US manufacturers are stuck in a rut despite subsidies from Biden and protection from Trump

San Francisco Chronicle​

11 hours ago

WASHINGTON (AP) — Democrats and Republicans don't agree on much, but they share a conviction that the government should help American manufacturers, one way or another.
Democratic President Joe Biden handed out subsidies to chipmakers and electric vehicle manufacturers. Republican President Donald Trump is building a wall of import taxes — tariffs — around the U.S. economy to protect domestic industry from foreign competition.
Yet American manufacturing has been stuck in a rut for nearly three years. And it remains to be seen whether the trend will reverse itself.
The U.S. Labor Department reports that American factories shed 7,000 jobs in June for the second month in a row. Manufacturing employment is on track to drop for the third straight year.
The Institute for Supply Management, an association of purchasing managers, reported that manufacturing activity in the United States shrank in June for the fourth straight month. In fact, U.S. factories have been in decline for 30 of the 32 months since October 2022, according to ISM.
'The past three years have been a real slog for manufacturing,'' said Eric Hagopian, CEO of Pilot Precision Products, a maker of industrial cutting tools in South Deerfield, Massachusetts. 'We didn't get destroyed like we did in the recession of 2008. But we've been in this stagnant, sort of stationary environment.''
Big economic factors contributed to the slowdown: A surge in inflation, arising from the unexpectedly strong economic recovery from COVID-19, raised factory expenses and prompted the Federal Reserve to raise interest rates 11 times in 2022 and 2023. The higher borrowing costs added to the strain.
Government policy was meant to help.
Biden's tax incentives for semiconductor and clean energy production triggered a factory-building boom – investment in manufacturing facilities more than tripled from April 2021 through October 2024 – that seemed to herald a coming surge in factory production and hiring. Eventually anyway.
But the factory investment spree has faded as the incoming Trump administration launched trade wars and, working with Congress, ended Biden's subsidies for green energy. Now, predicts Mark Zandi, chief economist at Moody's Analytics, 'manufacturing production will continue to flatline.'
'If production is flat, that suggests manufacturing employment will continue to slide,' Zandi said. 'Manufacturing is likely to suffer a recession in the coming year.''
Meanwhile, Trump is attempting to protect U.S. manufacturers — and to coax factories to relocate and produce in America — by imposing tariffs on goods made overseas. He slapped 50% taxes on steel and aluminum, 25% on autos and auto parts, 10% on many other imports.
In some ways, Trump's tariffs can give U.S. factories an edge. Chris Zuzick, vice president at Waukesha Metal Products, said the Sussex, Wisconsin-based manufacturer is facing stiff competition for a big contract in Texas. A foreign company offers much lower prices. But 'when you throw the tariff on, it gets us closer,'' Zuzick said. 'So that's definitely a situation where it's beneficial.''
But American factories import and use foreign products, too – machinery, chemicals, raw materials like steel and aluminum. Taxing those inputs can drive up costs and make U.S producers less competitive in world markets.
Consider steel. Trump's tariffs don't just make imported steel more expensive. By putting the foreign competition at a disadvantage, the tariffs allow U.S. steelmakers to raise prices – and they have. U.S.-made steel was priced at $960 per metric ton as of June 23, more than double the world export price of $440 per ton, according to industry monitor SteelBenchmarker.
In fact, U.S. steel prices are so high that Pilot Precision Products has continued to buy the steel it needs from suppliers in Austria and France — and pay Trump's tariff.
Trump has also created considerable uncertainty by repeatedly tweaking and rescheduling his tariffs. Just before new import taxes were set to take effect on dozens of countries on July 9, for example, the president pushed the deadline back to Aug. 1 to allow more time for negotiation with U.S. trading partners.
The flipflops have left factories, suppliers and customers bewildered about where things stand. Manufacturers voiced their complaints in the ISM survey: 'Customers do not want to make commitments in the wake of massive tariff uncertainty,'' a fabricated metal products company said.
'Tariffs continue to cause confusion and uncertainty for long-term procurement decisions,'' added a computer and electronics firm. 'The situation remains too volatile to firmly put such plans into place.''
Some may argue that things aren't necessarily bad for U.S. manufacturing; they've just returned to normal after a pandemic-related bust and boom.
Factories slashed nearly 1.4 million jobs in March and April 2020 when COVID-19 forced many businesses to shut down and Americans to stay home. Then a funny thing happened: American consumers, cooped up and flush with COVID relief checks from the government, went on a spending spree, snapping up manufactured goods like air fryers, patio furniture and exercise machines.
Suddenly, factories were scrambling to keep up. They brought back the workers they laid off – and then some. Factories added 379,000 jobs in 2021 — the most since 1994 — and then tacked on another 357,000 in 2022.
But in 2023, factory hiring stopped growing and began backtracking as the economy returned to something closer to the pre-pandemic normal.
In the end, it was a wash. Factory payrolls last month came to 12.75 million, almost exactly where they stood in February 2020 (12.74 million) just before COVID slammed the economy.
'It's a long, strange trip to get back to where we started,'' said Jared Bernstein, chair of Biden's White House Council of Economic Advisers.
Zuzick at Waukesha Metal Products said that it will take time to see if Trump's tariffs succeed in bringing factories back to America.
'The fact is that manufacturing doesn't turn on a dime,'' he said. 'It takes time to switch gears.''
Hagopian at Pilot Precision is hopeful that tax breaks in Trump's One Big Beautiful Bill will help American manufacturing regain momentum.
'There may be light at the end of the tunnel that may not be a locomotive bearing down,'' he said.
For now, manufacturers are likely to delay big decisions on investing or bringing on new workers until they see where Trump's tariffs settle and what impact they have on the economy, said Ned Hill, professor emeritus in economic development at Ohio State University.
'With all this uncertainty about what the rest of the year is going to look like,'' he said, 'there's a hesitancy to hire people just to lay them off in the near future.''
'Everyone,'' said Zuzick at Waukesha Metal Products, 'is kind of just waiting for the new normal.''