U.S. Manufacturers Face a 20% Cost Disadvantage versus Competitors

U.S. manufacturers face a significant disadvantage in doing business in the United States compared to global competitors, according to a new study conducted by The Manufacturers Alliance/MAPI and The Manufacturing Institute.

The 2011 Structural Costs of Manufacturing in the United States report, which compares the structural costs of manufacturing in the United States to those of its nine largest trading partners (Canada, China, France, Germany, Japan, Korea, Mexico, Taiwan, and the United Kingdom), reveals that U.S. manufacturers face a 20% structural cost disadvantage in the global market compared to manufacturers in those countries, up from 17.6% in 2008.

“The story of the structural cost gap boils down to two issues: healthcare and corporate taxes,” says Jeremy Leonard, author of the study and an economic consultant with MAPI. “We have the policy tools to deal with them, but lack the leadership to bring them under control. Absent structural costs, U.S. manufacturers are broadly competitive with their international peers thanks to the tireless efforts to innovate and become more efficient. It is up to the policymakers to step up to the plate to ensure a vibrant manufacturing sector in the years ahead.”

Leonard measured five key components to arrive at a trade-weighted average of structural costs: corporate tax burden; employee benefits; tort costs; pollution abatement compliance; and energy costs.

Chief among the barriers are the aforementioned corporate tax rates and employee benefits, especially healthcare costs. The trade-weighted foreign corporate tax advantage reached 8.6 percentage points in the 2011 study, a significant increase over the 2003 report when the gap was 5.6 percentage points, and higher than the 7.8 percentage points in the 2008 analysis. The employee benefits foreign advantage is 5.7 percentage points in the 2011 report, a marginal increase over the 5.5 percentage points in the original 2003 study, but well above the 3.6 percentage points in the 2008 analysis.

“This report tells an important story, one in which the White House and Congress should be very interested,” says Stephen Gold, president and CEO of MAPI. “While we recognize American manufacturers face a myriad of challenges from overseas, these data demonstrate that domestically imposed costs further undermine our ability to compete. We hear a great deal from policymakers these days about the need to bring manufacturing back to America, yet these challenges continue to undercut American manufacturing competitiveness.”

Emily DeRocco, president of The Manufacturing Institute, agrees. “While policymakers commend manufacturing for leading economic recovery by keeping businesses afloat and boosting exports, full recovery is made all the harder by this fundamental challenge,” she says. “U.S. manufacturers face a set of structural disadvantages that erode U.S. competitiveness and offset many of the productivity gains achieved through innovation and the relentless pursuit of efficiencies.”

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