Though his tariffs are likely to do more harm than good, President Trump’s motivation to help American manufacturing is actually well-founded.
As in all advanced economies, employment and output in the United States have long been shifting from goods to services, but a strong manufacturing sector remains critical. Not only is manufacturing a source of higher-paying jobs, it also contributes disproportionately to the nation’s research and development, as well as capital investment, and thereby, to productivity.
There is, however, a much better way to help America’s manufacturers than badly targeted tariffs, one sitting right under our noses: Expand the Manufacturing Extension Partnership, a small agency within the Commerce Department with centers in every state.
The MEP is one of the greatest little agencies you’ve never heard of, with a long and storied track record of helping tens of thousands of small, American manufacturers in ways that have made a real difference to their communities. And it has done so with a huge bang for the buck.
The MEP provides consulting services with low and flexible cost-sharing to small- and medium-sized manufacturers (with fewer than 500 workers, typically much fewer). Its experts focus on finding new efficiencies through overlooked innovations, cost savings through process improvements, workforce training, and linking firms to domestic and even international supply chains.
Unfortunately, in a misguided act of mindless budget cutting, the Trump administration proposes to shut down the MEP. I’m certain neither the president nor anyone around him knows much about this highly effective public/private partnership, but he and his trade advisers should take a closer look.
While targeted tariffs on imported goods sold below cost (aka dumping) can be helpful to import-competing industries, Trump’s approach will likely backfire for the simple reason that many more U.S. workers are employed in places where steel and aluminum are used, not made. Instead, what’s needed is an effort to ensure that our smaller manufacturers can produce most effectively and expand their reach.
That’s what the MEP does. Probably the best way to understand the agency—whose budget came to $130 million last year, or 0.003 percent of government spending—is to look at some examples of their recent work.
The agency has been particularly active in Pennsylvania:
- When Merit Metal, which makes the presidential eagles on the flagpoles in the Oval Office (now there’s a slice of Americana), added an 8,000-squar-foot extension to its Warrington plant, it consulted with the MEP to help reorganize the layout. By improving the flow of parts and materials, the company reduced inventory, cut costs, raised sales (by $156,000), and retained jobs. “We got things done that we wouldn’t have had the resources to do,” Adam Stefanowicz, Merit’s president, said recently. “Our company had great results.”
- When Quality Mould, Inc., a custom-molding firm in Latrobe, lost most of its business to overseas competition, the MEP helped the company set up a new $2 million facility enabling it to expand into other markets while preserving 30 jobs.
- Industrial battery producer Philadelphia Scientific sought MEP assistance to manage the process of upgrading its software. As the VP for finance, Michael Carr, put it: “If you don’t have in-house IT people, you badly need the guidance of an objective consultant with no vested interest.”
The MEP has helped small manufacturers outside metro areas overcome broadband disadvantages, develop new product lines, set up apprenticeship programs, and link domestic producers previously dependent on imports.
According to a recent study by the nonpartisan Congressional Research Service, the MEP served more than 25,000 small and mid-sized manufacturers in 2016. These firms “reported $9.3 billion in new and retained sales, $1.4 billion in cost savings, $3.4 billion in new client investment, [and] the creation and retention of 86,602 jobs.”
Economist Tim Bartik of the Upjohn Institute has done some of the most careful, recent analysis of the MEP and found the agency to be an efficient way to help smaller manufacturers to gain a foothold, especially compared with other forms of economic development. “The MEP is at least six times more cost-effective than typical tax-incentive programs in creating jobs for local communities. For example, since 2007, manufacturing extension is estimated to have created or retained over 5,000 jobs in the Lehigh Valley area.”
Remember, these achievements come out of the MEP’s budget of $130 million. I challenge anyone to come up with another government agency that punches that far above its weight. And yet, Trump’s most recent budget proposes to slash the MEP’s funding to $5 million for an “orderly wind-down.”
Instead, what’s called for is a wind-up, an expansion of the agency’s budget so that the MEP can support more centers across the country and help more small and mid-sized manufacturers increase sales, scope, investment, and jobs.
I’d recommend initially doubling its budget, with an emphasis on reaching areas that remain left behind, even as the rest of the economy reaches full employment (Bartik calls for a four-fold increase).
Instead of scattershot tariffs that may, or more likely won’t, hit their targets, let’s invest in the much more focused business of helping our manufacturers and their communities grow and prosper.
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities. He was chief economist to Vice President Joe Biden and a member of President Barack Obama’s economics team.