2022 was a revolutionary year for American manufacturing. Congress and the Biden administration took major steps on behalf of manufacturing, including passing and signing The CHIPS and Science Act, the Inflation Reduction Act and the Infrastructure Act now in its first year of implementation.
The CHIPS and Science Act takes the unprecedented action of dedicating billions of dollars to one industry (semiconductors) to build new factories in the United States, and the funds are in the form of grants, not loans. The Inflation Reduction Act appropriates approximately $357 billion to an enormous program to recreate the entire auto industry in a new form through electric vehicles, and to accelerate U.S. manufacturing of solar panels, wind turbines, batteries and critical minerals processing.
And the Infrastructure Act, signed late in 2021, dedicated roughly $1 trillion to modernizing our decaying infrastructure. This will require billions of dollars for manufactured inputs such as steel, cement and lighting, which the Infrastructure Act requires to be made in the U.S.
Taken together, these acts have a depth and breadth that has never been approached before. Individual actions along these lines have been taken in the past, but nothing as sweeping or consequential as this. The funds appropriated in these acts must be carefully spent, carefully monitored and adhere to the goals set by Congress. But a question remains: What should be done to make this revolution long-lived and successful?
The following steps need to be adopted:
1) We should expand the CHIPS Act vertically and horizontally to cover such key areas as semiconductor packaging, substrates and circuit boards, and downstream products including computers and phones. In addition, the CHIPS Act structure could be utilized to build up other manufacturers where there are supply chain gaps.
2) Next, we must recognize that our country’s manufacturing losses are in part the result of there being no central executive function in the U.S. government dedicated to manufacturing. No one person or department manages manufacturing policy, akin to the role of the secretary of Agriculture for farming. There is no continuing review of the manufacturing sector to identify and correct problems. Where steps are taken by one Cabinet department or another, best practices are not shared or promulgated across the government. As such, we need a secretary of manufacturing to oversee this sector.
3) To build up the U.S. manufacturing workforce, we need a manufacturing-specific immigration visa. Millions of potential immigrants want to come here to work and, where they are qualified, we should let them work in manufacturing. The Bureau of Labor Statistics perennially reports about 1 million unfilled manufacturing jobs. U.S. manufacturing CEOs continually say their number one problem is finding enough workers. We need to put into effect a workforce solution that will solve this problem.
4) To assist start-ups and entrepreneurs in manufacturing, we should create a program that I would call MARCA (The Manufacturing Advanced Research and Commercialization Agency) at the Commerce Department that would develop and, where necessary, fund new manufacturing companies and ideas. This would be comparable to what DARPA (the Defense Advanced Research Projects Agency) and BARDA (The Biomedical Advanced Research and Development Authority) have done in their areas. MARCA would also promote and fund the commercialization of U.S. manufacturing inventions. Right now, many innovators and entrepreneurs have to go abroad to begin prototyping and early commercialization.
5) We need sustained ongoing funding and commitment to manufacturing, and one way to highlight this need and keep our eye on the ball is for Congress to undertake periodic passage of a “Factory Bill” similar to the process used for the Farm Bill and the Defense appropriations bill.
6) The U.S. trade representative and Commerce Department must develop a trade methodology to address outsize government subsidies given in competitor countries to their manufacturing industries. These cause enormous foreign build-up of capacity. In some years, just the growth in Chinese steel capacity, financed by the government, has exceeded the entire size of the U.S. steel industry.
7) We need to develop laws and regulations that limit U.S. companies from moving major plants to China (see Apple, Tesla and Hewlett-Packard, among many others). In addition to losing our trade secrets and other intellectual property, we lose the jobs and the wealth that these plants create.
8) We need to continue the China 301 tariffs. One benefit of these tariffs is that U. S. companies come to recognize that supply chains in China carry a serious risk of disruption, so they are building up supply chains in the United States or other allied countries. We need to promote such reshoring, near shoring and allied shoring. All these kinds of “shoring” are expensive, and the U.S. government needs to provide incentives to undertake them and disincentives to manufacturing abroad.
9) Finally, while all this is done, we need to ensure that industrial policy does not fetter the American imagination, entrepreneurship and research and development excellence. The MARCA (Manufacturing Advanced Research and Commercialization Agency) program referenced above will help on this. Without such market-based imaginative energy, many of our great manufacturing companies would never have been founded and new ones are much less likely to appear.
One last question is whether Congress, future presidents and the American voter will see the need, over the long term, to make investments in manufacturing. Rebuilding the strength of our battered manufacturing sector is not a one-year project, no matter how revolutionary that year might be. The fact that many government officials now express the critical link between manufacturing and national security may help to achieve the right answer to this question.
Gilbert B. Kaplan is a senior fellow and chairman of the advisory board at the Manufacturing Policy Initiative at Indiana University. He was formerly under-secretary for international trade at the U.S. Department of Commerce.