wide

variety of initiatives that have shaped

economic policy throughout the country.

The administration should create an intergovernmental coordinating committee

on manufacturing, with the assistant secretary serving as the coordinator, to ensure that sound ideas on regulatory reform or economic development strategies

are widely available to all state and local

governments.

to assess the impact of proposed rules and

regulations on economic growth and job

creation before they are put into effect.

Establish a President’s

Manufacturing Council to Provide

Oversight and Advice on the

Implementation of the President’s

Manufacturing Initiative

To ensure that the government responds to the challenges facing U.S. manufacturers and remains focused on what

matters to their competitiveness, Congress should establish a Manufacturing

Council under the chairmanship of the

Secretary of Commerce. The assistant secretary would serve as the executive director of the council. The council would

provide a means of ensuring both regular

contact between government and the

manufacturing sector and effective counsel in the implementation of the President’s Manufacturing Initiative. The

council’s membership should reflect the

diversity of American manufacturing in

terms of industries and the size of the enterprise, particularly small and mediumsized businesses.

Create an Interagency Working

Group on Manufacturing Chaired

by the Secretary of Commerce 

Implementing the recommendations

outlined below will require coordination

among a number of agencies within the

federal government. Toward that end, the

administration should establish an interagency working group modeled on the

Trade Promotion Coordinating Committee. This manufacturing competitiveness

interagency working group, chaired by

the Secretary of Commerce, would be responsible for coordinating the implementation of the recommendations, as well as

developing new initiatives that would

carry President Bush’s Manufacturing Initiative forward.

MANUFACTURING IN AMERICA 61
investment, which accounts for the other

one-third of GDP, has gained strength but

has yet to reach pre-recession levels.

Fostering a climate for strong business investment, particularly in manufacturing, requires a stable economic environment that reduces risk. Reducing risk

requires greater certainty. Congress should

increase certainty and foster a healthier

climate for investment in manufacturing

and other sectors of the economy by making the recent tax cuts permanent.

The elimination of the estate or

“death” tax, the temporary increase in expensing limits, and the new incentives for

small business investment are among the

most significant business-related features

of the recent tax cuts. In addition, the reductions in individual marginal tax rates

aid those businesspeople whose incomes

flow through directly to individual returns, such as sole proprietors and partnership members. Congress should act to

make the elimination of the death tax

and the investment incentives for small

businesses permanent to ensure that manufacturers, particularly small and mediumsized businesses, are able to attract the investment capital needed to ensure their

future competitiveness.

Reduce the Costs of Tax

Complexity and Compliance 

U.S. tax laws have become unnecessarily complex. Complexity increases the

cost of compliance and creates a drag on

the economy, with businesses spending

more time and resources on compliance

and diverting talent and resources away

from productive activities. Small business

owners are particularly unprepared to deal

with this complexity and do not have the

resources to hire sophisticated tax counsel

to advise them. It is time to make a serious effort to simplify the tax rules. The

Treasury Department should undertake a

study of tax simplification, focusing on

those provisions that are particularly 

complex for manufacturers, including 

Creating the Conditions for

Economic Growth and

Manufacturing Investment

Creating an economic environment

designed to foster manufacturing competitiveness begins with establishing the conditions for strong economic growth at

home. Congress has already taken several

significant steps toward that goal by enacting President Bush’s proposals reflected

in the Economic Growth and Tax Relief

Reconciliation Act of 2001, the Job Creation and Worker Assistance Act of 2002,

and the Jobs and Growth Tax Relief Reconciliation Act of 2003.

By acting decisively to lower the tax

burden on American manufacturers, particularly for small and medium-sized businesses, President Bush and Congress

helped to keep the recession short and

start the process of economic recovery.

According to the U.S. Treasury Department, had President Bush and Congress

failed to enact those measures, by the end

of 2004, 3 million fewer jobs would have

been created and a deeper recession and a

far slower and more uncertain recovery

would have resulted.

Nevertheless, there remains an enormous amount that government can still

do to increase the certainty of the business environment in which U.S. manufacturers operate. The following steps would

ensure that the government makes

progress toward that goal.

Make Recent Tax Cuts Permanent

to Enable Manufacturers to Attract

Capital and Invest for the Future

with Confidence

One of the key features of the recent

recession was the sharp drop in business

investment. Consumer spending, which

makes up two-thirds of U.S. GDP, remained strong throughout both the recession and the subsequent recovery. Business

62 U. S. DEPARTMENT OF COMMERCE
Lowering the Cost of

Manufacturing in the United

States

As manufacturers made clear in every

roundtable discussion, to make the United

States an attractive place to invest in manufacturing, government must reduce the

costs it imposes on manufacturers. The

following recommendations outline steps

that the government should immediately

take to bring down the cost of manufacturing in the United States, including regulatory, energy, legal, healthcare, and pension costs.

Reduce the Cost and Improve the

Availability of Healthcare

Healthcare costs represent the largest

and fastest rising costs faced by U.S. manufacturers. These costs are also least

within their control to manage. Manufacturers have a vested interest in the health

of their employees. Building on the historic Medicare reforms signed into law by

President Bush, the following actions

would help reduce the burden of providing this care:

Establish Association Health Plans

As President Bush has endorsed, Congress should pass legislation to create and

fund association health plans. Such plans

would afford small business manufacturers greater leverage in negotiating the cost

of health insurance with providers. That

leverage would translate into lower

healthcare costs and improved cost competitiveness.

Promote Health Savings Accounts

Health savings accounts (HSAs) were

established in the Medicare prescription

drug bill signed by the President on December 8, 2003. HSAs combine highdeductible health insurance plans with

tax-free savings accounts that can be used

to pay for medical expenses incurred by

employees and their families. Under HSAs,

depreciation, the corporate alternative

minimum tax, and the research and experimentation tax credit.

Make Permanent the Research

and Experimentation Tax Credit

While public investment in research

and development is a critical component

in the development of new technologies,

the private sector bears the burden of the

research and development needed to

bring those technologies to market. 

To reinforce the existing incentive

available under the Internal Revenue

Code, Congress should make the research

and experimentation (R&E) tax credit permanent.1 Making the R&E credit permanent has been a consistent, long-time priority for advanced manufacturers. Doing

so will increase the certainty associated

with the tax treatment of research expenditures and thereby reduce the risk and

cost associated with attracting or allocating capital expenditures to such activities.

Deepen the Pool of Investment

Capital Available to Manufacturers

by Introducing Incentives for

Saving

Another key element for encouraging

investment is deepening the pool of investment capital available to U.S. business. To do so, Congress should adopt tax

incentives to increase the savings rate of

American taxpayers.

Increasing U.S. savings and investment would also address the growing U.S.

trade deficit. By providing incentives for

savings and investment, the United States

would reverse one of the main causes of

the trade deficit, as well as expand access

to, and lower the cost of, capital available

to U.S. manufacturers.

MANUFACTURING IN AMERICA 63
medium-sized businesses that make up the

bulk of the U.S. manufacturing sector.

Modernize the U.S. Legal System

to Eliminate Disincentives to

Invest in Manufacturing

The U.S. legal system discourages investment in manufacturing by raising the

risk and cost associated with manufacturing. There are three steps Congress should

immediately take to lift the disincentives

for investment in manufacturing that the

current system of tort liability creates:

Enact Class-Action Reform

Congress should enact a common

sense class-action system through the passage of a consumer “class-action bill of

rights” that would, among other provisions, require notice of a lawsuit to class

members in understandable terms, require

judicial review of settlements that give

class members only non-cash benefits, and

prohibit a court from approving a settlement that discriminates among plaintiffs.

Enact Asbestos Reform

Litigation is an enormously expensive means of compensating those injured

by the use of asbestos in construction

prior to the 1970s. Because asbestos is no

longer being used in construction, classaction lawsuits no longer serve even a deterrent purpose. Congress should enact

legislation resolving the current class-action litigation on asbestos. The asbestos

litigation continues to dampen investment in manufacturing. Passage of legislation that will ensure compensation for

those actually injured and stop litigation

that destroys jobs is critically important.

Make the Medical Liability System Fair,

Predictable, and Timely

The most significant step government should take to improve the medical

liability system and reduce its costs to U.S.

year-end balances can be rolled over, encouraging employees to be more cost-conscious and giving them both an incentive

and the means to save for future healthcare needs.

Accelerate the Food and Drug

Administration’s Review of New and

Generic Drugs

In addition to the FDA’s broad efforts

to speed the development of safe, innovative, and low-cost new health treatments,

the FDA continues to expedite the review

of generic drugs in order to make lowercost prescription drugs available to consumers. The administration has increased

funding for generic drug reviews by over

35 percent over the past two years, allowing the FDA to establish ambitious new

performance targets for reducing review

times for generic drugs. Continued FDA

performance improvements will allow

new and generic drugs to reach the market more quickly, resulting in lower prices

for prescription drugs available under employer health plans.

Implement New Technologies to Prevent

Costly Medical Errors

To ensure medical treatments are

being used as effectively as possible and

to prevent costly adverse events, the

healthcare industry should adopt and implement 21st century technologies such

as bar coding of medical products and

electronic prescribing.

Enact Medical Liability Reform

Congress should enact legislation

making the medical liability system fair,

predictable, and timely. Reforms should include the adoption of standards that ensure that injured patients are compensated

fully and quickly for their economic losses,

while limiting recoveries for non-economic damages to a reasonable amount.

Taken together, these steps would significantly reduce the current burden that

high healthcare costs impose on U.S. manufacturers, particularly those small and

64 U. S. DEPARTMENT OF COMMERCE
Conduct an Analysis of the Inventory

OMB should, in coordination with

the Council of Economic Advisers, the

Commerce Department, and other agencies, evaluate the proposed reforms and,

where appropriate, implement those reforms on a priority basis. This evaluation

should include an assessment of the cost

of compliance and the economic impact

of current rules, particularly on small and

medium-sized businesses, as well as the

cost to the taxpayer and to the consumer

of administering those regulations. The

objective of the review should be to determine whether there might be a less costly

means of achieving the benefits Congress

intended by authorizing such regulations.

That analysis should extend to the agencies that implement the rules as well. This

effort could involve broadening the analysis done under section 610 of the Regulatory Flexibility Act, which currently applies to small businesses.

Conduct a Regulatory Impact Analysis of

New Rules

Lastly, OMB should rigorously apply

its recently developed guidance on regulatory impact analysis to any proposed rules

that would influence the costs imposed

on the manufacturing sector, particularly

as they affect small and medium-sized

businesses. As a part of this effort, the

newly established assistant secretary for

manufacturing and services should task

the new Office of Industry Analysis to

work with OMB and other agencies to refine the analytical tools needed to assess

the impact of proposed rules and regulations on economic growth and job creation in the manufacturing sector and

other areas of the economy.

manufacturers would be to adopt standards that ensure injured patients are

compensated fully and quickly for their

economic losses, while limiting recoveries

for non-economic damages to a reasonable amount.

In addition, the administration and

Congress should undertake a long-term effort to ensure an appropriate balance in

the tort system between plaintiffs’ and defendants’ interests. As questions of tort liability are frequently adjudicated at the

state level, any such effort would ultimately require close cooperation with the

states to ensure the best approach and a

higher degree of consistency.

Reduce the Costs of Regulation

and Legislation

The cost of regulation on the U.S.

economy has been the subject of ongoing

reviews since the late 1970s. OMB reviews

of proposed regulations, and statutes such

as the Paperwork Reduction Act, have

contributed to that effort. In addition, the

Bush administration has slowed the increase in regulatory costs produced by

new regulations reviewed by OMB by 70

percent compared with the previous administration.

Nonetheless, overall, the cost of regulatory compliance has risen significantly

over time. To combat these rising costs,

OMB should lead a comprehensive threestep process to reduce the burden of regulation on manufacturing enterprises:

Establish an Inventory of Potential

Regulatory Reforms that Would Lower

the Cost of Manufacturing

To establish an inventory of potential

reforms that would reduce the cost of

compliance on the manufacturing sector,

OMB should seek public comment on existing rules and afford the opportunity to

propose particular reforms. The request

for public comment and the nomination

of reforms should address existing regulations, guidance documents, and paperwork requirements.

MANUFACTURING IN AMERICA 65
most important steps that President Bush

has proposed and on which Congress

should act are:

Increase Electricity Supply and

Modernize the Legal Framework

Governing Electricity Production

Congress should modernize the legal

framework governing electricity production and transmission to lessen the

chance of disruptive blackouts and ensure

the delivery of ample and affordable supplies of electricity. The provisions should

establish mandatory and enforceable reliability standards, encourage expanded investment in transmission and generation

facilities, eliminate transmission bottlenecks, reform outdated laws, promote

open access to the transmission grid, promote regional planning and coordination,

protect customers, and help develop new

technologies.

Facilitate Adequate and Economical

Supplies of Natural Gas

Congress should facilitate adequate

and economical supplies of natural gas by

eliminating the regulatory obstacles to the

development of natural gas resources on

federal land and to the construction of

liquefied natural gas terminals and other

infrastructure, simplify the permit process

and facilitate the construction of an economically viable natural gas pipeline from

Alaska, and encourage additional deepwell gas development on the outer continental shelf.

A Clean and Affordable Diversity of

Fuels for Electricity Production

Congress should moderate future demand growth for natural gas by ensuring

a future for clean-burning coal and nuclear power, and providing tax incentives

to increase the production of electricity

from renewable sources such as wind,

solar, biomass, and landfill gas.

Enact a Comprehensive Energy

Plan That Encourages

Conservation, Improves

Infrastructure, and Expands

Domestic Production

According to the National Association of Manufacturers, about one-third of

the United States’ energy, including 40

percent of the natural gas and 30 percent

of the electricity, is consumed by manufacturers. Energy shortages, price spikes,

and blackouts disrupt the economy; discourage investment in energy-dependent

manufacturing industries, such as chemicals and plastics; and inhibit manufacturers in those sectors from planning with

confidence and hiring new workers.

Given the significant increase in U.S.

energy costs, enacting a comprehensive

plan to encourage conservation, improve

infrastructure, and expand domestic production is fundamental to the future of

American manufacturing. Adopting a

comprehensive energy plan, particularly

one that addresses the need for expanded

natural gas production and distribution,

would help reduce the cost in some manufacturing sectors considerably. Such action would offer a particular benefit to

those manufacturing industries, such as

plastics, that depend on natural gas both

as a source of power and as an input into

their manufactured goods.

President Bush has proposed a comprehensive national energy policy that

would, if enacted by Congress, modernize

and expand our electricity infrastructure,

modernize and increase conservation and

energy efficiency, ensure a clean and affordable diversity of fuels for producing

electricity, increase domestic energy supplies, and increase the development and

deployment of new technology.

In short, Congress should pass President Bush’s energy plan to reduce the cost

of energy to U.S. manufacturers. From the

perspective of U.S. manufacturers, the

66 U. S. DEPARTMENT OF COMMERCE
Investing in Innovation

The discussion above and the views of

manufacturers highlight the need to bolster further the development of new technologies that fuel productivity gains and

improve U.S. security and the U.S. standard of living. The following recommendations are designed to ensure that the

United States remains the most competitive and productive economy in the world.

Review Federal R&D Funding for

Generic Technologies,

Engineering, and the Physical

Sciences to Encourage Better

Coordination and Focus on

Innovation and ProductivityEnhancing Technologies

Since taking office, President Bush has

provided a renewed focus on federal research and development funding. For fiscal year 2004, he proposed a record $123

billion, which represented an increase of

more than 34 percent over funding levels

that existed when he took office.

Continuing this effort to enhance

government funding of research and development activities is crucial to the continued U.S. success in manufacturing.

Also needed is a review of current

federal R&D programs important to manufacturing, to ensure that there is an appropriate focus on innovation and productivity-enhancing technologies. The

Commerce Department’s Technology Administration, in coordination with the

Assistant Secretary for Manufacturing and

Services should conduct this review with

other affected agencies, through the National Science and Technology Council’s

Interagency Working Group on Manufacturing R&D, and the private sector.

The review should consider the need

for additional investment in core R&D

programs for generic technologies, engineering, and the physical sciences, especially in interdisciplinary scientific endeavors. The model followed should be

New Technology

Congress should encourage further

research and development in new energy

technology, particularly the funding of

President Bush’s hydrogen fuel initiative

to develop technology for commercially

viable hydrogen-powered fuel cells and a

new generation of hydrogen powered vehicles to help reduce U.S. dependence on

foreign oil.

Promote Pension Reform

The administration will work with

Congress to make fundamental changes in

the funding rules that will put underfunded plans on a predictable, steady path

to better funding. Improvements in the

funding rules should set stronger funding

targets, foster more consistent contributions, mitigate volatility, and increase

flexibility for companies to fund up their

plans in good economic times. The administration will continue to work with

Congress and the private sector to address

this issue.

MANUFACTURING IN AMERICA 67
measurements and standards, and manufacturing information technologies. It

would also address the need for new industry-university-government research

dedicated to high-priority manufacturing

R&D needs, knowledge diffusion, and education of the next generation of manufacturing technologists and leaders.

Strengthen the U.S. Patent and

Trademark Office

Patents have always been key to rewarding manufacturing innovations, but

their importance has been magnified by

the fact that the application of new technology has become one of the key ingredients in successfully competing in manufacturing globally. Delay in the issuance of

a patent can mean the difference between

success and failure in today’s marketplace.

The USPTO currently runs the risk of

seeing its processing times erode. The administration has proposed legislation that

would significantly enhance the ability of

the USPTO to meet the needs of U.S. manufacturers. Congress should pass this legislation to ensure that the USPTO can continue to serve the needs of manufacturers

by protecting their intellectual property

and increasing the availability of new

products and services in the marketplace.

Strengthen Partnerships to

Promote Manufacturing

Technology Transfer

Robust research and development activities are essential steps in reinforcing

the process that has provided U.S. manufacturing with its competitive edge. 

These activities, however, should be

matched with an equally vigorous effort

to ensure that the technology developed

is diffused broadly throughout the manufacturing sector, particularly to small and

medium-sized manufacturers, which will

benefit most because of their own limited

capacity for independent research and 

development.

the same one that has been used over the

past 50 years to develop the major technologies influencing the U.S. economy

today (semiconductors, computers, network communications, biotechnology,

and now nanotechnology). This model is

based on government funding of basic science and early-phase generic technology

research, followed by massive investment

in applied R&D by the private sector.

Identify Priorities for Future

Federal Support for Advanced

Manufacturing Technology—

Create an Interagency Working

Group on Manufacturing Research

and Development

To improve the effectiveness of federal investment in manufacturing research

and development, a new interagency

working group should be established

within the National Science and Technology Council. This interagency working

group would serve as a forum for developing consensus and resolving issues associated with manufacturing R&D policy, programs, and budget guidance and direction.

The working group should identify

and integrate requirements, conduct joint

program planning, and develop joint

strategies for the manufacturing R&D programs conducted by the federal government. Among the responsibilities of this

group would be to review all federal manufacturing R&D programs and establish

priorities designed to improve U.S. manufacturing technology.

The review would be aimed at identifying the timely and critical early-stage

developments needed to provide a fundamental foundation for industrial research

and development and the commercialization of related applications. The review

would be comprehensive, covering a wide

breadth of manufacturing innovation

technologies, such as supply chain integration, interoperability technologies,

68 U. S. DEPARTMENT OF COMMERCE
reach of programs designed to provide

technical assistance to standards agencies,

national metrology institutes, and regional metrology organizations in the developing world, particularly in significant

potential export markets.

Ensure the Reliability of the

Critical Infrastructure That Is Vital

to Manufacturers

The United States’ most advanced

manufacturing industries and the infrastructures that they depend on—power,

communications, and transportation in

particular—are increasingly dependent on

sophisticated, distributed automated control systems. Typical of these are the control systems that manage the electric

power grid; similar systems control the

production and distribution in critical infrastructure industries such as oil and gas,

water, chemicals, pharmaceuticals, metals

and mining, pulp and paper, and durable

goods manufacturing. Protecting these

critical control infrastructures from failure, either by accident or by malicious intent, is essential to the long-term security

of the manufacturing sector—and the nation as a whole. Therefore, the following

steps should be taken:

Promote Standards to Better Protect

Industrial Control Systems

The federal government should work

vigorously and hand-in-hand with the private sector and state and local agencies to

encourage and enable standards development organizations in the United States to

establish needed security standards for industrial control systems.

Support the Research and Development

that Underpins Critical Infrastructures—

and Quickly Transfer the Results of That

R&D to the Private Sector

As part of the administration’s emphasis on improving homeland security,

the federal government today is providing

The PCAST report on technology

transfer of federally funded R&D, released

in May 2003, provides 10 recommendations for strengthening technology

transfer.2 These recommendations will provide valuable insight for strengthening

technology transfer to the manufacturing

community.

Implementing these recommendations will require a comprehensive effort,

led by the National Institute of Standards

and Technology. As a part of that effort,

NIST should take the lead in identifying

and promulgating best practices in intellectual property management, cooperative

R&D agreements, and partnering arrangements needed to enhance the benefits and

delineate the obligations associated with

such cooperative efforts. Participation

from existing groups such as the Federal

Laboratory Consortium, the Interagency

Working Group on Technology Transfer,

and others should be solicited in this

comprehensive effort.

Expand Cooperative Technical

Assistance Programs on

Standards

In an increasingly globalized economy, the capacity to compete successfully will depend on the ability of individual manufacturers to satisfy global as

well as U.S. standards. Most U.S. manufacturers understand the importance of

achieving these goals and have invested

heavily in satisfying not only product

standards, but quality and environmental standards as well.

The importance of standards in manufacturing will only increase with the demands placed on manufacturers hoping to

compete for a place in global supply

chains. Indeed, in many respects, international standards will define access to the

global marketplace. To ensure that standards with a potential to affect the access

of U.S. manufacturers to markets around

the world are set objectively, based on

sound science, NIST should expand the

MANUFACTURING IN AMERICA 69
that are helping manufacturers to be more

competitive and expand markets.

Through this coordination, the Commerce Department can more closely link

the technical and business staff employed

by the MEP centers located around the

country with trade promotion specialists

in the Commerce Department’s International Trade Administration who are

working with the proposed new Assistant

Secretary for Manufacturing and Services.

In addition, the ITA has experts with indepth knowledge of and connections with

various sectors of industry—automotive,

textiles and apparel, energy, aerospace,

machinery, metals, and microelectronics,

to name a few. With a direct teaming of

MEP field agents and these sector experts,

the program can be a more effective national resource to help small manufacturers compete and succeed in the global

marketplace.

Additionally, MEP should hold a recompetition for all MEP centers, with a

focus on effectiveness and cost-efficiency.

MEP should also explore methods, with

Congress, for statutory authority to receive direct programmatic funding from

private sector entities.

Wherever possible, MEP should also

encourage applicants to identify areas of

sector-specific expertise that could qualify

them as a “center of excellence.” MEP

should encourage co-location with universities, community colleges, and ITA assistance centers to foster cooperation,

knowledge transfer, greater efficiency, and

manufacturing exports. The Technology

Administration would lead the establishment of these centers by partnering with

other organizations—including government at all levels as well as private sector

organizations.

dramatically expanded support for the research and development that is necessary

to protect the nation’s critical infrastructures that U.S. manufacturers and the U.S.

economy and society at large depend

upon so heavily. In addition, the administration should ensure that the manufacturers and users of industrial control systems are involved with—and are kept

informed about—the latest research advances from the Department of Homeland

Security, the Commerce Department, and

elsewhere.

Support a Newly Coordinated

Manufacturing Extension

Partnership and Create a National

Virtual Network of Centers of

Manufacturing Excellence

Since its inception as a pilot program

in 1988,3 the Manufacturing Extension

Partnership (MEP) has provided many

small U.S. manufacturers with useful business services to become more competitive

and productive. MEP’s nationwide network serves to promote lean manufacturing techniques such as zero-defect quality

programs. The program makes it possible

for even the smallest firms to tap into specialists from across the country with manufacturing and business expertise in plant

operations and on manufacturing floors.

MEP clients have experienced more

growth in labor productivity over a fiveyear period than similar non-client firms.4

MEP was originally intended to be

comprised of 12 federally supported centers, with federal funding ending after six

years. In its 15 years of operation, the program has expanded away from this original design to include 400 locations, and

Congress has removed the sunset provision.5 Given advances in manufacturing

and technology, it is appropriate to evaluate MEP operations and take steps for continuous improvement. The administration

proposes to coordinate MEP fully with

other Commerce Department programs

70 U. S. DEPARTMENT OF COMMERCE
Strengthening Education,

Retraining, and Economic

Diversification

To remain globally competitive, education and worker training strategies must

be at the top of the national priority list.

The administration successfully passed the

No Child Left Behind Act in 2001, and is

now working to fully implement this

landmark education reform. The administration is also investing $1 billion over

five years to improve math and science

education.

In addition, under President Bush’s

leadership, the Departments of Commerce

and Labor have worked together throughout the country to link workforce development efforts with economic development efforts. Important initiatives include

the Department of Commerce’s Economic

Adjustment Program and the Department

of Labor’s new 21st Century Workforce

Initiative, which strive to strengthen retraining systems that maintain the U.S.

skills advantage in manufacturing. The

Department of Labor’s Employment and

Training Administration invests approximately $10 billion a year in an array of

workforce investment programs.

Building on that record should take

the form of the steps set out below.

Enhance Workforce Skills

Essential for Employment in

Manufacturing Enterprises of the

Future

Manufacturers across the country

raised significant concerns about whether

America was training the next generation

of workers required to meet the needs of

an increasingly high-tech workplace as

well as to develop the manufacturing industries of the future. There was clear support for the development of improved vocational/technical training at both the

secondary and post-secondary level, as

well as for programs designed to improve

Encourage the Small Business

Innovation Research and Small

Business Technology Transfer

Programs to Focus on

Manufacturing

Two federal programs in particular

exist to provide funding to small businesses to pursue R&D: the Small Business

Innovation Research (SBIR) and Small

Business Technology Transfer (STTR) programs. While results to date have been

unclear, these programs can be a catalyst

for greater innovation within small manufacturing enterprises. SBIR and STTR

should place a higher priority on manufacturing R&D topics that would greatly

leverage innovation in small and

medium-size manufacturing companies.

Explore New Avenues for

Leveraging the Unique

Capabilities of U.S. National

Laboratories and Universities for

the Benefit of Small and Mediumsized Manufacturers

The National Institute of Standards

and Technology, in collaboration with

other federal agencies, and national laboratories, should explore the opportunity

for establishing cooperative research programs on innovative manufacturing technologies among national laboratories, universities, the SBIR program, community

colleges, and state and local technologydevelopment associations. The objective

should be to develop a working model of

such arrangements that would provide the

rapid diffusion of research successes into

the private sector, provide access for small

entrepreneurial businesses to sophisticated

research tools, and provide training opportunities, such as for future nanotechnologists and nanomanufacturers. The

current pace of technological change

places a premium on expediting such initiatives. NIST should report its findings to

the Secretary of Commerce in 2004.

MANUFACTURING IN AMERICA 71
Establish a High School and

Technical Education Partnership

Initiative

Congress should pass legislation creating a coordinated high schools and

technical education improvement program, utilizing secondary and technical

education state grants, as proposed in the

president’s budget for fiscal year 2004.

This program would provide high-quality

technical education through partnerships

between high schools and postsecondary

institutions. Such an initiative, administered by the Department of Education,

would support secondary and postsecondary career and technical education

programs in high-demand occupational

areas. The high school component would

include a challenging academic core to

ensure that students in the program meet

state achievement standards and obtain a

clear pathway to further education beyond high school, through apprenticeship

or postsecondary technical certificates and

associate or baccalaureate degree programs. Such an initiative will ensure that

students are being taught the necessary

skills to make successful transitions from

high school to college and college to the

workforce.

Establish Personal Reemployment

Accounts

In any period of economic adjustment, the most significant challenge is

how best to ensure that workers who lose

their jobs can successfully re-enter the

workforce. The federal and state governments provide a number of programs designed to help workers find new jobs with

training and re-employment assistance.

Toward that end, President Bush has

proposed a Personal Reemployment Account initiative to assist Americans who

need the most help getting back to work.

This innovative approach to worker adjustment would offer accounts of up to

$3,000 each to eligible individuals to purchase job training and key services, such

the skills of career-changing adults interested in manufacturing jobs. There was

also support for improvements in basic

math and science education, such as the

current five-year, $1-billion initiative for a

new math and science partnership program that will strengthen math and science teaching and education at all levels.

It is important to define the starting

point for improving the skills and preparation of the U.S. workforce. Toward that

end, the Department of Labor, in conjunction with the Departments of Commerce

and Education, should undertake a benchmark analysis of the existing skills of the

U.S. workforce and the future needs of the

U.S. manufacturing sector. The effort

should be designed to inform both programmatic changes at the federal level and

suggestions for curricula at the local level.

The analysis should address ways that

federal programs that support basic education for elementary and secondary students will prepare them to enter the workforce without the need for significant

remedial education. The analysis should

catalog the basic academic skills needed

for individuals entering the manufacturing workforce and assess the extent to

which primary and secondary education

in the United States provide those skills.

The second step in the analysis goes

to the specialized training needed to succeed in the manufacturing environment

of the future. Historically, U.S. schools,

particularly in secondary education, provided a number of opportunities for vocational training. Over time, these opportunities have declined, and the educational

system has relied more heavily on specialized vocational-technical schools, at both

the secondary and post-secondary level, to

fill in the gap. The analysis should examine whether the existing system of vocational-technical education is sufficient to

meet the needs of the U.S. manufacturing

sector and should propose recommendations for change where needed.

72 U. S. DEPARTMENT OF COMMERCE
Given that early intervention and

planning are critical for communities at

risk, the first step the task force should

take is to identify criteria for determining

when a rapid response is needed. The task

force would then work with the communities identified under these criteria to

develop market-based development policies that seek to retain manufacturing

jobs in a community, while beginning

the efforts to diversify the economic base

of the community.

Improve Delivery of Assistance for

and Retraining of Displaced

Workers

The challenges unfolding in manufacturing and in the job market represent

a significant change from years past. Instead of individual industries facing particular adjustment issues due to stronger

import competition, the U.S. economy in

general is adjusting to fundamental

changes underway in the world economy.

While that process is particularly acute in

the manufacturing sector, it extends

broadly throughout the U.S. economy.

Current worker adjustment programs,

in general, take one of two forms. The

first involves the traditional suite of unemployment insurance and related programs that are designed with the individual worker in mind. That individual’s

employment prospects may or may not be

related to more fundamental changes underway in the economy. The alternative

form is the suite of trade adjustment assistance programs that fund extended unemployment and retraining for eligible workers. Here, eligibility is defined in terms of

whether the employee can point to some

direct trade impact that has displaced him

or her from a job.

Neither of the current programs fully

addresses the sort of adjustment underway in today’s economy. What that calls

as child care and transportation, to help

them look for a job and get back to work

quickly. As a further incentive, recipients

would be able to keep the balance of the

account as a cash reemployment bonus if

they become reemployed within 13

weeks. The Bush administration has included Personal Reemployment Accounts

in its legislative proposal to reauthorize

and reform the Workforce Investment Act.

Coordinate Economic Adjustment

for Manufacturing Communities

Communities are hard hit when local

manufacturing declines, particularly when

a local factory accounts for much of the

employment in a city or town. Just as individuals may need retraining to reenter

the workforce, communities must, at

times, develop alternative bases of economic development.

The federal government already has a

number of programs available that can be

used to develop the competitiveness of

communities and support innovation in

manufacturing. The challenge for communities often involves sorting out the purposes and requirements of those federal

programs and how they might best be employed or tailored to local circumstances.

What is needed is an interagency federal task force, chaired by the Assistant Secretary of Commerce for Economic Development, to coordinate the efforts of relevant

federal agencies, particularly the Departments of Labor and Education, in addressing the structural economic challenges

faced by manufacturing-dependent communities. The task force would ensure that

all federal agencies work together, coordinating resources and strategies to best provide a range of assistance to eligible communities. More specifically, the task force

would provide a means of rapid response,

identifying communities where the employment base is substantially dependent

on only a few manufacturing companies

and the communities that are at a significant risk of economic dislocation.

MANUFACTURING IN AMERICA 73
able workers to transform their skills in

order to gain employment in emerging

and growing industries. The administration is seeking to strengthen this system

through the re-authorization of the Workforce Investment Act. Among the changes

sought are to make funding more accessible through consolidation, to make the

system more responsive to business needs,

and to strengthen accountability.

for is a fundamental reassessment of both

types of programs to see how they might

best be integrated into a coordinated approach to adjustment, reemployment, and

retraining. Toward that end, the Commerce and Labor Departments, with the

assistance of the Department of Education, should review the existing programs

and provide recommendations on how

best to integrate them into a coherent

program that is dedicated to addressing

the needs of workers affected by the ongoing adjustment in the rapidly changing

economic environment.

This effort should build on the work

currently underway through the Labor

Department’s High Growth Job Training

Initiative. That initiative facilitates collaboration among employers, industry leaders, business associations, educators, community and technical colleges, and the

public workforce system to tailor training

programs to meet local workforce needs.

As part of this initiative, the Department of Labor is working with the manufacturing industry and others to conduct a

nationwide review of workforce challenges. Key manufacturing sectors include

electronics, motor vehicles, communications equipment, aerospace, plastics and

pharmaceuticals. These sectors, and the

manufacturing industry in general, are

undergoing a transformation as a result of

technological advances, requiring workers

to adopt and perform new skills. Through

collaborative efforts, the High Growth Job

Training Initiative will identify those skills

and work with institutions to develop successful training models.

In addition, Congress must pass the

Bush administration’s plan to strengthen

the Workforce Investment Act. Annually,

the Department of Labor spends $15 billion on the nation’s “One-Stop” employment and job training system. Over 3,800

One-Stop centers provide services that en74 U. S. DEPARTMENT OF COMMERCE
President Bush has taken the lead in

promoting economic growth and open

trade among America’s trading partners.

The coming year presents a number of significant opportunities to reinforce that effort, including G7 finance ministers’

meetings, the G8 economic summit that

the United States will host in June 2004,

and the prospect of concluding trade

agreements with a number of significant

U.S. trading partners.

As President Bush has indicated, the

goals of raising growth and increasing stability can best be accomplished in an international financial system that relies on the

principles of free trade, free capital flows,

and market-based flexible exchange rates

among the major economies.

In addition, the following steps

should be taken:

Encourage the Growth and Development

of Foreign Capital Markets

Efficiently functioning capital markets are key to promoting economic

growth. The United States should promote market-based prices and interest

rates, including the phase-out of government subsidies and directed lending, in

order to allocate capital more efficiently,

raise productivity, and encourage economic growth.

Negotiate Liberalization of Markets for

Financial Services in All Trade

Agreements

Consistent with the Bush administration’s proposal in the ongoing WTO negotiations, the United States should press for

the elimination of all barriers to trade in

financial services within the WTO and as

a part of any bilateral or regional free

trade arrangement, subject to prudential

measures. Removing such barriers and introducing competition to the markets for

financial services not only creates new

market opportunities for U.S. services

companies that serve U.S. manufacturers,

Promoting Open Markets

and a Level Playing Field

American manufacturers support an

open trading system in which both they

and their competitors face the same rules.

Leveling the playing field internationally

will require a three-part strategy:

1. It will require the encouragement

of economic growth and the pursuit of

trade agreements that eliminate barriers to

exports of U.S. manufactured goods.

2. It should include the aggressive enforcement of current trade rules, particularly in the context of the World Trade

Organization, to ensure compliance.

3. It should reinforce current efforts

to promote exports of U.S. manufactured

goods and services in growing foreign

markets. Increasingly, those efforts must

be adapted to the needs of U.S. manufacturers and service providers, particularly

small and medium-sized businesses, by focusing on their ability not just to enter

foreign markets, but also to become a part

of global supply chains.

The following recommendations

build on President Bush’s strong commitment to ensure free and fair trade. They

represent a further step toward fulfilling

the three-part strategy outlined above.

Encourage Economic Growth and

Open Trade and Capital Markets

Abroad

One of the key features hampering

both the prospects for a stronger recovery

in U.S. manufacturing and ensuring a better balance in U.S. trade is the slow economic recovery among many major U.S.

trading partners. The United States should

encourage the adoption of growth-oriented economic policies as a means of

spurring growth and expanding markets

for U.S. manufacturers.

MANUFACTURING IN AMERICA 75
Negotiate the Elimination of Tradedistorting Subsidy Practices

Current international trade rules prohibit export subsidies, but they do not

limit the means by which governments

can confer a competitive advantage by

subsidizing production at home. In future

trade agreements, the United States

should pursue the approach adopted by

the administration in the context of WTO

negotiations that seek to expand the existing prohibitions to include a broader

range of subsidies as well as strengthen

the rules against government financing of

the private sector, including government

involvement in, or distortion of, capital

markets that insulate foreign firms from

competition. In particular, future negotiations should pursue the elimination of the

border adjustability of indirect taxes to

address the disadvantages to countries relying primarily on direct taxes.

Enhance the Effectiveness of Trade

Enforcement Tools

As the Bush administration has done

in the context of the WTO negotiations,

the United States should seek improvements in the tools available for the enforcement of trade agreements. Dispute

settlement procedures should encourage

the prompt resolution of disputes, as well

as a reading of trade agreements that is

consistent with the negotiators’ intent.

The administration should also pursue

(within the WTO, bilateral or regional

free trade arrangements, and other fora

such as the current steel negotiations underway in the Organization for Economic

Cooperation and Development) stronger

mechanisms for countering trade practices that are not subject to existing or future trade disciplines.

but also serves as a necessary predicate for

efficiently functioning capital markets

that are key to economic growth.

Negotiate Trade Agreements That

Benefit U.S. Manufacturers

Most manufacturers believe that the

most effective step that the U.S. government can take to promote a level playing

field is to eliminate the barriers that inhibit market access for U.S. exports and to

discipline the unfair trade practices that

other countries use to afford their firms

an unfair competitive advantage in the

global marketplace. They also understood

that doing so means strengthening engagement in the process of trade negotiations with America’s trading partners.

The following steps would ensure

that such negotiations focus on what

counts for U.S. manufacturing:

Pursue the Elimination of Foreign Tariff

and Non-tariff Barriers to Exports of U.S.

Manufactured Goods

Among the highest priorities established by Congress in passing trade promotion authority was the elimination of

tariff and non-tariff barriers to the export

of U.S. manufactured goods through bilateral, regional, and multilateral agreements. The Bush administration’s proposal on non-agricultural market access in

the context of the ongoing WTO negotiations represents a model to be pursued in

all negotiations. It would ensure the elimination of all tariffs on manufactured

goods worldwide, thereby eliminating the

current disparity between U.S. tariff levels

and higher tariffs imposed by major trading partners on manufactured goods. Pursuing a counterpart strategy for non-tariff

barriers is essential, particularly in industries like the automotive sector, where tariff barriers are already relatively low and

non-tariff measures have become a significant means of barring U.S. access to foreign markets.

76 U. S. DEPARTMENT OF COMMERCE
would involve the aggressive investigation

of allegations of theft of intellectual property that would violate commitments

made under TRIPS or similar provisions of

bilateral or regional agreements, particularly allegations in which American manufacturers are compelled to divulge intellectual property as a condition of market

access or investment.

Establish an Office of Investigations and

Compliance within the Commerce

Department

Congress created the position of Assistant Secretary of Commerce for Market

Access and Compliance in order to improve the Commerce Department’s focus

on compliance with trade agreements as

well as on their negotiation. The Assistant

Secretary works closely with the USTR and

the Trade Policy Staff Committee agencies

to identify and pursue the elimination of

foreign trade practices that violate U.S.

trade agreements or distort markets to the

disadvantage of American manufacturers

and other sectors of the U.S. economy. To

improve the Commerce Department’s

ability to support the USTR and investigate allegations of trade agreement violations and market-distorting practices, the

Assistant Secretary for Market Access and

Compliance should establish an office of

investigations and compliance. That office

should be staffed with skilled investigators

trained in the development of the factual

basis for potential enforcement action,

particularly in those areas that have a significant effect on market access for U.S.

manufactured goods.

Establish a Task Force within the

Commerce Department’s Import

Administration to Pursue the

Elimination of Foreign Unfair Trade

Practices

Foreign unfair trade practices that

distort markets represent a unique subset

Enforce U.S. Trade Agreements

and Combat Unfair Trade Practices

Affecting U.S. Manufacturers

American manufacturers are entitled

to the benefits of the agreements that U.S.

negotiators reach at the negotiating table.

They are also entitled to the aggressive investigation of unfair trade practices that

undercut those agreements, even where

such actions are not subject to specific

trade disciplines.

There are a variety of ways in which

U.S. trade agencies could improve their

approach to the enforcement of trade

agreements and their response to foreign

unfair trade practices. They include the

following steps:

Reinforce the Efforts of the National

Intellectual Property Enforcement

Coordination Council

To the extent that U.S. investment in

research and development provides a

competitive edge in the marketplace, the

protection of the intellectual property developed by U.S. manufacturers, which embodies the product of that research, becomes critical to the future of the

manufacturing sector. The National Intellectual Property Enforcement Coordination Council—made up of the Commerce

Department (including the USPTO), the

United States Trade Representative, the

Bureau of Customs and Border Protection,

and the Department of Justice—is responsible for ensuring a coordinated approach

to such efforts. It is time to reinforce the

council’s mission in two important respects. The first should be to promote the

protection of U.S. intellectual property

abroad by expanding cooperative efforts

with developing country trading partners

to encourage the full implementation of

their obligations under the WTO’s Agreement on Trade Related Aspects of Intellectual Property (TRIPS). One measure could

include the placement of U.S. intellectual

property experts within certain countries

to provide in-country support. The second

MANUFACTURING IN AMERICA 77
Reinforce Efforts to Promote the

Sale of American Manufactures in

Global Markets

U.S. exports of manufactured goods

have fallen significantly in the past two

years. Although the pace of economic

growth abroad appears to be accelerating,

an expanded export promotion strategy

should help ensure U.S. manufacturers

have access to foreign markets that U.S.

negotiators have opened. The following

steps are designed to both improve the coordination of and accountability for U.S.

export promotion activities, as well as to

focus those efforts in a way that is consistent with the current challenges facing

U.S. exporters of manufactured goods. The

recommendations include:

Enhance the U.S. Government’s Efforts

on Behalf of U.S. Manufacturing by

Consolidating Commerce Department

Export Promotion Functions

Consolidation of all Commerce Department export promotion functions

under a new Assistant Secretary for Trade

Promotion, who would serve concurrently

as the director general of the Commercial

Service, would represent a solid first step

toward improving the promotion of exports of manufactured goods in global

markets. That consolidation would improve coordination and ensure accountability for the implementation of the National Export Strategy.

Accelerate Implementation of the

President’s National Export Strategy

Consistent with the legislation creating the Trade Promotion Coordinating

Committee (TPCC), the administration

published a comprehensive approach to

improving the delivery of government export promotion services. The National Export Strategy contains a series of innovations designed to improve the promotion

of U.S. exports. Given the sharp decline in

U.S. exports in the recent past, the Commerce Department, as chair of the TPCC,

should accelerate the implementation of

of trade barriers. Current trade arrangements have significantly reduced the visible tariff and non-tariff barriers to trade

worldwide. They do not, however, in

every instance, impose disciplines on

other forms of intervention in markets,

such as subsidies, that governments may

use to confer a competitive advantage on

their firms. Unchecked, such actions not

only can injure U.S. manufacturers, but

also can significantly undercut the benefits of the trade agreements for U.S. producers while undermining support for the

global trading system in general.

The existing international trade rules,

as well as their counterparts in U.S. law,

generally require that an industry prove

injury from unfair trade practices in the

context of either an antidumping or

countervailing duty action before the U.S.

government can take remedial action on

its behalf. Furthermore, antidumping and

countervailing duties at best only act indirectly to help eliminate the underlying

unfair trade practices at the heart of U.S.

industry’s complaints.

The Assistant Secretary for Import

Administration should form a task force

to investigate allegations of such trade

practices and develop a strategy for pursuing their elimination. This would eliminate the underlying distortions and

thereby reduce the use of anti-dumping

and countervailing duty actions. As part

of that effort, the task force should review

the implementation of current trade remedy rules, such as the procedures governing new shipper reviews. The Commerce

Department should further establish an

office within Import Administration to coordinate cases involving non-market

economies in order to develop an experienced core of investigators familiar with

the facts of such investigations and to ensure consistency in terms of the methodological approach.

78 U. S. DEPARTMENT OF COMMERCE
achieve these objectives and to promote a

private-sector based approach to standards

development in other nations. The initiative should be accelerated and given a

high priority by the various Commerce

Department offices involved.

Update and Reauthorize U.S. Export

Control Laws

Manufacturers in some sectors identified U.S. export control laws as an impediment to their competitiveness in international markets. Although necessary, such

controls should be focused on truly sensitive goods and technologies consistent

with U.S. national security concerns. The

United States should work to ensure that

such controls are applied uniformly by

our multilateral export control regime

partners. The administration should continue its support for the early passage of a

revised Export Administration Act that

would take into account the changes in

technology and the international marketplace, as well as defense-acquisition practices.

The administration should also review the existing structure of the U.S. foreign-trade zone program to determine

how it could be enhanced to provide a

greater incentive to manufacture in the

United States. The Commerce Department, which is responsible for administering the existing program, should do a

benchmark analysis of how other countries make use of their foreign-trade zone

mechanisms to determine whether there

are features of those programs that the

U.S. government should consider implementing, particularly as a means of lowering the cost of such programs for small

and medium-sized businesses in the

United States.

Notes 1 The research and experimentation tax

credit is commonly referred to by manufacturers as the R&D tax credit. 2 President’s Council of Advisors on Science

and Technology, Technology Transfer of Federally

Funded R&D (Washington, D.C.: President’s

those innovations to improve the

prospects for American manufacturers

seeking new markets abroad.

Implement a Global Supply Chain

Initiative to Promote Access to the

Global Marketplace

Manufacturers at every roundtable reinforced the importance of focusing on

access not just to export markets, but to

global supply chains that would take

American manufactured goods into the

international stream of commerce. The

Commerce Department, in conjunction

with the TPCC, should develop and implement a joint public-private global supply chain initiative to promote access by

America’s small and medium-sized manufacturers into global supply chains.

As part of the initiative, the Commerce Department should assess the benefits of establishing new venues in major

foreign commercial centers to enhance

the services offered to U.S. exporters while

in the country and to provide for on-theground expertise, including market research capabilities.

Promote Global Recognition and Use of

U.S. Technical Standards

One significant means of expanding

the access of small and medium-sized U.S.

manufacturers to global supply chains is

to encourage the adoption of U.S. technical standards in world markets for manufactured goods. With U.S. standards in

place, a small or medium-sized U.S. manufacturer is, in effect, already “export

ready,” saving the manufacturer from the

expense of satisfying more than one technical standard. Recognition and use of

U.S. standards would have the additional

benefit of reducing the ability of foreign

governments to use technical specifications as a means to bar access to their

markets for manufactured goods. Secretary

Evans launched a global standards initiative in spring 2003 that was designed to

MANUFACTURING IN AMERICA 79
16 percent more growth in labor productivity

over a five-year period than similar non-client

firms. The productivity growth of the 1,559

firms studied translates into $484 million in additional value-added at client firms. 5 The Technology Administration Act of

1998 (Public Law 105-309).

Council of Advisors on Science and Technology, May 2003). 3 The Manufacturing Extension Partnership

was created with the enactment of the Omnibus Trade Act of 1988 (Public Law 100-418). 4 Researchers at the Census Bureau’s Center

for Economic Studies found that manufacturing

extension clients experienced between 3.4 and

80 U. S. DEPARTMENT OF COMMERCE
Bob Armistead

Aracor

Philip Fok

Solectron

Daryl Hatano

Semiconductor Industry Association

Greg Hines

Solectron

Cynthia Johnson

Agilent Technologies

Juri Matisoo

Semiconductor Industry Association

Fred Nichols

National Association of

Manufacturers

Rockford, Ill., May 12, 2003

Industry focus:

HEAVY EQUIPMENT, TOOL

AND DIE, MACHINERY

Participants:

Eric Anderberg

Dial Machine Corporation

Bruce Braker

Tooling and Manufacturing

Association of Chicago

Bob Brunner

Illinois Tool Works

Thomas Burenga

Worksave, Inc.

High Point, N.C., April 23, 2003

Industry focus:

TEXTILES AND FURNITURE

Participants:

Sam Boyd

Pearson Company

Keith Crisco 

Asheboro Elastics

Rob Ginn

Councill Furniture

Diane Howell

Kayser-Roth Corporation

Quez Little

Norwalk Furniture

Willis Moore

Unifi, Incorporated

Pat Norton

La-Z-Boy Furniture

Jerry Rowland

National Textiles

Anderson Warlick

Parkdale Mills

San Jose, Calif., May 8, 2003

Industry focus:

IT EQUIPMENT,

TELECOMMUNICATIONS,

COMPUTERS

Participants:

MANUFACTURING IN AMERICA 81

Appendix

List of Manufacturing

Roundtables and

Participants
Frank Johnson

Manufacturing Alliance of

Connecticut

George LaCapra

Quality Rolling & Deburring

Rich Larkin

Brown Larking & Co., LLC

Wells Lindsey

Manufacturing Service Corp.

Nick Masi

Masi Associates

David Niven

Dohnam Craft

Steve Sasala

Greater Waterbury Chamber of

Commerce

Mark Stuart

National Association of

Manufacturers

Bruce Thompson

Projects Incorporated

Joe Vrabely

Atlantic Steel & Processing, LLC

Manchester, N.H., May 29, 2003

Industry focus:

IT EQUIPMENT,

TELECOMMUNICATIONS,

COMPUTERS

Participants:

Raymond Boissoneau

Electropac Company

Mark Buck

Hypertherm

Marc Giroux

Corning, Inc.

Kedar Gupta

GT Equipment Technology

James (Giff) Kriebel

BAE Systems

Gerry Letendre

Diamond Casting & Machine

Company

Hong Yu

Metrobility Optical Systems

Gerald Busse

Rockford Toolcraft, Inc.

Michael Cayley

MIDACO Corporation

Allan Curran

Royal Products

Lloyd Falconer

Seward Screw Products

Mary Rose Hennessey

NIU Biz Coalition for Manufacturing

Michael Hetzel

Americas for ProQC International

Bill Hickey

Latham-Hickey Steel Corp.

Phil James

Ingersol Production Co.

John Kaminski

E.D. Etnyre & Company

Alan D. Kinsler

Sellstrom Manufacturing

Bill Lee

Navagation Consulting Group

Richard Lingus

Rockford Consulting Group, Ltd.

Mike Lynch

Illinois Tool Works

Howard Newel

Hammil Tool

Alan Petrucci

BA Die Mold, Inc.

Dan Provonsano

Teletool Manufacturing

James J. Zawacki

GR Spring & Stamping, Inc.

Washington, D.C., May 20, 2003

Industry focus:

MACHINERY

Participants:

Jay Carlson

G&R Manufacturing

Richard Demsey

Demsey Manufacturing Co., Inc.

Chris Gemino and Robert Heche

Gaynor Electric Co., Inc.

Bob Hawie

Hawie Manufacturing

82 U. S. DEPARTMENT OF COMMERCE
Len Poli

M. Carder Industries

Kenneth Shead

IDS Boeing

Don Wainwright

Wainwright Industries

Summit, N.J., June 30, 2003

Industry focus:

PHARMACEUTICALS,

BIOTECHNOLOGY

Participants:

Joseph Cherry

CR Bard

Joe Fusco

Novus Fine Chemicals

Stephen Greene

G&W Laboratories

William Healy

Health Care Institute of New Jersey

Michael Katz

Cenogenics

Christian Schade

Medarex

Washington, D.C., June 24, 2003

Industry focus:

MANUFACTURING IN 2020

Participants:

Arden Bement

NIST, Department of Commerce

Ron Blackwell

AFL-CIO

Cary Crouse

Delphi, Inc.

Tom Duesterberg

Manufacturers Alliance/MAPI

Steven Empedocles

Nanosys, Inc.

Juan Enriques-Cabot

Harvard Business School

Terry Lisenby

Nucor Steel, Inc.

Martha Morris

IBM

Milwaukee, Wis., May 29, 2003

Industry focus:

FOOD PROCESSING,

PACKAGING, HEAVY

EQUIPMENT

Participants:

James Buchen

Wisconsin Manufacturers and

Commerce

Mark Hardwick

P&H Mining Equipment

Joe Morrissey

Conflex, Inc.

Rick Patek

Telsmith, Inc.

Steven Polonowski

Krones, Inc.

Steve Tyler

CNH

Mike White

Rite-Hite Corporation

St. Louis, Mo., June 13, 2003

Industry focus:

CHEMICALS, AVIONICS,

BIOTECHNOLOGY

Participants:

Bill Bachman

Bachman Machine Company

Robert Burns

Patriot Machine

Stewart Dahlberg

J.D. Street & Co.

Gerald Daniels

Engineered Support Systems

Kimberly Hayden

Supreme Tool & Die

Ray McCarty

Missouri Chamber of Commerce 

and Industry

Mike Mittler

Mittler Brothers Machine & Tool

Company

MANUFACTURING IN AMERICA 83
Steve Prout

Alpha Q

John Salce

Hygrade Precision Technologies

Bruce Thompson

Projects, Inc.

Los Angeles, Calif., July 7, 2003

Industry focus:

MINORITY-OWNED AND

SMALL MANUFACTURERS

Participants:

Candance Chen

Power Clean 2000, Inc.

Maria de Lourdes Sobrino

Lulu’s Dessert

Frank Villalobos

Barrio Planners, Inc.

Linda Wong

Community Development

Technologies Center

Columbus, Ohio, July 8, 2003

Industry focus:

METALS, TIRES, PLASTICS

Participants:

Lowell Dunckel

Goodyear

Steve Giangiordana

RTI International Metals

Mitchell Hecht

International Steel Group

Robert Stevens

Impact Forge

John Vaught

Tri-Cast

Leo J. Reddy

National Coalition for Advanced

Manufacturing

Ross E. Robson

Shingo Prize for Excellence in

Manufacturing

George Scalise

Semiconductor Industry Association

Amram Shapiro

Pittiglio, Rabin, Todd & McGrath

William Strauss

Federal Reserve Bank of Chicago

Michael Tieman

Red Hat Software

Tim Timken, Jr.

Timken Corporation

Bruce Tompkins

Institute of Industrial Engineers

Frank Vargo

National Association of

Manufacturers

Jim Zawacki

FR Spring and Stamping

John Zysman

University of California at Berkeley

New Britain, Conn., July 7, 2003

Industry focus:

AEROSPACE, MACHINERY

Participants:

Lou Auletta

Bauer, Inc.

Murry Gerber

National Association of

Manufacturers, Small and Medium

Manufacturers Group

Frank Johnson

Manufacturing Alliance of

Connecticut

Bill Lee

The Lee Company

Mick Mauer

Sikorsky Aircraft Group

Ted Malkowski

Continental Machine Company

Al Mulvey

Pratt & Whitney

84 U. S. DEPARTMENT OF COMMERCE
Detroit, Mich., July 9, 2003

Industry focus:

AUTOMOTIVE PARTS

SUPPLIERS

Participants:

Christopher Bates

Motor & Equipment Manufacturers

Association

Jason Brewer

E&E Manufacturing

Ron Cutter

TRW Automotive

Neil DeKoker

Original Equipment Suppliers

Association

Sylvia Vogt

Robert Bosch Corporation

John Voorhorst

Denso International

Washington, D.C., July 10, 2003

Industry focus:

FOUNDRY

Participants:

Michael Beyersdorfer

Sawbrook Steel Casting Company

G. Edward Curtis

Harrison Steel Casting Company

Shane Downey

American Foundry Society

Jim Lajeunesse

Bronze Craft

Jim Mallory

Non-Ferrous Founders Society

Bill Martin

Neenah Foundry

Joe Mayer

Copper Brass Fabricators Council

Raymond Monroe

Steel Founders Society

Russell Symmes

Aluminum Foundries

Fred Wilton

Wilton Armetale Company

Trenton, N.J., July 8, 2003

Industry focus:

CHEMICALS

Participants:

Ashok Balar

Clariant Corporation

Hal Bozarth

Chemical Industry Council of New

Jersey

W. Dexter Brown

National Starch and Chemical

Company

William Fee

Magnesium Elektron, Inc.

Ron Fenn

Polarome International

Charles A. Lynch

New Jersey Commerce and

Economic Growth Committee

Roger Madden

Church & Dwight

Salvatore Monte

Kenrich Petrochemical, Inc.

Ron Munson

Church & Dwight

Gerald Pechulis

Valero Energy

Gene Reinhardt

Dow Chemical

Jeff Stoller

New Jersey Business and Industry

Association

Ed Van Ek

C.J. Holt

MANUFACTURING IN AMERICA 85
Minneapolis, Minn., July 14, 2003

Industry focus: 

MEDICAL DEVICES

Participants:

Daniel B. Garry

3M

Keith Guggenberger

Starkey Labs

Stephen Oesterle

Medtronic Inc.

Marge Searing

Advanced Medical Technology

Association

Phillip Vierling

EMPI

Paul J. Wagner

Minnesota Wire and Cable

New Orleans, La., July 22, 2003

Industry focus: 

ENERGY, ELECTRICITY,

OIL AND GAS EQUIPMENT

Participants:

Guy Barone

Xenetech, Inc.

Chris Bollinger

Bollinger Shipyards, Inc.

Murphy Bourke

Gulf Island Fabrication

William Coyle

Bilco Tools, Inc.

Leo Guidroz

Oil Stop, LLC

Von Hatley

Louisiana Department of Economic

Development

Rick Kelly

Pellerin Milnor Corporation

Chicago, Ill., July 10, 2003

Industry focus:

HIGH TECHNOLOGY

Participants:

Shail Godambe

Motorola, Inc.

Anthony Hilvers

IPC

Richard Paullin

Illinois District Export Council

Candy Renwall

Chicago Software Association

Ramesh Seth

S.I. Tech, Inc.

Mike Skarr

Naperville Chamber of Commerce

Robert Weskamp

Wes-Tech, Inc.

Ray Willis

Zuchem, Inc.

Des Moines, Iowa, July 11, 2003

Industry focus: 

GENERAL

MANUFACTURING

Participants:

Ralph Burchfield

Firestone Tires

Daniel B. Garry

3M

Alan Oak

Goodrich

Bob Jennings

EFCO

Christopher Nelson

Kemin Industries

86 U. S. DEPARTMENT OF COMMERCE
Washington, D.C., Aug. 14, 2003

Industry focus:

WORKFORCE AND

EDUCATION

Participants:

Sandra Carney-Talley

Aerospace Industries Association

Edward Dooley

Air-Conditioning and Refrigeration

Institute

Phyllis Eisen

National Association of

Manufacturers

James Hughes

Northrop Grumman

Steven Mandes

National Institute for Metalworking

Skills

Dan Meckstroth

Manufacturers Alliance

Branka Minic

Manpower, Inc.

Tony Raimondo

Behlen Manufacturing

Michael Smeltzer

Manufacturers Association of South

Central Pennsylvania

Richard Walker

National Tooling and Machining

Association

Allen Porter

Allen Process System

Brett Reagan

Point Eight Power, Inc.

Rodder Russo

Stabil Drill Specialties

Arthur Zatarain

TEST Automation & Controls

Washington, D.C., July 24, 2003

Industry focus: 

AUTOMOBILE

MANUFACTURING

Participants:

Edward Cohen

Honda

Steve Collins

Automotive Trade Policy Council

Josephine Cooper

Alliance of Automotive

Manufacturers

Marie Kissel

DaimlerChrysler

Curt Magleby

Ford Motor Company

Tim McCarthy

Association of International

Automobile Manufacturers

Mustafa Mohatarem

General Motors

Harland Reid

Nissan

Doug West

Toyota

MANUFACTURING IN AMERICA 87
Washington, D.C., Sept. 5, 2003

Industry focus: 

FOREST PRODUCTS

Participants:

George Glatfelter II

Glatfelter Company

Donna Harman

American Forest and Paper

Association

Kenneth Jastrow II

Temple-Inland, Inc.

John A. Luke, Jr.

MeadWestvaco Corporation

Henson Moore

American Forest and Paper

Association

Arnold M. Nemirow

Bowater, Inc.

Ft. Lauderdale, Fla., Aug. 19,

2003

Industry focus: 

AEROSPACE

Participants:

Carlon Aaron

Hialeah Metal Spinning

Dan Becker

Boeing

Reynaldo Blanco

Florida Air Transport

Stan Bodner

Greater Miami Aviation Association

Ken Cooksey

Enterprise Florida

Michael Fatig

Honeywell, Inc.

Ken Krauter

New Port Director

Bill Lewandowski

Aerospace Industries Association

Sam Plummer

GEAR Technologies

Jim Roubian

HEICO Corporation

Kenneth Sitomer

VHL Aircraft Inc.

Al Stimak

Metal Essence

James Swanson

Swanson Tool

88 U. S. DEPARTMENT OF COMMERCE