Obama's call for manufacturing revival a tough goal to achieve

Washington: President Barack Obama is making a strong election-year push for an economic revival "built on American manufacturing". But he faces an uphill slog, with little consensus even within his own party on how to do it.

For decades, the United States has gradually shifted from creating goods to providing services. Fifty years ago, a third of US jobs were in manufacturing. Now they account for just 9 per cent, according to the Bureau of Labour Statistics. A manufacturing renaissance is being preached from the White House, on the GOP campaign trail and in Super Bowl commercials.

Economists suggest plans to help boost manufacturing jobs may make more political sense than econ-omic sense.

Obama's prescription for a manufacturing comeback will be fleshed out in the new budget he submits tomorrow. He is proposing tax incentives to companies that move their overseas operations back to the United States, along with tax penalties for those that don't, more training and additional education.

But few of his ideas are likely to be enacted in this highly-charged election year.

Since the recession officially ended nearly two and a half years ago, manufacturing production has increased 15 per cent, helped by the replacement of ageing equipment and software and strong demand from foreign markets. But Federal Reserve Chairman Ben Bernanke told Congress last week that the rebound might not last: "More recently, the pace of growth in business investment has slowed, likely reflecting concerns about both the domestic outlook and developments in Europe."

There are political overtones to Obama's State of the Union appeal for "an economy that's built to last, an economy built on American manufacturing." Polls show support for the president has slipped in Rust Belt battleground states he won in 2008.

Despite recent increases in US exports, new trade deficit figures underscored the nation's continuing manufacturing woes. The US trade gap surged 11.6 per cent to $558 billion (Dh2 trillion) in 2011, its highest level since 2008, the Commerce Department said Friday. Much of the deficit was driven by higher imports of foreign goods than exports of American products.

Helping manufacturers recover is also being talked up by Republican presidential contenders, who all blame Obama's policies for contributing to the decline.

Former Senator Rick Santorum wants to eliminate the US corporate tax completely for manufacturers, saying it would help put "men and women in this country who built this country back to work." Mitt Romney's get-tough rhetoric on China appears to be winning attention from workers and former workers in industries that have lost jobs to China. The former Massachusetts governor promises "to make America a more attractive place for manufacturers to invest." Former House Speaker Newt Gingrich says we "badly need to rebuild our manufacturing base," promoting job creation in the defence, energy and space industries.

This heavy attention on manufacturing may be misplaced, economists suggest.

"The vast majority of jobs in the future are going to be created in the service sector, not the manufacturing sector," said Nigel Gault, chief US economist for the consulting firm IHS Global Insight. He said he thought it was "a bit misleading" to focus so much on manufacturing.

"I'm not sure why manufacturing rather than any other industry warrants tax incentives," Gault added.

Obama also has called for a minimum 30 per cent tax rate on annual incomes of more than $1 million. Business interests claim it could harm small and medium-sized manufacturers who file tax returns as individuals.

Plan's main aims

• Prevent US companies from deducting moving expenses when they shift production overseas, while offering a 20 per cent moving-expense tax credit for businesses returning to the US.
• Establish a new trade enforcement unit.
• Modify a tax credit for domestic production to make it apply more narrowly to manufacturing.
• Extend $5 billion (Dh18.3 billion) in new tax credits for clean-energy companies.
• Reduce the nominal maximum 35 per cent corporate tax, most likely taking it down to the high 20s.