American manufacturers are longing to invest and create new jobs to fuel American growth but are being held back by costly regulations coming from Washington and uncertainty about what lies ahead, the head of the nation’s biggest manufacturing trade group said.
National Association of Manufacturers (NAM) President and CEO Jay Timmons said the regulatory burden that amounts to a $2.02 trillion charge on the U.S. economy was built up over several presidencies and by both parties, but Obama administration policies on taxes, health care and ozone and carbon emissions have only added to the problem.
“There’s a feeling in this country right now that nobody really knows where we’re headed on tax policy and regulation in particular, and so that tends to dampen the enthusiasm to invest,” Mr. Timmons told editors and reporters at The Washington Times.
“There are hundreds of billions of dollars, even trillions of dollars, that could be used for investment, that could be used for job creation,” he added. “But I think job creators are just kind of afraid to see what’s next.”
Asked if any of America’s trading partners could provide a model for the right mix of policies, Mr. Timmons answered, “Canada.”
“They’re doing a lot of things right,” he said, citing Canada’s more business-friendly tax policies and regulations promoting energy development. Many U.S. businesses are “relocating north of the border” because of the more welcoming business environment there, he said.
A recent NAM study estimated that the average regulatory compliance cost for U.S. manufacturers in 2012 totaled $19,564 per worker. For smaller manufacturers — those with 50 workers or fewer — the bill is even higher: $34,671 per worker, according to the study.
“We are the engine of the world economy, but the engine is sputtering a little bit,” Mr. Timmons said. “That engine could be purring if we got the policy right, not just for the short term but for the long term as well.”
The NAM CEO said he was not writing off progress in Washington over the next two years of sharply divided government, noting that, historically, significant progress on taxes and other policies has been made in periods when the White House is in one party’s hands and Congress is run by the other.
President Obama, he noted, has talked about working with Republican House and Senate majorities on issues such as tax reform and trade. Even if no breakthroughs are achieved in the next Congress, the debate could help set the agenda for both parties as they gear up for the 2016 presidential contest.
“There are some tough issues out there,” Mr. Timmons said. “Infrastructure is a tough issue, no question about that. Immigration [reform] is a tough issue. The regulatory onslaught is a tough issue. Tax reform is a tough issue. The big concern I have is the tendency of any elected official to avoid the really tough issues.
“But my hope is that they will begin to lay out an agenda for growth and opportunity that enables us to rally behind real pro-American policies.”
Paced in part by a strong rebound in auto production, the U.S. manufacturing sector is at its strongest point since the depths of the Great Recession in 2008. The Federal Reserve said this week that factory production rose 1.1 percent in November, while manufacturing output overall finally surpassed its prerecession peak. Manufacturers added 165,000 jobs in the first 11 months of the year, while factory capacity utilization reached 80.1 percent — the first time in 61/2 years the rate has topped 80 percent.
Mr. Timmons acknowledged the progress but said the growth could be far more impressive with better tax policies and a federal regulatory approach that fails to weigh properly the cost of regulations on manufacturers.
“I think we are coming back right now,” he said. “I sense when I talk to our CEOs across the country an amazing optimism. They desperately want to invest; they desperately want to hire more people. But they’re still afraid of what Washington might do next.”
“I can’t give you numbers about how many jobs will be created or how much money would be invested, but I can tell you the potential is enormous. There’s [corporate] money offshore that could be brought back. There are trillions of dollars ready to be invested, and not just in manufacturing. You can pick your sector.”
Fight over ozone
He cited as an example of the uncertainty the looming ozone regulations. The Environmental Protection Agency late last month released a long-delayed proposal for new rules to reduce smog, lowering the threshold for ozone emissions by power plants and factories from 75 parts per billion to between 65 to 70 parts per billion, with the possibility of setting an even lower ceiling of 60 parts per billion.
The 60-day comment period for the rule began Wednesday.
The EPA put the cost of full implementation by 2025 at between $3.9 billion and $15 billion, which it said would be more than offset by gains in health and worker productivity. EPA Administrator Gina McCarthy said critics of the rule were guilty of a “sky is falling” mentality, but Mr. Timmons said the rule, if implemented, would be the “most expensive regulation ever imposed.”
A NAM study estimated that the ozone rule by itself would cost $2.2 trillion for compliance and mean 2.9 million lost jobs by 2040. The group is backing a bill co-sponsored by Sen. John Thune, South Dakota Republican, that says the EPA would not be able to implement any reduction in the standard until 85 percent of the nation’s counties currently catch up to the previous standard issued in 2008.
Although likely to find a more sympathetic ear on Capitol Hill on issues ranging from the Keystone pipeline to the National Labor Relations Board, the manufacturers’ group may find itself clashing on specific issues with at least some factions in the new Republican majorities in the House and Senate.
Mr. Timmons said the NAM has supported a comprehensive immigration bill that would include a path to citizenship for some illegal immigrants, worked for the extension of a number of tax credits and subsidies targeted by the tea party and fiscal conservatives and strongly backs the U.S. Export-Import Bank, whose reauthorization was nearly blocked by House Republicans this fall.
He defended the Ex-Im Bank as a boon not just to big manufacturers but to their much more numerous small suppliers, arguing the U.S. can’t unilaterally disarm when nearly five dozen other countries provide similar export financing support for their companies.
“Already some deals are not going through because some countries are dubious that the U.S. will honor its commitments,” he said. “The orders will go elsewhere.”
On one big issue, Mr. Timmons said, there may be room for bipartisan action: the need for more skilled, technically trained American workers to fill the jobs in today’s modern factories. The NAM and its members are already partnering with universities, community colleges and even high schools to try to close the gap.
“We have a skills gap,” Mr. Timmons said, noting that today’s high-tech factories and machine shops are nothing like the plants of even a generation ago. “There are an estimated 600,000 jobs we can’t fill. I hear it from every CEO I talk to.”
Manufacturing companies “need the technocrats. We need the folks that help us innovate, design and maintain the machines to assemble whatever the product is.”