Federal legislative "Buy America" restrictions on certain recent government contractsâ¿¿ considered protectionist by many economists â¿¿ are also being credited with helping to spur some recent U.S. manufacturing gains.
The U.S. now makes about 18 percent of the world's goods, down from nearly 40 percent right after World War II. Clearly, many manufacturing jobs will never come back.
"The U.S. had manufacturing trade surpluses until around 1980 (but) has run big deficits since then," said Martin Baily, a Brookings Institution senior fellow and co-author of a new Brookings study of U.S. manufacturing.
The study showed that high trade deficits, especially with China, and high U.S. business tax rates are combining to keep U.S. manufacturing from rebounding more strongly.Manufacturing "still remains a very important sector and one that I think we need to foster and that needs to flourish," Baily said. "So we need to expand manufacturing in order to reduce that trade deficit. We can't just do it on services alone." Republicans have long clamored for lower corporate tax rates to stimulate business growth. At a nominal top rate of 35 percent, the U.S. has the highest corporate tax of the world's industrialized nations. While few U.S. companies actually pay the full rate due to various deductions and credits, U.S. tax bites dissuade foreign companies from setting up shop here while providing incentives to U.S. multinational companies to keep large sums overseas, Republicans argue. Obama largely agrees and has proposed lowering the top rate to 25 percent for manufacturers, even lower rates on income from still-undefined "advanced manufacturing" and 28 percent for all other corporations. Laura D. Tyson, who was President Bill Clinton's chief national economic adviser and served on Obama's Economic Recovery Advisory Board, said there are big barriers to getting a significant reduction in corporate rates. Among them: "The country desperately needs more tax revenues" and "there are huge vested interests" to protect existing loopholes, she said.