It seems that just about every week, some politician preaches a sermon about the predatory nature of foreign manufacturers. In past decades―and even during the Bush administration’s first term―the collective response out of Washington was to raise tariffs to “protect” domestic manufacturers from “unfair” foreign competition.
Unfortunately, this sort of activity imposes a new tax―by raising prices―on just about every other organization who is not the beneficiary of the protectionist policy. By disallowing free trade, politicians are, in effect, sacrificing the collective benefits of open markets (greater economic opportunity for all, lower prices, lower taxes, etc.) for selective, politically motivated handouts. The feds are also decreasing the future competitiveness of the U.S. economy by lowering overall GDP and their own future tax intake (due to reduced manufacturing profits, slimmer payrolls, greater unemployment, etc.)
Hence, if looked at from an economic perspective, the government “investment” in most tariffs is a poor and irrational decision. It’s one that sacrifices future growth and tax revenue for short-term political gain.
But that’s not to say that our government should sit idle, while U.S. manufacturers become less competitive in the world market. We believe that there are a number of places for. the federal and state governments to make rational investment decisions in manufacturing that benefit our overall economy and way of life. But most important, these returns should be measurable.
The Manufacturing Extension Partnership (MEP), which falls under the Department of Commerce, is a perfect example of a federal and state funded program (which also receives private dollars) that has had a material impact improving the quality and competitiveness of domestic manufacturers. The MEP provides funding to a number of regional public-private partnerships which in turn, have saved manufacturers $686 million in costs while garnering $1.5 billion in new sales.
One of the regional partnerships is the Chicago Manufacturing Center (CMC). The CMC assists manufacturers in the greater Chicago area to become more competitive in a global market. According to its mission statement, the CMC is “dedicated to improving the competitiveness of small and mid-sized manufacturers’’. The CMC is a public-private partnership that receives funding from the federal government, the state of Illinois, the City of Chicago, and a number of private corporations and foundations.
The CMC has had tremendous impact by bringing expertise―including lean manufacturing techniques and processes—to regional manufacturers who otherwise would not have exposure to leading practices that can permanently reduce the costs and working capital required to run a small to medium sized manufacturing organization. In one case, the CMC helped redesign production processes for a candy producer, helping them fend off overseas competition (and enabling them to beat their offshore competitor’s pricing by 50%). In another case, the CMC helped a manufacturer of table linens reduce its average order turnaround time from three weeks to three days by implementing a Pull/Kanban operations approach.
The CMC is also focused on improving the quality of local manufacturers. It helped a precision metal stamping manufacturer to become ISO certified, which increased its capacity to such a level that it enabled them to add fifteen new employees and $1.5 million in revenue. In fact, every organization who has applied for ISO certification under the CMC’s advisement and council passed its certification audit the first time
The impact that federally supported organizations like the CMC can have on manufacturers is exceptional. The success of MEP and the organizations it supports like the CMC proves, once and for all, that federal and state dollars can go to programs which have material and lasting impact. So next time you hear a politician beating the tariff drum, remind them that there are far better ways to support and protect the manufacturing economy in the U.S.