On the heels of President Obama’s State of the Union address during which he focused on the importance of manufacturing, it is powerful to hear directly from a manufacturer who strives every day to compete in the global marketplace.

At the conclusion of his appearance with Cavuto, Oberhelman summarized on what is needed for a true manufacturing renaissance:

“We need stimulus around manufacturing, we need tax reform, and we need education reform, and we can go on and on and on. As Vice Chair of the National Association of Manufacturers, there is a really refined list of what we need to do if we want to be competitive in this country. It is a prescription that is not that hard to follow and is pretty common sense, actually.”

Daniel Meckstroth, MAPI’s Chief Economist, said, “The growth is being led by the energy, transportation, and industrial equipment industries.” He goes on to add that domestic auto production, which has picked up dramatically over the past year, will continue to be a major driver of growth in 2012. 

In addition, production of computer and high-tech products are forecasted to grow 6 percent and 10 percent in 2012 and 2013, respectively, which is more twice the rate of non-high-tech manufacturing.

Of course, one major headwind could derail many of these predictions: the European sovereign debt crisis. In the summary of the report, the authors write:

A major problem with the slow growth outlook is that this stall speed pace makes the economy susceptible to a double-dip recession, if induced by a major shock. The shock most likely to push the United States into another recession is a systemic bank lending freeze coming from the European sovereign debt crisis. A top domestic risk is that U.S. employers will become more risk averse and cut costs, thus halting job growth. Our modeling finds that the risk of a recession is an uncomfortably high 40 percent probability at this time.

Nonetheless, despite these headwinds, MAPI is anticipating modest growth in U.S. manufacturing production for next year. The sectors experiencing the strongest growth in 2012, in their estimates, were: aerospace products and parts, mining and oil and gas field machinery, motor vehicles and parts and metalworking machinery. They anticipate weakening production in public works construction, household appliances and pharmaceuticals and medicines.

Much of this analysis was also discussed in a recent webinar, “The 2012 Manufacturing Economic Outlook,” organized by the Manufacturing Roundtable of the National Association of Business Economics. The panelists were Daniel Meckstroth and Don Johnson (Chief Economist from Caterpillar), and I served as the moderator. For those who are interested, the slides from these presentations are available on the NABE website.

Chad Moutray is chief economist, National Association of Manufacturers.

Jay Timmons, president and CEO of the National Association of Manufacturers (NAM), speaks at the 2011 Reuters Manufacturing and Transportation Summit. REUTERS/Brendan McDermid

NAM President and CEO Jay Timmons met with Reuters reporters to talk about the future of the U.S. manufacturing economy today.  Timmons was in New York for the Reuters Manufacturing and Transportation Summit.

“The next year is really setting the table,” [Timmons] said. “It is an election year. So there may be a few areas of progress that we can make on the regulatory side, but I think it is really going to be important for the presidential candidates and all the candidates running for federal office to be outlining their comprehensive plan for economic growth.”

For more, read this report on the Reuters event.

Click here to watch the Reuters video of NAM President and CEO Jay Timmons and NAM members from Caterpillar, Boeing, Harley Davidson and Siemens discuss the impact of Washington’s political gridlock on manufacturers.

Noteworthy testimony from the hearing came fom David Ickert, Vice President of Air Tractor Inc., who described how export growth correlated directly with the company’s employment increases. At the end of 2007, Air Tractor had 165 employees and 36 percent of its sales were export sales. In 2010, the company had 220 employees and export sales accounted for 56 percent of sales volume. Air Tractor has used Ex-Im’s medium term credit insurance to secure more than 80 export sales since 1995, and the company expects to complete 30 such deals in 2011. From Ickert’s testimony:

“The growth of exports has been a significant contributor to the job growth of Air Tractor in recent years. The growth of exports at Air Tractor is a direct result of Ex-Im having programs such as the Medium Term Credit Insurance program that we could access to provide financing for our end user customers outside of the United States.”

Clay Thompson, Director of Global Government Affairs at Caterpillar, cited three priorities for Ex-Im Bank reauthorization: an increase in the Bank’s financing cap, revised local content policies and elimination of cargo preference requirements. In his testimony, Thompson said:

“We anticipate the role of Ex-Im will become even more critical going forward. Competition for global leadership in our industry is playing out right now in markets like Asia, Africa and Latin America. Our global competitors, like us, recognize the strategic importance of these markets… Ex-Im is a critical tool that can be used to gain market access in emerging high-growth markets where commercial banks need credit enhancements to support large project loans and augment commercial bank capacity.”

The testimony from these two manufacturers illustrates the importance of export financing to doubling exports. Additional export financing through the Ex-Im Bank is a key step outlined in our Blueprint to Double Exports in Five Years. Remember that 95 percent of the world’s consumers are outside of the U.S., and manufacturers need additional tools such as the Ex-Im Bank tools to reach these customers in new markets.

Lauren Airey is director of trade facilitation policy, National Association of Manufacturers.

Jason Speer, Vice President of Quality Float Works, will be testifying on behalf of the National Association of Manufacturers at tomorrow’s hearing on Panama. His company is a fantastic example of how trade and exports don’t just benefit large multinational companies – but small American manufacturers as well.

Here is a small excerprt of Jason’s testimony:

Quality Float Works, Inc. is the premier manufacturer of hollow float metal balls and float valves in the nation. Our floats are used to level liquid controls in a wide variety of industries including gas, plumbing, oil and agricultural applications. Many products you see and use every day, from gas pumps to air conditioners, could not be operated without float balls. We currently have 23 employees between our primary facility in the suburbs of Chicago, Ill., and a branch office in Dubai, UAE.

Quality Float Works, Inc. is a family-owned small business that has experienced record growth in recent years due to overseas exports. In 2001, exported goods accounted for only 3 percent of our total sales. Since that time, we have seen foreign sales rise steadily as a result of proactive engagement with progressive markets. Last year, international trade accounted for one-third of our total sales. The passage of additional free trade agreements (FTAs) would further expand the opportunity for my business to enter untapped markets that could benefit from our products.

One-third of their sales depend on exports. The Colombia, Panama and Korea trade agreements will lower tariffs on Quality Float Work’s products, allowing them to increase their market share and exports even more.  

NAM Vice Chairman Doug Oberhelman, the CEO of Caterpillar, Inc., testified a few months ago before the House Ways and Means Committee on the Panama FTA, and noted how key that agreement is for Cat and its exports and  American-based jobs. Tomorrow, a company located not all that far from Cat will testify that the Panama agreement will be beneficial as well, for the same reasons and in the same ways. The only difference is the size of the company.

The FTAs represent growth for American manufacturing, American jobs, and the American economy. It’s high time to pass all three as soon as possible.

Doug Goudie is director of international trade policy, National Association of Manufacturers.

Once-ailing manufacturers are enjoying a robust rebound as cost-saving moves from job cuts to a greater reliance on technology help drive stronger-than-forecast growth. The shift has helped set the stage for a potential “manufacturing renaissance,” says James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management. He predicts the industry will set the pace for U.S. expansion and the American stock market during this decade, as technology did in the 1990s.

“Manufacturing is leading the whole economy,” said Paulsen, whose firm oversees about $340 billion. U.S. manufacturers “had to find religion. They’ve really cleaned up their balance sheets. What is left is the cream of the crop.”

Companies mentioned include Timken, the Canton, Ohio-based maker of roller bearings and steels; Materials Processing, Inc., the Logansport, Indiana-based metals-processing company; Siemens Corp., a subsidiary of the Munich-based Siemens AG; Boeing; Deere & Co.; Cooper Industries Plc, Deere & Co. and Kennametal Inc.

The story builds on recent data and reinforces what many National Association of Manufacturers member companies — other than the ones mentioned above — have been reporting. Economists are seeing the same thing; last Friday, The Wall Street Journal’s Real Time Economics blog rounded up the reaction of top economists, including Sung Won Sohn of the Smith School of Business and Economics. He said:

Economic momentum has not been lost. There are enough tailwinds to move the economy and the job market forward. Service and manufacturing continue to be the workhorse of the employment picture. On the other hand, there are reasons to believe that the jobless rate won’t fall much in coming months.

And here’s an interesting perspective, via The Dayton Business Journal’s article, “Manufacturing must revive before recovery.”

A new report suggests that making U.S. manufacturers more competitive is a more pressing priority than addressing the federal government’s fiscal crisis.

Reducing federal spending to a sustainable level is important, the Information Technology & Innovation Foundation concedes, but “only by restoring U.S. economic competitiveness can historic trade imbalances and high unemployment levels be expeditiously reduced and economic growth expanded to generate sufficient tax revenues to help ultimately balance the budget deficit.”

ITIF’s report is “The Case for a National Manufacturing Strategy.”

The National Association of Manufacturers released its “Manufacturing Strategy for Jobs and a Competitive America” last June.

U.S. manufacturers, energy producers and other corporations are balking at a proposed rule they fear would drive up the cost of hedging against price swings in the commodities they depend upon, renewing a high-stakes debate over whether the regulation of derivatives should extend beyond the financial industry.

Caterpillar Inc., MillerCoors, Ford Motor Co. and other companies outside finance fought hard last year to avoid being regulated under a framework created by Congress to oversee the $583 trillion derivatives market, part of the Dodd-Frank financial overhaul. At the time, lawmakers said nonfinancial companies wouldn’t have to meet the potentially costly requirement to back up their derivatives trades with cash or other assets as collateral.

But the new rule, unveiled by the Federal Reserve, Federal Deposit Insurance Corp. and other bank regulators, said banks would have to impose such requirements on their corporate clients if their exposure to these trades grew too risky.

The regulators announced the proposed rules on Tuesday with a news release, “Agencies Seek Comment on Swap Margin and Capital Requirements,” and a notice of proposed rule-making.

The National Association of Manufacturers is a member of the Coalition for Derivatives End-Users, which released a statement in reaction to the proposal. While noting the responsiveness of the Commodity Futures Trading Commission to the group’s points, the release raises further objections:

Under the rules proposed by the prudential banking regulators, margin requirements will apply to all end-user transactions that exceed a credit threshold. And under both the CFTC and the prudential regulators’ rules, regulators will impose margin on several categories of end-user trades, including transactions designed to manage risks associated with pension plans, insurance products and certain types of business financing.

Despite the clear legislative history to the contrary, the regulators continue to misinterpret the Dodd-Frank Act as giving them authority to impose margin requirements on end-users. This misinterpretation exposes end-users to margin requirements that Congress did not intend regulators to impose, and the economy to the harm associated with these new requirements.

Indeed, as Reuters reports, CFTC Commissioner Scott O’Malia dissented in the 4-1 vote to publish the rules, arguing, “I believe commercial end-users and many of the financial end-users will be dissatisfied with the lack of harmonization among the different regulatory bodies.”

• Reuters, “Swap market crackdown seeks to spare businesses“
• Bloomberg, “End-Users May Face Swap Margin Requirements as CFTC, FDIC Split‎”
• CNBC.com, “Swap market crackdown seeks to spare businesses“
• Investor’s Business Daily, “Swap rules exempt end users“

Taking advantage will require President Obama to submit the U.S.-Panama Free Trade Agreement to Congress for its enactment.

Doug Oberhelman, Caterpillar’s CEO and vice chairman of the National Association of Manufacturers, testified Wednesday at a House Ways and Means Trade Subcommittee hearing on the benefits of the U.S.-Panama Free Trade Agreement. (Prepared statement)

Manufactured goods and agriculture consistently report trade surpluses, Oberhelman reminded the committee. (See graphic below.) The growth of U.S. exports has been especially strong in the Latin American countries with which the United States has free trade agreements. Lowering Panama’s tariffs against U.S. goods would help expand market share for American companies. Oberhelman:

U.S. export success in Panama comes despite a fundamental imbalance in the proverbial playing field. The United States unilaterally opened its market to Panama and its neighbors through the Caribbean Basin Initiative in 1983 and expanded that access through successive acts with the support of strong bipartisan majorities in Congress. Currently, under the Caribbean Basin Trade Partnership Act (CBTPA), fully 96% of all imports from Panama already enter the U.S. market duty-free. By contrast, Panama’s average applied duty on imports of manufactured goods is 7.1%, and agricultural products face even higher tariffs. In other words, Panama enjoys virtually free access to our marketplace, while U.S. products continue to be taxed at steep rates when entering Panama.

Critically, the FTA will cut Panama’s tariffs on U.S. products, and as a result it will transform an imbalanced trade relationship into a more mutually beneficial, reciprocal partnership. The day the agreement enters into force, 88% of Panama’s tariffs on U.S. consumer and industrial goods and a majority of the tariffs on U.S. farm exports will be eliminated. In turn, the agreement locks in Panama’s access to the U.S. market, creating a new level of certainty for investors and traders in that country.

The Peoria Journal-Star did a nice with its coverage of the hearing, “Cat CEO touts benefits of trade agreement with Panama,” quoting the local Congressman too, Rep. Aaron Schock, R-Peoria, who said: “Doug made an irrefutable case for passage of these pending free trade agreements. In Latin America alone, Caterpillar saw an increase in sales of 58 percent just last year, more than any other market in the world. The high-wage manufacturing jobs in Illinois depend on these new customers.”

Caterpillar also issued a news release, “Caterpillar Chairman Tells Congress Passage of Free Trade Agreements Would Increase Exports, Support Jobs in the United States.”

Manufacturers are adversely affected by non-tariff barriers including  standards and conformity assessment issues around the world.  They can add significantly to the cost of an export, often a multiple of the tariff rate that is charged.  For example, a report on the impact of non-tariff barriers in Asia found that they can have a tariff equivalent ranging from 11.7% to 58.5% in one country and ranging from 6.3% to 60.5% in another! 

The NAM recognizes that not all non-tariff trade barriers are illegal under international trade rules.  However, when the U.S. negotiates a trade agreement, it has the opportunity to seek the elimination of many of these non-tariff barriers…just as it has done in the pending Korea, Colombia and Panama Free Trade Agreements.  So if we want to get serious about tackling non-tariff barriers, the United States must pass these three FTAs and negotiate more.

 To tackle the barriers you have got to get into the game.

Stephen Jacobs is director of international business policy at the National Association of Manufacturers.

You might recall Will Marsh of Baker Hughes, Inc. testified on behalf of the NAM two weeks ago at a similar hearing on passage of the pending FTA with Colombia, and one expects a similar hearing on the FTA with Korea to be up at the Subcommittee in the near future.

It’s a powerful lineup for today’s hearing. The economic benefits for manufacturing in America that will accrue as a result of passage with our FTA with Panama may not be as large as we’ll see with Korea. But, we shipped $5.6 billion in U.S.-made manufactured goods to Panama last year. With the expansion of the Panama Canal – the largest public-works project on earth right now – there is going to be huge demand for manufactured goods of all kinds to support the construction work, the infrastructure, the workers, and the new facilities. By removing the average 8 percent duty our products face, the U.S.-Panama FTA will put our manufactured goods exports in a preferential position to fill that expanded demand.

Yesterday, it should be noted in passing, was the 77^th anniversary of the passage of the “Reciprocal Trade Agreements Act” which passed Congress in 1934 by a vote of 274-111 (and 47 Members not voting). This act was the first to provide the President power to negotiate bilateral trade agreements with foreign nations. With it, Congress reversed decades of protectionist inclinations. In fact, the Act came just 4 years after the passage of the disastrous Smoot-Hawley Tariff Act of 1930, which raised U.S. tariffs to very protectionist levels — which in turn caused our trading partners to raise their tariffs and, most economists agree, prolonged and deepened the Great Depression. After the passage of the 1934 Trade Act, President Franklin Roosevelt called for a tariff-free Western Hemisphere that would unite fully half the globe in a closer trading relationship and would jump-start economic growth.

We’re not there yet – but passage of the Colombia, Korea, and Panama agreements as soon as possible would be another step on that road. With Peru, Chile, CAFTA, NAFTA and other FTAs that have been passed in recent years, America has a trade surplus in manufactured goods with our trade agreement partners. We need to pass all three pending agreements as soon as possible, and then look to new trade agreements to further boost our exports, increase U.S. employment and grow our economy.