A new day for U.S. manufacturing

Robert L. Ehrlich Jr. says America, which never lost its high-tech dominance, is now seeing a jobs boom in natural gas

May 05, 2013|Robert L. Ehrlich Jr

Remember the 1980s? It was to be the decade of Japanese dominance. A post-Jimmy Carter America would be unable to compete with the efficient Japanese jobs machine. Aging technology, lazy management and high-cost labor would ensure America's rapid demise at the hands of the ascendant Asian economic superpower.

History records a very different evolution, however, including a prolonged economic slump that continues to haunt the Japanese economy to this day.

At the onset of a new millennium, many pundits predicted it would be the Chinese who would dislodge America from its dominant economic perch. Media reports highlighted China's hyper-aggressive economic development efforts. Thousands of high-tech, low-cost factories began to spring up in and around major Chinese cities. The Chinese government's determination to leverage, copy and profit from western technology became legendary.

Again, the experts predicted a rapidly diminishing role for American manufacturing. The rationale was convincing: America could not compete with cheap Chinese labor and widespread government subsidization of the Chinese economy. Our trade imbalance reflected the expert opinion: America's trade deficit with China in manufactured and agricultural products skyrocketed from $69 billion to $268 billion between 1999 and 2008.

Labor-intensive, high-cost U.S. manufacturing continued its downward spiral. Many elected officials lived the harsh reality of this new competition. As a Second District congressman, I saw (and fought) the impact that cheap foreign steel imports had on Sparrows Point. Many other members of the "Congressional Steel Caucus" shared similar experiences.

Diminished steel production was only one example of America's industrial demise. Many thought American industry would never recover its manufacturing mojo. A service-oriented economy would be our future; just too many cost factors to compete with a low-tech world.

But lost among all the negativity was an irrefutable fact: American brains and entrepreneurial prowess could compete and win in the higher-technology space. Microsoft, Intel and Apple are no accident. America's skilled workforce and private sector innovation will always be a trump card — and represent an important leg up against less-entrepreneurial economies.

And then along came shale gas and an energy bonanza for the American economy. Shale formations contain large reserves of oil and natural gas. And the largest deposits are in Pennsylvania, New York, Ohio, West Virginia and North Dakota — Rust Belt venues desperately in need of industrial revitalization.

This energy revolution has increased U.S. oil production to its highest level in 14 years and generated a major glut in natural gas. Result? Sustained, low domestic energy prices that (again) make it economically viable to build factories in the good ol' USA.

With low energy costs comes additional direct foreign and domestic investment. Hence, business headlines today include stories of manufacturers setting up shop (and new factories) to better access cheap energy:

•Royal Dutch Shell has announced plans to build a $2 billion petrochemical plant (worth 10,000 jobs) in western Pennsylvania.

•Allegheny Technologies is spending $1.1 billion on a brand new specialty steel mill in Brackenridge, Pa.

•A chemical firm (Methanex) is dismantling a Chile-based factory and moving it to Louisiana to take advantage of low energy prices.

•The shuttered steel town of Youngstown, Ohio, is the site of a new $650 million seamless pipe manufacturing plant (worth 350 jobs) supplying the hydraulic fracturing ("fracking") revolution.

•Chevron, Dow Chemical, Formosa Plastics and Occidental Petroleum are retrofitting or building chemical plants on the Gulf Coast.

Simply put, shale gas is generating a revolution in capital investment. Annual capital expenditures for new energy technology are expected to be $172.5 billion by 2020. Another collateral result: 3 million new (mostly industrial) jobs within the next six years, with over $400 billion of economic impact.

Of course, the challenges of finding skilled domestic labor, continued competition from cheap foreign labor, congressional opposition to additional free trade pacts, and tougher stands on currency manipulators (a point stressed by the Romney campaign in 2012) remain primary barriers to a wholesale rejuvenation of American manufacturing.

And then there is the ever-present proclivity of government to (over-) regulate and (over-) tax productive activities. With regard to shale gas, however, at least to this point in time, the feds have allowed the states to regulate most aspects of fracking. State regulators should continue to lead the way: They possess plenty of incentive to protect their home environment while supervising this vitally important technology.

America's intellectual capital and a shale gas revolution are rejuvenating our industrial infrastructure. We may not revisit the halcyon days of the 1950s, but Americans should never lose sight of our considerable advantages when competing against the world.

Robert L. Ehrlich Jr.'s column appears Sundays. The former Maryland governor and member of Congress is a partner at the law firm King & Spalding and the author of "Turn this Car Around," a book about national politics. His email is ehrlichcolumn@gmail.com.

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