How Regulation Is Affecting the U.S. Manufacturing Industry

The U.S. manufacturing industry is a force to be reckoned with. From its emergence during the Industrial Revolution in 1820, the sector has experienced repeated blows from the Great Depression to the Great Recession more recently. Despite these setbacks coupled with a highly evolving global industry, U.S. manufacturing has shown its resilience. Modern manufacturing is thriving across America.

The fact remains that manufacturing has much more potential, if certain hurdles weren’t in the way. Among the top challenges manufacturers face are regulatory concerns, an inequitable tax system when compared with certain other countries, and, in some cases, unfair subsidies provided to certain industries by foreign governments. Manufacturers recognize that a safe working atmosphere and healthy environment are ensured through regulation. But, the complexity of regulations often result in duplicative, poorly designed and thus ineffective rules adding an unnecessary burden to manufacturing operations.

Since 1981, the federal government has issued at least one manufacturing-related regulation each week. The National Association of Manufacturers (NAM) has found that the industrial sector faces a staggering 297,696 restrictions on their operations from federal regulations.

Notably, no regulations have been eliminated. With the sheer volume of new rules and policies to keep up with, manufacturers are not able to focus on competitiveness and growth opportunities, factors that feed into a prosperous economy. Is the federal government overstepping its intended power? Rules and policy within reason are valuable, but will the United States’ economy begin to falter if the rate of regulation continues to rise?

The Burden Manufacturing Faces

The Environmental Protection Agency (EPA) has issued the majority of rules that impact industrial productions across the U.S. While environmental issues are vital to the future of humanity, some flaws exist that counter the real benefits. American companies and associations including United States Steel Corporation and American Petroleum Institute have openly voiced how regulatory burdens prevent building and expansion opportunities.

Since the Great Recession, financial policies instituted by Congress to prevent another downturn have also added to the regulatory burden of manufactures. Though unintentional in nature, these regulations have made it increasingly difficult for small manufacturers, which make up 90 percent of the quarter of a million manufacturing companies in the U.S., to borrow money. According to the Small Business Administration, the new financial regulations have been instrumental in driving small community banks – those who typically work with small manufacturers – out of business.

Unfortunately, federal regulations are simply part of the burden. State and local regulations also impact manufacturing investment.

Alleviating the Regulatory Weight

Effective regulation needs to be strategically designed and executed to create positive impact. Regulations are necessary, but they should be transparent and cost-effective. If current rules were audited regularly, outdated and inefficient policies could be eliminated before new legislation is introduced.

President Trump signed an executive order declaring that for every new regulation issued, two be removed. In April, the Office of Information and Regulatory Affairs (OIRA) issued a guidance for federal agencies in how this order should be implemented. The Office of Management and Budget is also expected to release the regulations that agencies intend to eliminate or modify to balance new regulations. The administration has withdrawn or delayed over 860 proposed regulations in the past 5 months.

“The president has indicated a really fundamental shift in the way that we’re going to think about regulations,” said Neomi Rao, the newly confirmed administrator of the OMB’s Office of Information and Regulatory Affairs. “And we’re focusing very much on reducing the overall regulatory burden.”

All these bills aim to streamline and improve the regulatory process for small businesses, intending to move U.S. business forward. If made law, they would require agencies to analyze how the regulation they propose and implement impacts small businesses, including manufacturers.

Though the fate of these bills are uncertain, the fact is manufacturing supports more than 12 million jobs across America plus many more when calculating the indirect supply chain. Trends show that foreign manufacturers want to invest in the U.S. For the first time in a decade, the Reshoring Initiative found that more reshoring happened than offshoring. Domestic companies also want to invest further into the economy but need the support of federal and local governments. Of particular note are certain tax proposals being considered by the Trump Administration and Congress that would better level the playing field for companies who make products in the U.S. If effective policies exist, regulatory, tax and otherwise, the possibilities for U.S. manufacturing now through 2025 are monumental.

For more information on the impact of regulation on the manufacturing industry, visit Area Development.