by Cynthia Corbin

Created on: October 26, 2009   Last Updated: October 27, 2009

For strategic reasons, larger manufacturing firms would like to keep their business in the United States, but the financial realty is pointing to Asia. Not only are taxes lower and government incentives more generous, in such countries as Malaysia, China and Singapore, but it's easier to raise cheap funding offshore than in the U.S. where private investors on manufacturing and bank lending is nearly frozen. Years ago, it didn't seem to matter where companies made their products. After all, america has been inventing industries and losing them to Asia for a longtime. While the Japanese, Koreans and Chinese put billions into manufacturing plants to churn out commodity products, American went into more lucrative pursuits, such as software, sciences and financial services. As for companies such as Dell and Apple, they could still reap high profits by focusing on marketing and design, while letting offshore contractors handle the dirty work.

The U.S. is at or near the cutting edge in most of the emerging product areas. The new wave of high-tech devices hitting the market is the payoff from billions of dollars in taxpayer-funded research. Two decades of unconstrained outsourcing to Asia, have hollowed out much of America's base of suppliers, factory managers and skilled technicians. Much of the blame lies with U.S. government policy. Asia and Europe aggressively court strategic high-tech industries with generous tax breaks, cas grants, low credit, low-cost utilities and speedy regulatory approval. In comparison, the U.S. has been indifferent to manufacturing.

Even when tax breaks are factored in, American corporate taxes are among the highest in the industralized world. Nor does the U.S. exempt certain indeustrial investments from taxes, as does much of Asia. Most states do offer tax breaks and financial aid to lur big plants, hoping to recoup the cost with income taxes generated by new jobs. Still most of the capacity of the U.S. based companies is offshore. A big reason is that European and Asian countries have done more to stimulate domestic demand. Take for example the global demand for Solar Systems in homes is slow now, but it is expected to triple in a few years. Still, most of the capacity of the US based companies is offhsore. One area where the US is backing manufacturing aid is rechargeable lithium-ion batteries for cars. With the auto industry moving toward electric vehicles, having domestic battery producers is seen as vital to keeping a U.S. based car industry.

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