Kurt R. Bauer
Updated March 2023
Wisconsin Congressman Mike Gallagher is chairing the U.S. House Select Committee on China. That committee met for the first time on February 28. The discussions about the threats posed by China to the U.S. economy and national security inspired me to dust off and update a column on wrote two years ago addressing many of the issues Chairman Gallagher plans to discuss in his committee.
China quietly dethroned the U.S. as the world’s top manufacturing nation in 2010. That should make Americans nervous, especially after 2020 when we realized that the U.S. is dependent on nations like China for the production of medical supplies needed to mitigate a global pandemic, including personal protective equipment and pharmaceuticals.
There are many lessons to be learned from COVID-19, first among them is that China has been unmasked as untrustworthy given their lack of cooperation with other nations about the origins and severity of the novo coronavirus. But what American policymakers should really be concerned about is China’s threat back in the spring of 2020 to cut off the export of needed medicines, many of which were developed in the U.S., because they were angry at President Trump for referring to the virus after Wuhan, the city in China where COVID-19 was first detected. (U.S. intelligence sources now believe COVID-19 did, in fact, originate from the Wuhan Institute of Virology.)
Whatever your opinion on what COVID-19 should be called, the point is that the U.S. was unprepared for the public health crisis and therefore dependent on foreign sources for critically needed supplies. And we know there are similar vulnerabilities that exist in the U.S. manufacturing supply chain, many with national security implications. One example is semiconductors and microchips. Another is that the U.S. is nearly completely dependent on China for the supply of rare earth minerals, cobalt and lithium used to manufacture high tech electronics, solar panels and batteries used for electric vehicles.
The solution to this problem is actually quite simple; the U.S. should adopt policies on energy (and other natural resources), immigration and taxation that incentivize the re-shoring of critical manufacturing, especially from China.
The U.S. lost thousands of manufacturing jobs to overseas competitors, notably in Asia, over the last several decades for a variety of reasons, including high production costs in the U.S., especially energy and labor, as well as the proximity to growing markets.
But just as it was once cheaper to manufacture a product in Asia and ship it to America, it can now be competitive to make it in America and ship it to Asia, if we have the political will to embrace key advantages. But to do so, the Biden Administration must first adjust its mindset and recognize that the existential threat we face as a nation is from China and its clear intention to displace the U.S. as the world’s premiere superpower. And as COVID-19 should have taught us, China doesn’t play fair.
But, as alluded to, the U.S. has enviable advantages that can create a true manufacturing renaissance with all the economic benefits and job growth that comes with it.
The first advantage is energy and its importance can’t be overstated. The number two cost of doing business for most manufacturers is energy (for some it is the number one cost) and many Wisconsin companies pay monthly electricity bills in the seven or even eight figures.
But thanks to hydraulic fracturing technology, the U.S. can now affordably tap into an abundant domestic supply of oil and natural gas extracted from shale deposits. As a result, the U.S. has a massive competitive advantage on energy over our economic competitors and geo-political rivals, including China. That advantage should be utilized fully to expand the U.S. manufacturing sector.
Unfortunately, the Biden Administration has taken ill-advised steps to squander this opportunity. Biden promotes renewable energy like wind and solar, which is fine, as long as there is a clear understanding of their limitations, particularly here in Wisconsin where the sun and wind are intermittent, but demand for energy is constant.
As a candidate for President, Biden pledged that he wouldn’t prohibit fracking. Instead, Biden said he would use domestic oil and gas as a “bridge fuel” until technological advancements allow renewables sources to match the reliability, affordability, generation capability and storability of fossil fuels. Biden kind of reiterated that point during his 2023 State of the Union Address when he said the U.S. will need fossil fuels for another decade. In fact, the U.S. will need them for longer than that, but the point is that Biden rightly recognizes that so-called “green” energy can’t currently replace baseload energy generated from fossil fuels.
As a result, Biden should reverse course on actions meant to thwart the investment, exploration, extraction and transport of fossil fuels. He should do the same thing on mining as well. In February, the Biden Administration blocked development of the Twin Metals mine in Minnesota, which could have produced many of the minerals and metals the U.S. currently buys from China.
Another advantage the U.S. has is workforce. That may sound confusing given the well-documented worker shortage plaguing Wisconsin and many other states, particularly in the Midwest.
It is true there is a national labor shortage in manufacturing and most other sectors as well. In fact, pre-COVID-19, there were 600,000 unfilled manufacturing jobs of various skill levels in the U.S., and Deloitte estimates that 2.4 million factory jobs could go unfilled by 2028. Here in Wisconsin, WMC conservatively estimates that there are at least 40,000 open manufacturing jobs.
So why is this an advantage? Because we are America and can attract the world’s best and brightest workers, as we always have, if our immigration policies are adjusted to allow it. We can start by reforming H-1B Visas, which are for people with specialized skills, like engineering. In 1990, Congress limited the number of H-1B Visas to just 65,000 per year. That needs to change in order to keep foreigners who earned a degree here and want to stay, or to attract people who what to contribute to our economy and society.
Another problem the U.S. can turn into an advantage is our tax code. Former U.S. House Speaker Paul Ryan and President Trump dropped the corporate rate from an uncompetitive 35 percent to 21 percent, which is lower than the global average. President Biden has proposed raising it, but he should consider another approach. Wisconsin has a game-changing manufacturers’ tax credit designed to reward production and high-paying factory jobs in our state. Something similar at the national level could be a powerful added incentive to re-shore. At minimum, the U.S. should match the R&D tax deductions China gives its manufacturers to encourage investment in innovation.
Biden should also ease up on the torrent of regulations he is piling on American businesses, including manufacturers. U.S. businesses now spend $2 trillion per year on regulatory compliance, or about 8 percent of GDP, according to the Competitive Enterprise Institute.
The bottom line is that the U.S. can control our destiny if we take a few simple steps in the right direction. But it all starts by understanding the true existential threat we face is from an increasingly belligerent China.
Kurt R. Bauer is the President and CEO of Wisconsin Manufacturers and Commerce, the state’s largest business organization.