U.S. manufacturing benefiting from government subsidies

May 11, 2012

The resurgence of the U.S. manufacturing sector has occurred due to factors ranging from increased fuel costs to rising wages in China, but a significant reason for the recovery is related to government subsidies that help to stimulate growth in the industry.

The New York Times reported that a number of manufacturers that have weathered the worst of the recession did so with the help of the government, as subsidies allowed these companies to invest in new machinery and helped to increase the total amount of revenue for businesses in the sector.

According to the newspaper, many local manufacturers have noted the importance of these subsidies and the current administration has voiced its support for the sector while acknowledging the positive role that the government can play in its revival.

The increased support from the government has led to the sector becoming a more pivotal part of the country's total economy, as the share of the U.S. GDP that manufacturing comprises has risen from 11 percent in 2009 to 12.2 percent in 2011.

"Basically, manufacturers are realizing that the cost structure for making products in America no longer needs to be as unfavorable as it was," Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr, told the newspaper.

General Electric benefited from local tax breaks and increased its operations in several areas of the country, and Element Electronics became the first company to produce televisions in the U.S. in years due to subsidies from Uncle Sam.

Almost all categories of manufacturing in the U.S. receive some help from the government, with a few exceptions.

"The only manufacturers in America who go without government support are those whose markets are so insignificant that they are not noticed by foreign producers," Brian O’Shaughnessy, who is a co-chairman of the Coalition for a Prosperous America, a lobbying group that seeks to strengthen domestic production, told the Times.

The resurgence of the U.S. manufacturing sector has been supported by data presented at a  recent conference regarding the industry at the Massachusetts Institute of Technology, according to Supply Chain Digest.

Olivier de Weck, who has been leading a research project on U.S. manufacturing, noted that the innovative nature of the American sector has allowed it to surpass countries like Japan and increase the amount of value that is added by companies who operate domestically.