For USA TODAY NETWORK-WisconsinPublished 12:43 p.m. CT Jan. 15, 2020The manufacturing sector in the U.S. is in recession. Data released last week by the Institute for Supply Management showed that manufacturing activity has contracted for the fifth consecutive month, marking the worst performance since the depths of the Great Recession 10 years ago.
Here in Wisconsin the manufacturing recession is particularly palpable. Manufacturing accounts for over 15% of employment and nearly 20% of economic output. Employment in the sector has plunged in the past six months as demand for a range of manufactured goods has dried up. Indeed, in our business we laid off more than 10% of our employees late last year because we simply did not have enough orders to keep everyone busy.
Wisconsin manufacturers specialize in heavy equipment. Think tractors, mining equipment, engines — stuff that requires a lot of steel and aluminum. So, it may be especially surprising that Wisconsin manufacturers are not doing well even as President Trump has mounted a two-year campaign to protect the domestic metals and manufacturing industry through a host of trade barriers. The centerpiece of the president’s trade policy was a 25% tariff on imported steel and 10% on imported aluminum.
A groundbreaking paper published by the Federal Reserve last week confirms what many of us in manufacturing quietly suspected: Tariffs have hurt the very companies they were aimed to help. Only one of every six jobs in the metals industry is directly related to the primary production of metal — i.e. the people who melt raw materials and make new steel and aluminum. The other five jobs are related to using that metal to make things.
While a handful of primary metal producers benefited from trade protections, the rest of us further down the supply chain faced higher costs that hurt our competitiveness vs. rivals from countries that have lower metal costs.
But it’s about more than tariffs. It’s about uncertainty. From the vantage point of a small manufacturing business in Wisconsin, our national trade policy looks misguided and unreliable. It does not reflect how businesses actually make decisions. CEOs across America are increasingly worried about recession due to trade issues.
Businesses invest when they can calculate that they will earn a good financial return. A good investment project in our industry is one that returns 20% per year, which means that many good investments take five years or more just to recoup the initial cost. When uncertainty prevails, business investment seizes up.
The decline in business investment is a double whammy for Wisconsin. Like companies across the country, Wisconsin businesses have held back investments, which in turn reduces economic growth and employment. But even more importantly, when businesses invest, they buy precisely the types of capital goods that are our specialty here in Wisconsin: Air compressors, machines, cranes, turbines and the like.
Recession in the heavy manufacturing sector has dragged Wisconsin’s economic growth to among the slowest in the country.
So here we are, in the midst of the worst manufacturing environment of the past decade, not coincidentally following two years of the president trying to help us. Now we are seeing financial markets buoyed by headlines heralding a “Phase 1” trade deal with China, but details on what that means are scant other than that it has “great stuff in it.” The difficult realities of manufacturing in America have not materially changed.
If our aim is to create a better economy for American manufacturing, we must start by recognizing that the past two years of activity on trade policy has not meant progress. And we certainly should not celebrate the cessation of self-inflicted trade chaos as the end we were seeking