Manufacturing forecast: Executive summary
The following is the executive summary of the new report commissioned by MAPI and The Aspen Institute on how policy changes could affect manufacturing in the coming decade:
The Aspen Institute’s program on Manufacturing and Society in the 21st Century and MAPI commissioned an econometric forecast to determine how the U.S. economy would change if it were to achieve the manufacturing resurgence which has been widely touted in recent years. The importance of such a resurgence is that it very well could lead to higher growth over time, higher standards of living, and a reduction or reversal of the chronic balance of payments deficit which is shifting resources outside the country.
Achieving this result, the modeling shows, requires certain policy choices which are not radically different from current trends. The University of Maryland’s Interindustry Forecasting Project (Inforum) was commissioned to make projections based on a target of moving manufacturing’s share of GDP back to the level last seen in 1998 (around 15%), before the “dot-com” recession and the Great Recession. Various scenarios were also tested to determine what economic trends could power such a change. Finally, policy levers which could support the trend were outlined.
Results were projected to 2025. With the right policies in place, the manufacturing share of value added in the resurgence scenario grew to 15.8% of GDP, compared to 11.6% in 2012 and 11.1% in 2025 under a “business as usual” baseline forecast. Under the resurgence scenario, real manufacturing output is over $1.5 trillion higher than in the baseline scenario, and overall GDP grows by a similar magnitude. To achieve such a growth path, investment in equipment and software is 12.1% higher in 2025 relative to the baseline, and the mining sector (driven by the natural gas boom) gains 1% of GDP (over $300 billion in output). Other major sectors of the economy are necessarily smaller under the resurgence scenario. Personal consumption expenditures, notably, are over 3.2% lower in the resurgence scenario, signaling a shift in the economy toward investment and goods production for export and away from domestic consumption. Due to higher productivity in services, in turn partially powered by gains derived from new manufacturing processes and products, the services sector loses some relative share of total GDP. Government services also loses about 2.2% of its share of GDP. Services and government do not decline in real terms, but grow more slowly than manufacturing.
Two other significant changes under the resurgence scenario are the creation of about 3.7 million new jobs directly in manufacturing, when compared to the baseline, and a reversal of the trade deficit in manufacturing. Direct employment in manufacturing rises to a level of over 16.3 million jobs, compared to 12.3 million in 2012 and about 17.6 million in 1998. Exports grow significantly faster than imports in the resurgence scenario, reaching a positive trade balance by 2024. Exports grow at an annual rate of 8.1percent in our resurgence scenario, while imports grow at 2.5%. Growth in exports is driven by energy-intensive industries, such as chemicals, plastics, fabricated metals, and steel; and capital goods, such as computers, engines, turbines, and power equipment, aerospace equipment, and industrial products. Semiconductors and pharmaceuticals also grow faster than average exports.
Major policy directions which could support achievement of the resurgence scenario are:
- Trade Policy: complete more trade-opening agreements, such as the current negotiations with Asia and Europe; combat “competitive currency devaluations”; and work to achieve global macroeconomic stability.
- Energy Policy: sustain current energy boom in oil and gas production; improve electric grid to allow development of new sources of power generation, such as wind and solar; support more efficient use of energy through conservation efforts.
- Regulatory Policy: reduce overlapping and layered regulations through regulatory forbearance, elimination of duplicative regulations, and more rigorous review of costs and impacts of new regulations; and use trade negotiations to reduce costs of and impediments to trade by converging or harmonizing regulations.
- Manufacturing Labor Force: improve K-12 performance, including science, technology, engineering, and mathematics (STEM) education; develop nationally recognized skills certification programs and certificates; expand and improve apprenticeship and vocational education programs; encourage entry of non-traditional demographic groups to manufacturing positions and skills; reduce barriers to entry in professional fields related to manufacturing; and reform immigration to support permanent work status for skilled workers, engineers, and research personnel.
- Tax Policy: Reduce corporate taxes to OECD average levels; adopt territorial tax regimes; expand and improve R&E tax credit and investment expensing options; and exercise care in any tax reform not to burden “pass-through” firms with new tax obligations on top of the personal income tax increases adopted in 2013.
- Basic and Applied Research: Expand federal support for basic and applied research applied research in fields important to manufacturing, i.e., engineering, mathematics, and physical sciences.