Manufacturing: The View From the House

Manufacturing alone won't pull the United States out of the economic downturn. But as we move into the new year, it has been one of the few bright spots, however flickering, in a struggling economy. Service centers in particular seem enthusiastic about their prospects this year, especially those doing business with the aerospace, automotive and medical equipment industries—all value-added, high-margin sectors.

Their optimism is tempered, however, with an awareness that the federal government seems paralyzed when it comes to reforming tax policy, encouraging more investment in new technologies and overhauling education and training programs to be more manufacturing-friendly. If Congress is to shake off its torpor and pass legislation that would help manufacturing, the impetus is very likely to come from the House Manufacturing Caucus and its more than 80 members in at least two dozen states.

The co-chairs of that caucus are Reps. Tim Ryan and Don Manzullo, who, in a spirit of bipartisanship, agreed to answer a series of questions about the view from Capitol Hill and what might be ahead for manufacturing. Their answers, which do not always break along party lines, may surprise you.

What role can manufacturing play in the revitalization of the nation's economy?

Rep. Tim Ryan (D-Ohio): Congress can promote a level playing field by holding China accountable for its currency manipulation and pass a comprehensive national industrial base and manufacturing strategy, remove tax hurdles and reward innovative research and development.

Rep. Don Manzullo (R-Illinois): The only way out of this recession is to manufacture our way out. We cannot be a nation based on service industries, because manufacturing has a bigger effect on our economy than services. According to the Manufacturing Institute, every $1 in final sales of manufactured products supports $1.40 in output from other sectors of the economy. No other sector comes close to having such a high economic multiplier effect. That is why our economic recovery is still sluggish—because manufacturing has not fully recovered.

Over the past few decades, U.S.-based manufacturers shifted some of their production overseas, chasing the short-term, low-unit prices that foreign factories could offer as a result of their lower wages and other inducements. But over time, much of those savings have been abated by unforeseen costs—goods damaged in transit, the need to maintain traveling quality-control staffs and the need to maintain about twice as much inventory as a hedge against delays in shipping. Thus, re-shoring jobs and facilities now make more economic sense, and I am very pleased and hope the re-shoring trend continues.

On manufacturing policy, what grade would you give the Obama administration and Congress to date and why?

Ryan: Congress has done little to stop the loss of American manufacturing jobs and strengthen the industry. In fact, for the last 20 years, Congress has pushed policies and trade agreements, such as NAFTA [the North American Free Trade Agreement], that have harmed American manufacturers. Ohio alone has lost hundreds of thousands of manufacturing jobs in the past 20 years. Congress deserves an “F” for pushing policies that harm, rather than help, our manufacturing base.

We are making some bipartisan progress, pushing legislation to give tax credits to manufacturers to invest in their facilities and to reduce energy consumption. But major legislation to aid manufacturers and push back against Chinese currency manipulation remains stalled.

Manzullo: Overall, a “C-.” The Obama administration and Congress have provided some help to manufacturing, such as facilitating the passage of [free trade agreements] and other issues dealing with America's competitiveness in trade and exports. In June 2010, the Obama administration announced the Joint Strategic Plan for Intellectual Property Enforcement—a multi-agency effort to enhance intellectual property protection by strengthening efforts to combat civil and criminal violations of trademark and copyright infringement. Protecting intellectual property rights both at home and abroad is a vital component to making sure American workers and companies are competitive and those acting outside of our laws are held accountable.

I also applaud President Obama's making export control reform a top priority with the formation of the Export Control Reform Initiative. In August 2009, the president directed an interagency review of the U.S. export control system, with the goal of strengthening national security and the competitiveness of key U.S. manufacturing and technology sectors. This review concluded that, among other issues, the current export control system is overly complicated and contains too many redundancies. As a result, the administration launched the Export Control Reform Initiative, which will fundamentally reform the U.S. export control system.

While I am pleased to work in a bipartisan manner with the president on several key policy issues, we are at odds on others. For instance, we disagree on the issue of taxes, particularly on his campaign proposal to let the 2001/2003 tax cuts expire for those earning over $250,000 a year. This would subject 50% of small business income to higher taxation.

Banks are lending again, but very cautiously. What can Congress do now to get more money into the hands of credit-worthy manufacturers?

Ryan: Congress should continue its support for the Export-Import Bank, incentivize financial institutions to provide access to capital and insure small businesses have access to assets-backed loans.

Manzullo: The pendulum has swung too far toward being too cautious in lending. Banks are closely watched by regulators to avoid the mistakes that led up to the 2008 financial crisis. This has stifled access to credit to all but the best borrowers that have no risk. There are credit-worthy borrowers who are having a difficult time being approved for a loan. The looming yet-to-be-written regulations from the Dodd-Frank Act also function as a deterrent to new lending. Some financial institutions still believe lending to manufacturers is a bad business decision because they think manufacturing is a dying industry. Banks should feel comfortable in lending, particularly to small manufacturers who have orders in hand and have never had major credit problems in the past.

In addition, I believe we should give more financing options to small manufacturers. I was proud of my role in enacting a law in 2004 that doubled the size of the loan a manufacturer could receive through the Small Business Administration's Certified Development Company, or 504 loan program, from $2 million to $4 million. Another option is to bypass banks entirely and encourage savings that could be used during downturns in the economy. Currently, I am the lead Republican co-sponsor of the Manufacturing Reinvestment Account Act of 2011 that would establish a tax-free manufacturing reinvestment account of up to $500, to invest in machinery, facilities and job training.

Can you identify specific policy areas or upcoming legislative opportunities for bipartisanship and consensus building in Congress?

Ryan: We can begin with passing the China currency bill that was passed in the Senate with bipartisan support and was passed overwhelmingly by the House of Representatives during the 111th Congress.

China's trade policies are putting American businesses out of work and American workers out of jobs. We've lost more than 2.8 million jobs nationwide and close to 100,000 jobs in Ohio because of China's unfair trade practices. If Congress was really serious about putting people back to work, they'd pass my bill curbing Chinese currency manipulation immediately. Congress has shown a willingness to overcome partisan divides on this legislation in the past. Speaker Boehner should stop blocking a vote on this bill to allow us to come together once again to grow American industry.

Manzullo: This is the main reason I co-founded and continue to co-lead the House Manufacturing Caucus, in order to help identify areas of bipartisan consensus. I am working with Rep. Ryan on several bipartisan manufacturing initiatives. We are confronting together the flawed decision of the National Toxicology Program, under the U.S. Department of Health and Human Services, to label styrene as a cancer-causing substance. Styrene is a basic ingredient in the production of plastics, fiberglass and composites, and the determination by HHS—based on faulty science—could unnecessarily threaten nearly 1 million workers who are employed in the third largest manufacturing industry in America. Instead, Rep. Ryan and I are encouraging the White House to use the independent and reputable National Academies of Sciences to reach scientifically valid conclusions about styrene. In addition, Rep. Ryan and I co-introduced the Mechanical Insulation Installation Incentive Act of 2011 to provide a 30% tax deduction to better insulate commercial buildings, which could immediately generate 25,000 jobs and dramatically cut energy costs for manufacturers.

I am also working in a bipartisan fashion to help reauthorize the Export-Import Bank of the United States, which provides critical trade financing for manufacturing exporters; the Overseas Private Investment Corporation, which provides political risk insurance to U.S. companies; export control reform (such as moving commercial communication satellites off the more restrictive munitions list to the dual-use commercial list); and improving the overall coordination of our nation's export promotion programs.

On Oct. 21, President Barack Obama signed free trade agreements with South Korea, Colombia and Panama. Please explain your vote and elaborate on how these deals will help—or hurt—the nation's metals makers and manufacturers.

Ryan: I voted against the Korea, Colombia and Panama trade agreements because I've seen the impact these sorts of agreements have had on my constituents, working families and generally the Midwest.

As the world's fifth largest manufacturer, Korea places significant non-tariff barriers to U.S. products, particularly in the automotive sector, and has a history of currency manipulation, which the FTA fails to address.

More trade unionists are killed in Colombia than the rest of the world combined—nearly 3,000 since 1986. As a result, the percentage of unionized workers in Colombia has shrunk to 4%, effectively destroying the Colombian labor movement.

Additionally, Panama has Latin America's largest international banking center and one of the world's top offshore company registries. This tax haven for multinational investors was the driving force behind the George W. Bush administration's demand for an FTA, robbing the federal government of the corporate tax dollars it needs to run and provide services to Americans.

Manzullo: I believe these three additional market-opening agreements with South Korea, Colombia and Panama will help our nation's manufacturers. The independent U.S. International Trade Commission estimated that these agreements will boost U.S. exports by $13 billion and would sustain or create 250,000 jobs. That's why I voted for these three agreements on Oct. 12.

Trade directly spurs the economy and creates jobs by expanding markets for American business. The agreements the United States has with our 17 FTA partners have produced a three-year cumulative trade surplus in manufactured goods of more than $70 billion.

What is Congress prepared to do to encourage R&D and infrastructure spending during the next two years?

Ryan: America is an incredible home to innovation and has played a part in some of the most revolutionary creations of the last few centuries, from the cotton gin to the airplane to the Internet.

The federal government can play a vital role in helping innovative small businesses succeed, including continuing robust investment in federal research and development, improving federal technology transfer from federal and university labs to startups and helping small businesses commercialize their technologies.

For example, countless high tech manufacturers' goods and services originated from NASA programs and were supported by Small Business Innovative Research awards from an assortment of different federal agencies. Federal funding of basic research is essential to keep America's global innovation advantage. The United States must maintain its commitment to funding basic research at its universities and other educational facilities.

We need a bold jobs plan to put the 14 million full-time unemployed workers back on the job, and we can start with infrastructure spending. While the president recently took the first step toward this sort of infrastructure investment with his “American Jobs Act,” we need a commitment that exceeds even his suggestions. This is work we already know we need to do on existing roads, bridges and highways, and the jobs created will utilize the skills and experience of workers who were among the first left behind in this economic disaster. Creating these jobs will put money in the pockets of consumers, who will spend it on goods, services, mortgage payments, gas—the kind of spending that will get the economy moving again.

Manzullo: Most likely, Congress will simply extend for another year the current R&D tax credit because this would be the lowest cost option as calculated by the Congressional Budget Office for the budget deficit. However, this does not help with long-term planning. That is why I would prefer a permanent extension and increase the amount of the R&D tax credit to 25%.

With regard to infrastructure spending, Washington continues to argue over the best comprehensive, long-term bill. While this argument continues, Congress just passed yet another short-term extension. Again, this does not help with long-term planning. Congress should just simply reauthorize the core highway, transit, aviation and water resource programs, using the existing user fee structure to pay for these projects. As one way to save money, Congress should lift the requirement that 10% of highway spending be devoted to projects such as historic preservation, museums or the purchase of scenic easements, and use those resources instead to build roads. In addition, Congress should lift the Davis-Bacon “prevailing wage” requirement that adds upward of about 30% to the cost of infrastructure projects.

What can Congress do to encourage science, technical, engineering and mathematics (STEM) training in the United States?

Ryan: Developing and retaining a high-quality mathematics and science teaching work force is key, and Congress must continue focusing on loan forgiveness initiatives for teachers and scholarships for students interested in STEM fields. To attract and retain pre-college science and mathematics teachers, we must provide quality sustained professional development opportunities for all K-12 science and mathematics teachers to increase and deepen their subject knowledge.

Manzullo: I believe that primary and secondary education is a local issue and, in general, should not be subject to control by the federal government. Each state and school district is different and should have the flexibility to design its own curriculum and allocate its funds how it sees fit.

Nevertheless, there are several programs that seek to encourage STEM training in our nation's education system and beyond. For instance, last June President Obama launched the Advanced Manufacturing Partnership (AMP), a national effort bringing together industry, universities and the federal government to invest in the emerging technologies that will create high-quality manufacturing jobs and enhance our global competitiveness. As part of AMP, a coalition of six universities will form a collaborative framework for sharing educational materials and best practices related to advanced manufacturing and its linkage to innovation.

The Manufacturing Institute has created a Skills Certification System so that any employer across the nation knows that if a person has received this certificate, he or she can be productive and successful in entry-level positions in any manufacturing environment. I also commend community colleges across the country, particularly those with specialized programs in manufacturing. Additionally, community colleges offer affordable, attainable degrees for students who may otherwise not pursue a degree beyond high school. Contrary to the belief of many, these students land highly skilled and good-paying careers.

The generation of young adults preparing to enter the work force has come to believe that manufacturing is either dead or not a reputable way to earn a living. We have done a disservice to these young men and women who enter the work force without marketable skills.

We need to change the way that careers in manufacturing are perceived, particularly among our nation's high school guidance counselors. We need guidance counselors to understand that not everyone is cut out for college and a white collar career inside a cubicle. We need high schools and local community colleges to partner with local manufacturers, from organizing and hosting tours and “camps,” such as KidWorks in Rockford, [Illinois,] to programs that model European apprenticeship programs.

There are many problems and uncertainties facing American manufacturers—the need for export control and tax and regulatory reform, to name a few—but, without a well-trained and competent work force, advanced manufacturing and its jobs will not exist in the United States.