What Prompted It and Which Sectors Are Growing the Fastest?
Ten years after the end of the great recession, the economy of the United States seems to finally be back in full swing. A lot of that is thanks to the country’s growing manufacturing industry, which in 2017 had its strongest year since 2004. During the period between July 2017 and July 2018, manufacturing has added more than 320,000 jobs, which is a 23-year record. This recent boom is a direct result of the government’s push to bring manufacturing back to America after years of outsourcing.
Why Is Manufacturing Growing?
In December 2017, President Donald Trump signed the Tax Cuts and Jobs Act of 2017, a document that introduced a series of major tax reforms. US manufacturers particularly benefitted from two provisions in this document – the corporate tax rate reduction and full and immediate business expensing.
Under the new regulations, the corporate tax rate was reduced by almost one-third – from 35% to 21%. This allows corporations to save a considerable sum of money on taxes and reinvest those savings into manufacturing and other processes that drive their growth.
At the same time, the business expensing provision allows manufacturers to have the full cost of their newly-purchased equipment deducted from their taxable income that same year. Before the reform, the tax deductions were split into annual installments and marred by complicated depreciation schedules.
Now, if a small manufacturing business wants to invest in equipment and increase their output, the cost will immediately be deducted from their taxable income, which means that they will pay less come taxation time. Like the corporate tax cuts, this allows manufacturers of all sizes to reinvest the savings back into their business.
The Effect of the Trump Tariffs
In addition to the tax reforms, the government has also imposed certain tariffs on imported materials and goods – also in an effort to stimulate economic growth. Known as the Trump tariffs, these include a 25% tariff on steel imports from all but four countries of the world (South Korea, Brazil, Australia, and Argentina), and a 10% tariff on aluminum imports.
Tariffs have also been imposed on popular products that are most often imported rather than manufactured domestically, such as solar panels and washing machines.
The latter was advocated by Whirlpool, a US manufacturer of household appliances, who claimed that their sales were suffering due to unfair competition from South Korean manufacturers. It is expected that these washing machine tariffs, which will gradually decline over a period of years, will allow Whirlpool and their US peers to improve their market position and increase their manufacturing output.
In a controversial move, the government has also imposed tariffs on products imported from China, reportedly in response to the Chinese continued theft of US intellectual property. Due to the low cost of labor, China has long been the top destination of US manufacturers looking to cut their costs by outsourcing the process. In addition, Chinese knock-offs of American products pose a serious threat to the some manufacturers’ bottom line, seeing as they sell for just a fraction of the cost of their products.
The introduction of the so-called Chinese tariffs has sparked a trade war between the United States and China. To avoid being hit by the tariffs, many manufacturers who export their products to the US are looking to move their plants from China to other countries in the region. At the same time, US companies that used to outsource manufacturing to China are now looking to bring it back home. In doing so, they are also opening new jobs, which increases the demand for the local workforce.
Which Industries Are Growing the Fastest?
Many industrial sectors have seen a surge in manufacturing recently, but the computer and electronics industry is growing the fastest by far. Within the last year, Apple and Intel have created 26,000 jobs in Texas, California, Oregon, and Arizona. At the same time, Element Electronics, Whirlpool, and General Electric have created 7,000 jobs in multiple states including Michigan, Ohio, Alabama, and Kentucky.
The automotive industry has also seen a renaissance lately, with Ford opening 4,000 jobs in New York, Michigan, Illinois, Ohio, and Indiana. Polaris has created 2,000 new jobs in Alabama, while Gentex, a popular car mirror manufacturer, has moved more than 1,600 jobs from China and Mexico to Michigan.
Pharmaceutical and chemical industries are also growing rapidly, with more than 5,000 jobs created in New York, Michigan, Texas, and Louisiana. Other growing sectors include biotechnology, aerospace, biotechnology, and farm machinery.
What Does the Future Hold?
If recent trends are any indicator, the manufacturing boom will continue throughout 2019. The fact that, despite the government shutdown, US employers have managed to create more than 300,000 jobs in January alone is certainly encouraging.
There are currently more than 500,000 manufacturing jobs available in the country, with many more to be added in the next few years. In fact, a recent study conducted by Deloitte and the Manufacturing Institute predicts that, at the current growth rate, the US manufacturing industry will experience a shortage of about 2 million skilled workers by 2025. As the sector continues to grow in the coming years, all industry stakeholders will thus have to work together to overcome the manufacturing skills gap.
Donald Flor
CEO
FLOR Group
501 W Broadway | San Diego, CA 92101 | (619) 852-5117
Donald.flor@Florgroup.com | www.Florgroup.com