WASHINGTON: During campaign 2012’s home stretch, Ohio’s clout as the ultimate swing state is peaking. So are the economic stakes of using this clout effectively.
A national manufacturing rebound that has helped brighten the industry-heavy state’s economic prospects has all petered out, and no adequate growth substitutes are in sight. So Ohioans urgently need both President Obama and Mitt Romney to start talking realistically about preserving industry’s gains and turning them into robust, sustainable recovery.
Moreover, what’s good for Ohio is good for the USA. Turning a U.S. economy hooked on easy money and financial quackery into one that’s “built to last” requires substantially increasing America’s capacity to create manufactures and other forms of real wealth.
Ohio’s recent dependence on manufacturing for growth has been stunning. From the recovery’s mid-2009 onset through 2011 (the latest data available), the state’s cumulative growth after inflation trailed America’s overall by 4.7 percent to 3.8 percent. But its manufacturing expanded by 17.2 percent.
Ohio manufacturing job creation has been even better. Preliminary July 2012 data show the state’s manufacturing employment up 8.8 percent since its last November 2009 low — a growth rate nearly double the national average during this period. In fact, more than one in 10 new U.S. manufacturing jobs regained during the recovery have been created in Ohio.
Yet Ohio’s recent manufacturing depression was so deep (state industrial output fell nearly 30 percent during the 2007-09 recession versus a 4.4 percent national fall-off) that its manufacturing sector is still 17.8 percent off pre-recession levels. And just 53,600 of the 150,000 state manufacturing jobs lost during the slump have come back.
But American manufacturing has hit a wall. After growing in inflation-adjusted terms by 6.4 percent in 2010 and 4.3 percent in 2011, it’s expanding at just a 0.75 percent rate this year. In August, real manufacturing output shrank by 0.75 percent, its worst monthly drop since March 2009, the country still in the recession. In July, moreover, the monthly manufacturing trade deficit and its three-month moving average both hit new records. The gathering global slowdown could worsen industry’s trade woes by further curbing exports and sparking more import competition from growth-starved trade competitors.
This slowdown could derail the national recovery and devastate Ohio. Although detailed 2012 state-level production data isn’t yet available, many of the manufacturing sectors showing weakness lately are Ohio industrial mainstays.
For example, fabricated metal manufacturers have created more than 22 percent of the industrial jobs Ohio has regained so far during the recovery. Their real output is up a solid 4.2 percent rate so far this year, but that’s much lower than 2010’s torrid 13.3 percent, and production actually fell in August by 0.55 percent. Moreover, the sector’s 2012 trade deficit has grown by 34.6 percent year on year. Non-electrical machinery has produced nearly 20 percent of Ohio’s recovery job gains, but its recent growth and trade numbers are even worse.
Even the remarkable automotive revival, responsible for 13.6 percent of Ohio’s new manufacturing jobs since 2009, looks vulnerable. A 4 percent August output plunge was the sector’s biggest monthly drop since its near-death experience in 2008 and 2009, and its huge, chronic trade deficit (nearly $76 billion through 2012’s first eight months) has ballooned by more than 33 percent year-on-year.
So far, the two major presidential candidates are offering a dubious mix of remedies. President Obama favors more government infrastructure investments that are all too likely to be supplied by imports as by domestic goods; tax code changes to discourage off-shoring and encourage domestic investment that are dwarfed by foreign subsidies and tax breaks; targeted government support for green industries that can also easily be supplied from abroad; more of the trade agreements that historically have supercharged American deficits; and piecemeal, reactive responses to foreign trade cheating.
Gov. Romney emphasizes economy-wide regulatory and tax relief to strengthen manufacturing indirectly. But an even playing field with Third World rivals like China would sink regulations to politically unacceptable levels. And recently tax relief has financed more corporate share buybacks, mergers and acquisitions and import consumption than U.S. factory investment or domestic goods purchases.
Romney promises more new deals, too. And despite repeated vows to combat China’s trade transgressions much more forcefully than has Obama, he says little about the numerous predatory practices of other competitors.
Americans need much better from both contenders — especially on trade policy, given manufacturing’s extensive exposure to pervasively rigged global markets. Sustainable reindustrialization and real recovery requires measures like abjuring new trade deals until old ones are fixed; greatly expanding and tightening federal procurement’s Buy American requirements, and responding more comprehensively and proactively to predatory foreign trade practices like currency manipulation.
The toss-up status of their state gives Ohio voters unmatched clout for pushing such manufacturing realism. There’s no time like the present for using it.
Tonelson is a research fellow at the U.S. Business and Industry Council, a trade group of small and family-owned manufacturers whose nearly 2,000 member-companies include many Northern Ohio firms. He contributes to the council’s AmericanEconomicAlert.org Web site, and tweets at @AlanTonelson.