Dan DiMicco: Why 'American Made' is the Answer

Healthcare. Greenhouse gases. The deficit and taxes. There has been no shortage of domestic issues taking the spotlight in recent years.

But Dan DiMicco, former CEO and chairman emeritus of steelmaker Nucor (IW 500/64) and a 2011 inductee to the IW Manufacturing Hall of Fame, says those issues, while important, distracted U.S. leaders from focusing on the most important issue facing America – an economic crisis caused by a lack of jobs.

In his new book, American Made: Why Making Things Will Return Us to Greatness (Macmillan, 2015), DiMicco argues there is one number the country should keep in its sights.

“The number we need to focus on first and foremost is 30 million. That’s the number of jobs I believe the country needs to create by 2025 in order to close the federal government’s budget deficit and begin reducing the nation’s unfunded entitlement liabilities.”

In a recent interview, DiMicco told IndustryWeek that the jobs problem extends well before the Great Recession, that our political leaders “never truly identified how serious the job problem was,” and that failure to focus on the correct problem has caused an economic hangover that continues nearly 6 years since the recession ended.

“We have an average of 2.2% growth in GDP,” notes DiMicco. “That is terrible, absolutely terrible.” In American Made, he points out that the difference between a 2% GDP rise and 4% over the next 10 years is $3 trillion in economic activity.

Comparing the last 83 months to the 1980 recession, DiMicco says the United States is 12 million jobs shy of what was created in the previous economic downturn. He points out that the U.S. needs to create 135,000 jobs every month just to meet the demands of new workers entering the job market.

Especially damaging, says DiMicco, has been the massive loss of manufacturing jobs in the U.S. – more than 5 million gone since 2000. The boom in service jobs, he argues, won’t maintain a prosperous middle class.

“In practice, it means a North Carolina textile worker who a few years ago made $15 an hour sewing blankets at a mill is now making $10 an hour as a cook at a county jail,” he writes in American Made.

Trading Away Manufacturing

Despite an increase in goods exports of $42.3 billion in 2014, the United States finished the year with a total trade deficit in goods of $736.8 billion, a 5% increase from 2013. By far, the largest part of that trade shortfall was with China, where the U.S. had a deficit of $342.6 billion, up $23.9 billion from 2013.

The National Association of Manufacturers has been a leader in calling for policies to promote more trade. In particular, NAM has been urging action to grant the president Trade Promotion Authority and to pursue new trade accords such as the Trans-Pacific Partnership Agreement and the Transatlantic Trade and Investment Partnership.

NAM’s argument is that 95% of the global market is outside the U.S. and domestic manufacturers must have easier access to this vast market.

DiMicco supports increased trade but he says the U.S. incurs its massive annual trade deficit because too many government and business leaders support the “myth” of free trade.

“We’ve never had free trade,” DiMicco writes. “At best, we have managed trade. At worst, we have predatory and protectionist countries unfairly exploiting our belief in free trade to their advantage.”

China and other countries use currency manipulation, VAT taxes, subsidies and various regulatory schemes to support their domestic manufacturers, says DiMicco. He cites research by the Economic Policy Institute that China’s currency manipulation has cost the U.S. 2.1 million jobs and added $217 billion to the U.S. trade deficit.

U.S. companies go along with these mercantilist policies, he says, because they fear losing access to the huge and growing Chinese market, or facing retaliatory problems at their Chinese facilities.

DiMicco’s response to U.S. CEO’s who have complained about this to him:

“You’re worried about potential problems in China while domestic manufacturers over here are getting crucified by the trade cheaters, namely China.”

“When people say trade is a positive for job creation, that’s baloney,” he adds. “They tell you how many jobs are created but they don’t balance it against the jobs lost.”

When the jobs created and lost due to trade agreements are added together, says DiMicco, “every trade agreement has been a negative for this country – NAFTA, giving China favored trading nation status. The Korea agreement has been a complete bust.”

But DiMicco sees signs that the U.S. corporate love affair with China is changing. The reason, he says, is that “the moment China gets what it needs – technology, best practices, proprietary knowledge, you name it – the Chinese will make their lives miserable over there….”

He wants to see U.S. leaders take a tougher stance in enforcing trade agreements and emulate Ronald Reagan, who called Germany and Japan to account in 1985.

“When countries break the rules, the United States needs to take a page from the old Reagan playbook,” he writes in American Made. “When Reagan negotiated the Plaza Accord and made Japan and Germany revalue their currencies and be subject to market forces, not government manipulation, we had 20 years of strong economic growth as a result.”

Energizing Manufacturing

The energy production revolution in the U.S. brought on by fracking and other technology advances has taken the country from a continual energy debtor to the largest producer of natural gas and petroleum in the world.

With this bounty, many groups contend it’s time for the U.S. to lift its limits on crude oil and natural gas exports. Last October, for example, the Aspen Institute and the MAPI Foundation issued a study which found lifting oil export limits would significantly boost both domestic manufacturing and the general economy. The study stated that increased oil exports would add 650,000 jobs by 2019 and manufacturing production of durable goods and materials would increase $8 billion by 2017.

Calling it a “great new era,” DiMicco favors moderate energy exports but says the greatest value this cheaper energy provides is as a competitive advantage for U.S industries to grow and create jobs.

“You create twice as many jobs in this country and 10 times as much economic growth by using the gas here as opposed to exporting it,” he said.

How will U.S. manufacturing find the workers for its reinvigorated factories? DiMicco is a contrarian when it comes to the skills gap. He says some misalignment between skills and evolving technologies is always present in the economy. What is really needed now, he writes, is to “create jobs for the skills people have and quit bemoaning the skills they allegedly don’t.” While the U.S. can do a better job at vocational training, DiMicco argues that “most skills can be learned on the job” and calls for manufacturers to “fill the breach” and provide the necessary training.

Innovation in and of itself is not the way to right America’s economy, says DiMicco, but must be a paired with producing innovative products.

“You cannot expect to reap the real benefits of innovation if you leave the making and the building to other countries,” he stresses.

Along with taking advantage of America’s energy bounty, says DiMicco, U.S. manufacturing needs a streamlined regulatory system, tax rates that encourage domestic investment and robust spending to update aging infrastructure. Following policies that put industrial production at the center of an economic revival, he says, could result in growing the manufacturing workforce from 12 million to 20 million or 25 million over the next decade.

He also urges U.S. leaders not to endorse “the new normal” view of a low-growth economy, but rather to work together on promoting a government policy that returns to “the fundamentals of being a nation that innovates, makes, and builds things.”