Can American manufacturing really be cornerstone of economic revival?

MALTA, N.Y. In this small upstate community, a company called GlobalFoundries is ramping up to produce silicon chips for IBM and other customers.

The new plant, which is about the size of six football fields, has hired 1,100 workers in the past two years and plans on adding another 300 this year. Construction workers are still bustling around the $4 billion facility, which has expanded before it's even shipped a silicon wafer – and will eventually be a $7 billion operation.

The company is attracting the attention of high-tech companies around the globe. And because the company is more dependent on PhDs than on manual labor, it is an example of where the United States has an advantage over places such as China, where labor costs are so low.

IN PICTURES: Where the high-tech jobs are 

The optimism surrounding the plant is emblematic of a change that is taking place from Charleston, S.C., toDetroit: America's manufacturing sector – particularly what is termed "advanced" manufacturing such as that at GlobalFoundries – is starting to come alive.

President Obama has made support of US manufacturing an important part of his plan to further an economic rebound. He promoted the sector in his State of the Union message in late January.

True, some commentators continue to question whether American manufacturing can compete in the global economy, especially when so many US jobs have moved offshore. But some policymakers see progress.

"We are the most competitive in manufacturing that we have been for the past two or three decades," saidGene Sperling, director of the National Economic Council, in a session with reporters last month.

A rebound in manufacturing has important ramifications for the US economy. Sixty percent of exports relates to manufacturing, 90 percent of patents, and 70 percent of private-sector research and development. Moreover, as can be seen around Malta, N.Y., the opening of a large manufacturing plant has a big ripple effect in a community: Builders erect new housing, more restaurants open, and more tax dollars come in that can be spent on providing services.

"We do believe manufacturing punches above its weight economically," said Mr. Sperling.

The actual number of new jobs in manufacturing is relatively modest, in part because US productivity is so high. Last year, according to the Bureau of Labor Statistics, the economy added about 330,000 manufacturing-based jobs. By way of contrast, some 2.3 million manufacturing jobs were lost in the recession, which officially ended in June 2009

"Of the 2.3 million jobs lost, not more than half will ever come back," says Dan Meckstroth, chief economist at Manufacturers Alliance for Productivity and Innovation (MAPI) in Arlington, Va. "We may get 1 million more back."

Nonetheless, the Obama administration is indeed making manufacturing an important part of its economic strategy for 2012, and possibly beyond. It is asking Congress to remove from the tax code the deduction for moving expenses when a company transfers jobs overseas. At the same time, it's proposing an expansion of the deduction for manufacturing and a doubling of the deduction for advanced manufacturing technologies – from 9 percent to 18 percent.

The administration is also proposing a new "manufacturing communities tax credit," which would provide $2 billion per year in incentives for three years to companies that build in a community that has suffered a major job-loss event, such as a plant closing.

Mr. Obama covered these points at a Jan. 25 rally at Conveyor Engineering and Manufacturing, a growing manufacturer of giant augers in Cedar Rapids, Iowa. "We've got to stop rewarding businesses that ship jobs overseas [and] reward companies like Conveyor that are doing business right here in the United States of America," Obama said.

Even if Congress does nothing, economists expect to see some manufacturing jobs return. For example, the auto industry is expanding production as consumers, driving old models, start to replace their clunkers.

On Jan. 6, Chrysler announced it will add 1,100 jobs at its Jefferson North plant in Detroit, where it makes theDodge Durango and the Jeep Grand Cherokee. On Jan. 13, BMW announced it would add 300 jobs at its Greer, S.C., plant, and on Jan. 12, Daimler said it would add 1,100 jobs at its truck plant in Cleveland, N.C.

US manufacturers are also benefiting from a 23 percent decline in the value of the US dollar since 2002. The lower value makes US exports more competitive and imports more expensive. "This will be a tail wind for US manufacturers for quite some time," saysMark Zandi, chief economist at Moody's Analytics in West Chester, Pa.

Organized labor says it's pleased to finally see a pickup in manufacturing jobs. But as Robert Baugh, executive director of the AFL-CIO Industrial Union Council, observes, the US lost 6 million manufacturing jobs between 2000 and 2011.

"Most is internal, people going back to work," he says. "We have no illusions about how deeply the nation has been affected."

In fact, there is no question that manufacturing job losses are still taking place. Mr. Meckstroth points to food, beverages, apparel, paper, chemicals, and plastics as industries that are still shrinking. Some consumer-oriented businesses are also struggling, as are those in the housing market.

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