Manufacturing Needs the Right Policies to Drive Competitiveness

Commercial Tort Costs Put the U.S. at a Cost Disadvantage

Another impediment to U.S. manufacturing competitiveness is the expense of defending against tort claims. Overall, tort claims and the attendant litigation cost 1.7% of GDP. The U.S. tort system is more expensive than for all our major competitors—and more than twice as expensive as in Germany, Brazil, France, Korea, Japan, and China. Everyone pays as a result of these expenses, which are incorporated into the cost of doing business: product prices are higher, healthcare costs rise, and with lower funds, new investment and product development are crowded out.

Legislation in the mid-2000s limited some of the more problematic areas of the U.S. tort system (such as linking attorney compensation to amounts claimed rather than amounts awarded in class action suits and preventing “jurisdiction shopping” to plaintiff-friendly courts), and this has changed behavior.

Nevertheless, the U.S. tort system is fundamentally different from most systems elsewhere in the world in that each party pays its own legal costs. In almost all other countries, the plaintiff must pay all or part of the defendant’s legal costs in the case of judgment in the defendant’s favor. Because of the strong disincentives for groundless and trivial lawsuits in such systems, it is unlikely that the foreign advantage will disappear without more fundamental changes to the incentive structure in the U.S. system.