Manufacturers love tax reform, loathe tariffs and fear labor shortage

Despite the positive momentum in U.S. manufacturing, there are two significant challenges facing the industry today: uncertainty over the potential impact of tariffs (both enacted and proposed) and the massive skills gap here in our country. 

According to a recent Thomas poll of U.S. manufacturing industry executives, the Tax Cuts & Jobs Act of 2017 is having a positive effect on the health of the industry. Over 63 percent of respondents stated that they expect the tax cut to have a positive impact on their manufacturing/industrial businesses.

{mosads}Forty percent stated that they would be hiring new employees, 42 percent will be raising salaries for existing employees, and 64 percent will be investing more into their business.

While it would be off the mark to attribute all of the industry’s present good fortune to the Tax Cuts & Jobs Act, it’s fair to deduce that the act is a significant driver behind the steady growth of the industry, the related increase in jobs and the acceleration of “reshoring” — bringing manufacturing projects back to U.S. suppliers.

We’ve spoken to hundreds of manufacturers within our client base, and they share that the introduction of tariffs has resulted in virtually all materials suppliers raising prices, regardless of whether or not they are directly impacted by the tariffs.

Ironically, material prices are cheaper now than they were 10 years ago for two of the biggest tariff targets: steel and aluminum.

These newly raised costs are getting passed down through the supply chain, with suppliers attempting to convince existing customers they must pay more, even in cases where a contract exists.

The result is a stalemate between buyer and supplier — the resolution of which comes down to whether the buyer needs the parts before the supplier needs the money. This is creating significant hiccups in what up until now has been a relatively smooth supply-chain process for the vast majority of the industry.

Over time, this can result in an erosion of predictability, even higher costs, slowed investments and an impact on jobs.

There’s no doubt that the strategic implementation of tariffs can have a positive effect on sectors of the U.S. economy, but unintended consequences are always a concern.

Ultimately the goal is equitable relationships with our global trading partners resulting in benefits for all sectors of our economy, and the recent negotiations between the U.S. and the European Union are an encouraging development. 

Despite the uncertainties surrounding the tariffs issue, the manufacturing sector continues to thrive. However, as it does, it is exacerbating the second challenge I mentioned earlier: the skills gap.

The growth of many companies, and U.S. manufacturing overall, is significantly hampered by the fact that there simply aren’t enough skilled workers to get the jobs done, and the problem is getting worse.

According to the Manufacturing Institute and Deloitte, the manufacturing industry faces a shortage of 2 million skilled workers by 2025. Unless something changes, this shortage will put a huge squeeze on the output capacity of U.S. manufacturers, and ultimately, work will end up going to suppliers in other countries.

While tariffs are being enacted due in part to what the White House deems to be a threat to national security, one could argue that a weakened capacity of U.S. manufacturing due to a labor shortage could be considered a far more serious threat to the security of our nation.

So, while congress is limited in what it can or can’t do in regard to the imposition of tariffs, there is much that congress can do to help address the skills gap challenge.

The recent bipartisan passage of the Carl D. Perkins Career and Technical Education (CTE) Act is a promising step toward increasing the quality of technical education here in the U.S. The proposed Apprenticeship Hubs Act of 2018 is a great example of public/private collaboration to encourage viable alternatives to four-year degrees.

As outlined in a recent piece on The Hill, the USA Workforce Tax Credit Act should serve as a strong incentive for individuals and businesses to invest in programs to narrow the skills gap. Our government needs to do more however, by enacting legislation that will help develop the talent for 21st-century manufacturing jobs.

Our country’s businesses are in a spending mode due in part to the tax cuts. This Congress can cement a powerful legacy by giving those businesses a reason to continue spending here in the U.S., through legislation that helps ensure that our manufacturers have the skilled workforce to handle the work, not just today, but for generations to come.

Tony Uphoff is the president and CEO of Thomas, which provides the platform, information and services that help buyers and suppliers run their businesses more effectively.