Small firms want more from Obama's U.S. manufacturing plan

@CNNMoney February 4, 2012: 12:32 PM ET
Stephen Gass, president of SawStop, said tax incentives under Obama's proposals wouldn't be enough to convince him to begin manufacturing in the United States.

Stephen Gass, president of SawStop, said tax incentives under Obama's proposals wouldn't be enough to convince him to begin manufacturing in the United States.

NEW YORK (CNNMoney) -- A new Obama administration push to strengthen U.S. manufacturing has the support of smaller firms, but it might not be enough to stir many into action.

The proposals include initiatives that would prevent firms from deducting moving expenses when shifting production overseas, and a 20% moving expenses tax credit for companies returning from abroad.

But they do little to inspire BBS Manufacturing CEO Grant Burns to move his facilities back to the United States. In 2004, Burns moved his production line from San Marcos, Calif., across the border to Tijuana, Mexico, to better compete with China.

Burns said he saves at least $1,000 an employee by producing his skateboard decks in Mexico. Hourly labor costs are just $4.50 there compared to $14 here when taxes and insurance are added to the equation.

If his moving costs were $1 million and he received a 20% tax credit -- or $200,000 -- he'd burn through that in less than a month, he said. By the second month, BBS would have to start raising the prices on its customers, producers of well-known brands like Toy Machine and Zero.

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"Our labor could be free, and [China] still can produce it cheaper than we can," said Burns, noting that China helps its companies with subsidies.

Burns is more supportive of the president's plan to create a trade enforcement unit to investigate foreign trade practices.

"If they're able to keep everything on a level playing field, the jobs will come back," he said.

Stephen Gass is just as reluctant about bringing home his production operations from Taiwan.

Even if he did move back, he says America does not have the manufacturing infrastructure to support the needs of his company SawStop, which makes safety mechanisms for saws. Gass and two fellow lawyers started SawStop in 2000 after they dreamed up a tool with a cast iron top, plastic blade guard and special aluminum breaks.

They needed to get all the pieces at competitive prices. Taiwan's third-largest city, Taichung, provided a bustling market of small metalwork shops for parts and factories to assemble them. Gass said shifting production home to Tualatin, Ore., isn't an option.

"There was no source for those mass-produced parts in the U.S. at cost-competitive prices," said Gass. "The only option we had as a small business with limited resources was to go overseas where there was an existing vendor base to do that."

Hiroyuki Fujita, who owns two companies, is much more supportive of the President's proposals. But that's because his firms are already based in the United States.

His company Quality ElectroDynamics, based near Cleveland, Ohio, manufactures the detectors placed inside magnetic resonance imaging (MRI) devices of Siemens Healthcare (SI) and Toshiba Medical Systems (TOSBF).

When he launched the company in 2006, he refused to take his operations offshore.

"I wanted to start not only a research and development but also a manufacturing company in the United States, because I believe the ability to be able to manufacture a high-tech product from scratch is the true strength of a company," Fujita said.

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Fujita's company represents the kind of advanced manufacturing championed by the Obama administration, which seeks to double tax deductions they can take for creating jobs. The administration is also suggesting $5 billion in temporary tax credits for companies like Fujita's second firm, eQED, which makes devices that convert electricity in solar panels from direct current to alternating current, the form commonly used worldwide.

Fujita said the tax credits would help. But the issue at hand quickly shifts from the jobs he's already created to the matter of keeping them. Although eQED has been running since 2010, its device is still in the environmental testing phase and Fujita doesn't expect to start shipping it for sale until later this year. He notes companies like his often fall prey to the short-term demands of investors and tax credits might not be enough.

"Government can help by providing subsidies for the companies that can manufacture these clean energy electronics. That way, we can take one step at a time and grow the business without worrying about return investment," Fujita said. To top of page

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