America currently has a unique opportunity to turn the tide on its industrial decline.
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We are in a moment for U.S. manufacturing I haven’t before witnessed in my multi-decade production career, where a great many forces are now aligned to reverse the long tide of our industrial decline. However, reindustrializing America is not yet a slam dunk.
Here are the most significant roadblocks that stand it its way.
Regulations
In late 2023, the National Association of Manufacturers released its study, “The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business” by Nicole V. Crain and W. Mark Crain. If you’re looking for one of the biggest reasons American manufacturers struggle to compete with their offshore counterparts, here it is: “The regulatory cost disadvantage confronting small firms is amplified greatly in the manufacturing sector, with small manufacturing firms bearing more than double the cost of large manufacturing firms, or $50,100 versus $24,800 per employee. Overall, small manufacturers incur regulatory costs that are more than three times the costs borne by the average U.S. company. Medium and large manufacturers in the United States face regulatory costs that are double the costs borne by the average U.S. firm.”
Since about 98% of US manufacturing companies are SMEs, that skewing of the regulatory burden in their direction is especially pernicious.
As Mark Mills, executive director of the National Center for Energy Analytics, pointed out in his article, “Blame Regulators for Holding Back U.S. Manufacturing—Not Tariffs,” earlier this year, “Reliable data on regulatory costs in China don’t exist, but the figure is almost certainly closer to zero than to $50,000 per employee, per year. This stunning burden makes clear that it’s not just wages that disadvantage U.S. manufacturers—it’s the regulatory costs attached to that labor.” And he also shows how the additions to the federal industrial regulatory burden have accelerated greatly in the 21st century, to predictably deleterious effects. “Counted from the year 2000, the federal government has added more than 1,400 new ‘economically significant rules’ that work to hobble American businesses—that’s over double the number of rules added from 1980 to 2000… This transformation was consequential both economically and politically. Since 2000, the U.S. has lost roughly 3 million manufacturing jobs, many concentrated in ‘flyover country…’ Consider a thought experiment: if the U.S. had prevented the erosion of, say, one-half of the decline in its share of global manufacturing since 2000, our domestic manufacturing sector would be more than $1 trillion larger.”
The Trump administration has had a good start in turning some of this around, and the recent Supreme Court decision overturning the Chevron doctrine, which cut the power of federal agencies to interpret the laws they administer and directed that courts rely on their own interpretations of ambiguous laws, will help. But without significant and concentrated efforts to reduce and simplify the regulatory demands on our producers, it’s unlikely the current reshoring trends will be sustainable.
Energy policy
The Biden administration had the U.S. on the same energy policy path that has proved so ruinous to industry in Europe, particularly in Germany and the United Kingdom. A good many of the Trump administration’s regulatory cutbacks mentioned above were aimed at energy production, including Biden’s onerous rules about power plant emissions and various requirements that hampered oil and gas development.
The trouble is that almost half our states have their own net-zero mandates that largely nullify that federal deregulation, with 23 of them mandating 100% net-zero electricity generation by 2050.
Those requirements will batter manufacturers in two ways: high costs and low grid reliability. Despite dire warnings from the North American Electric Reliability Corporation and regional grid operators like The Midcontinent Independent System Operator about increasing blackout risks due to the inherently intermittent nature of wind and solar generation, those states continue to require more and more renewable generating capacity.
As for costs, my home state of Michigan provides a cautionary example. Writing recently for the Mackinac Center for Public Policy recently, Jason Hayes, Isaac Orr and Mitch Rolling detailed in their article, “Michigan’s Expensive Net-Zero Gamble,” the effects of the climate legislation passed by Governor Gretchen Whitmer and the state’s Democrats. “Modeling completed by the Center of the American Experiment and Always On Energy Research for the Mackinac Center for Public Policy demonstrates that achieving net-zero goals will cause Michigan’s already-high electricity prices to skyrocket… That plan would cost Michiganders $386 billion by 2050, which amounts to an average annual cost increase of $2,746 per customer, or an additional $228.83 on monthly utility bills.”
As Orr pointed out a few months ago in an appearance on my “Manufacturing Talks” web show and podcast, one very likely result of those price increases will be the closure of the second-largest iron mine in the US, the Tilden mine in Michigan’s Upper Peninsula.
Investment
I detailed in an article here last month how the US industrial world has been no stranger to some of the missteps of private equity firms. Beyond the complaints typical in that realm of irresponsible value extraction, there are a couple of unique misalignments that can hamper proper investment. One is simply misunderstanding of the fundamental values of founders and owners who are looking to exit the manufacturing companies they’ve built, and what they’re looking for. Another is a failure by outside investors to understand the particulars of investment in industry, where capital requirements remain high and often require lengthy time horizons for both maintaining basic productive capacity and for implementing business growth plans.
Those difficulties and misalignments come at a very bad time. For America to be able to capitalize on this opportunity for reindustrialization and reshoring production, our existing manufacturing base must be sustained and grown. But with Baby Boomer owners (and now Gen X too) looking to retire and hand things off to new managers, this is a particularly difficult time to have sand in the gears of the investment machinery.
Workforce development
I’ve written about a number of efforts across the country focused on rebuilding the talent pipeline for skilled trades and industrial work. Those efforts and many more like them, when combined with increasing levels of factory automation and business process software development, will help overcome the shortage our manufacturers face in sourcing the talent they need for the future.
One thing that’s missing is a national unifying force, one that helps align those many efforts and avoid duplicative work. The recent announcement from the Business Roundtable, the noted group of large-company CEOs, of its new initiative to provide leadership on skilled trades training is a welcome development here.
Conclusions
America is better positioned now than perhaps at any time since the end of WWII to revitalize its productive capacities. Capitalizing on that opportunity, however, will require immediate concerted efforts to fill in the potholes listed above.