American confidence in the manufacturing industry is at a record high according to a poll from the National Association of Manufacturers. Nearly 90 percent of companies held a positive outlook for manufacturing, with just a fifth of the firms polled concerned about an unfavorable business climate. Thanks to President Trump’s tax cuts and deregulation, manufacturers are more confident in their prospects than ever.
They shouldn’t be.
It’s true that the long term effect of tax cuts will prove revolutionary to the growth of the American economy. While the individual tax cuts helped sell the Tax Cuts and Jobs Act to more of the electorate, the true bread and butter of the bill was slashing the corporate tax rate from an astronomical 35 percent to a globally competitive 21 percent. (Prior to the 2017 bill, the American corporate income tax rate surpassed that of every other OECD nation; now it’s nearly two percentage points lower than the world average corporate tax rate, making the nation more globally competitive than it’s been in a generation.)
But there are three major factors that would put the manufacturing industry on red alert. First, of course, is the matter of tariffs, namely a 25 percent tax on steel imports and ten percent on aluminum.
As an example, Canada, our largest source of both steel and aluminum imports, has imposed $300 million in retaliatory tariffs they imposed on the U.S. Consider, manufacturing companies wishing to come from Canada to America for our newly lowered corporate tax rate are being dissuaded by steel and aluminum tariffs. Although Trump has signed a slightly modified version of NAFTA in the USMCA, he still needs Congress to ratify it before our trade wars with Mexico and Canada end. With Rep. Nancy Pelosi, D-Calif., taking back the gavel in the House, nothing is a safe bet for Republicans anymore.
Even less promising is our progress in China. Although Trump and Chinese President Xi Jinping have agreed to hold off slapping each other with increased tariffs on New Year’s Day and Xi runs the risk of reducing the already slowing Chinese GDP by one percent if American trade relations don’t reopen, factory jobs are already hemorrhaging, in some cases fleeing across the Pacific.
GM and Ford, both hit hard by Trump’s tariffs, are shutting down multiple plants and firing thousands of Americans. The Tax Foundation anticipates that Trump’s tariffs, as is, will kill nearly 100,000 jobs. If Trump does amp up tariffs on China, they’ll kill nearly 300,000 jobs. The jobs that Trump thinks will return are just heading to countries like Vietnam instead.
In addition to our tariffs is the matter of our volatile financial markets.
People are betting that the economy is strong despite such weak, volatile markets. They are going to take a beating when they realize what a bubble looks like.
If our economic growth lasts through the summer, the last few years will have been the longest economic expansion since World War II. But with bubbles burgeoning in luxury housing and leveraged loans, we’re overdue for a crash. Our stock markets have become more volatile than emerging markets, and the Dow has plummeted to a 14 month low. Luckily the Fed is continuing to hike interest rates, so once the bubble does burst, we’ll at least have monetary policy to cushion the blow. But even so, frightened investors will harm manufacturing.
Finally, manufacturing firms face a crisis in hiring. Two-thirds of manufacturing companies fear a lack of qualified workers in the labor pool.
“As many as 2.4 million [jobs] could go unfilled if we don’t equip more Americans to take on these high-tech, high-paying careers,” said NAM President Jay Timmons. So long as states and the Education Department continue to ignore the nation’s growing need to expand and empower vocational education, the labor market supply will only become even more unsatisfactory for employers.
There’s no reason to panic about the economy yet, but manufacturers ought to hold their breath and the president’s feet to the fire on the trade war and vocational training.
