America Willing to Cut Corporate Tax Rates to Boost Manufacturing

Policy alternatives that aim to revive American manufacturing abound. The Obama administration has lowered the maximum corporate tax rates from 35 to 28 percent (25 percent for manufacturers) and is working to enact reforms on tax benefits in the financial sector. The Republican presidential candidates have gone a step further, calling for tax rate reductions to 10 percent or to do away with them altogether. The opposing parties are now united in their desire to revive American manufacturing. Underlying this stance is repentance for past mistreatment of the manufacturing sector. Indeed, even the Brookings Institute, an American think tank, urges strong management and supports policies to control wage levels and the price of the Chinese yuan as a means to boost U.S. manufacturing.

That America is seeking its path to economic recovery through manufacturing indicates the nature of its remorse about the financial crisis. The scramble to produce overseas in the 1980s hollowed out the domestic manufacturing sector. Needless to say, the dual deficits in budget and trade stem from the weakening competitiveness of manufacturers. At the time, the U.S. attempted to fill in the space emptied by manufacturing by focusing on industries like IT and banking. However, as one bubble burst after another in these latter sectors, America has renewed its focus on manufacturing, looking to sustain its capacity to create value added.

The economic crisis has given rise to a new economic order. The front lines of the world economy are witnessing a transition from a finance war to a manufacturing war. In this backdrop, the drive to boost American manufacturing is gradually becoming more distinct. In last month’s State of the Union Address, President Obama spoke of his support for policies that favor U.S. manufacturers. Xinhua News, the official news agency of the Chinese government, reported that this would trigger yet another “war” in the race to attract manufacturers. Elsewhere, Japan has rejoiced at signs of the yen’s depreciation, anticipating that many companies that have gone overseas would return to do business in their homeland.

In addition to such fierce competition in manufacturing, the benefits Korea has been able to glean from a strong yen and the enactment of free trade agreements may attenuate much faster than expected. Politicians and the current government are leading the mistreatment of manufacturers while blaming big business for all problems. The government seems poised to chase out the country’s remaining businesses while glossing over these issues with political rhetoric about raising taxes on the rich or creating more jobs. Korea continues to behave this way even after witnessing what neglecting the manufacturing sector did to the American economy.