Due to a confluence of technology, existing infrastructure, workforce, rule of law and markets, America is on the verge of a massive manufacturing boom that will boost domestic energy demand while adding jobs and lifting incomes.
The fuel for this coming boom is simple: the repatriation of potentially trillions of dollars in overseas assets, currently forced offshore by high corporate tax rates, much of which will fund investments in automation.
U.S. Treasury Secretary-nominee Steven Mnuchin aims to cut the 35 percent corporate tax rate, the second-highest in the world after the United Arab Emirates, to 15 percent, while imposing a one-time 10 percent repatriation tax on returned overseas cash. This change in tax policy will “…bring huge amounts of jobs back to the United States,” Mnuchin said, almost doubling economic growth from the anemic levels of recent years to up to 4 percent.
Tax cuts, accompanied by regulatory reform—President-elect Trump has promised to eliminate two regulations for every new one imposed—will put American capital back to work in ways not seen in a generation. And, because, relative to the rest of the world, America has stronger rule of law, less political risk, and a better workforce, that repatriated money is likely going to be invested in capital. Lastly, due to recent advances in automation, much of that capital investment will end up powering huge increases in both productivity and manufacturing.
Manufacturing as a share of real GDP in America has hovered around 12 percent since 1960, even as manufacturing’s share of employment has dropped by about a quarter due to a steady increase in productivity. But, what if corporate America brings even half of the more than $2 trillion it has stashed overseas and invests it at home under more favorable tax treatment?
It will be huge.
To put things into perspective, corporate America has about $15 trillion in fixed assets such as factories, office buildings, machines and software. Small businesses add another $10 trillion. A trillion dollars invested in new manufacturing capital would boost the economy with sustainable private sector jobs while improving the standard of living.
A second-order effect of this coming manufacturing boom will be seen in the energy sector. The U.S. industrial sector directly consumes about 21 percent of the energy used in the U.S., this rises to 31 percent when electricity consumption is included.
Due largely to the incredible increases in oil and gas production driven by advanced fracking techniques, America produces 91 percent of its energy needs. But, if manufacturing output increases by 20 percent, even with energy-efficient machines, the nation is likely to see energy consumption rise about 6 percent above current projections with most of the demand in coal for electricity, heating and coking and in natural gas for electricity, heating and feedstock for chemicals. Most of this additional demand should be readily met by domestic energy sources.
As a result of these new, pro-growth policies, the joint Texas Public Policy Foundation / Heritage Foundation event “At the Crossroads: Energy and Climate Policy Summit” on December 8 in Washington, D.C. will benefit from intense interest. The summit will feature influential policymakers and industry experts who will discuss energy and climate policy in the wake of the 2016 elections.
Chuck DeVore is vice president of national initiatives at the Texas Public Policy Foundation and was a California State Assemblyman from 2004 to 2010.