What Happened to American Manufacturing And How to Recover
Issue 15, Volume 113
By Seth Fenton
Though it’s hard to believe today, the U.S. was once the world’s dominant manufacturing power. Post World War II, America produced over 50 percent of all goods utilized worldwide and maintained nearly 40 percent of the global GDP. However, America now maintains only 16.6 percent of global manufacturing capacity and roughly 25 percent of the planet’s GDP. That’s an enormous 34 percent decline in our capacity to produce relative to other nations and a vast reduction in our economic size relative to the rest of the global community. This is not to say America was in a better place back then. It was awful, with practically every policy being morally dubious. What it does speak to, though, is a general decline in our global influence in this sector regardless of the nation’s unrelated policies. Much of this decline was inevitable; it’s far easier to settle for industrial parity with even the most advanced countries than for a nation to keep innovating at a much higher speed than its competitors. While the general rise of global wealth is a good thing, especially for developing nations, America’s decline as a manufacturing superpower is a negative byproduct because it makes our supply lines far easier to disrupt.
However, our policies have also historically utterly failed to encourage industrial growth. We took our position as the number one manufacturer globally for granted, partially because the U.S. has built a strong service sector that has driven much of our economic growth in recent years, drawing focus away from manufacturing. Furthermore, former president Ronald Reagan’s deregulation of businesses and incredibly strong dollar made it difficult for U.S. manufacturing firms to compete without offshoring production. Later on, former president Bill Clinton’s efforts to strengthen the informational technology sphere did so at the expense of our manufacturing resiliency, which only got worse as he also pursued deregulation. In the end, we lost the ability to sustain consumption, specifically in the tech industry, and we cannot produce semiconductors without a vast number of relatively unstable imports. Another less directly threatening but still important effect of this manufacturing decline is the steady collapse of our global influence due to a decline in our exports.
Since we’ve lost about two-thirds of our share of global manufacturing in the past eight decades, the majority of the demand gap left by this decline has been picked up by developing economies. This shift in production has been most exemplified by China, which has utilized its immense population, incredibly low regulatory compliance, and its status as a massively attractive destination for foreign capital to build up insanely high industrial productivity. This means that U.S. manufacturers have to cope with a market in which they aren’t the first choice for a company to build new factories. This is especially true due to America's higher wages relative to other manufacturing powerhouses, which make the cost of running similar operations far higher than that of our competitors. But to be clear, I am not saying we should follow China's path to industrial dominance—their economic achievements were built on the backs of an abused lower class, ignored child labor laws, and a series of cut corners that I would never want to implement in the U.S. The good news is that increasing manufacturing power and protecting the morals of our labor system is a false dichotomy. The U.S. has an immense number of technological and monetary advantages over other nations, which could allow us to boost our productivity and potentially even regain the number one seat without ever severely abusing our workers. In fact, bringing back our manufacturing capability could very well expand access to high-paying jobs that provide a good quality of life, since a labor shortage in the industry makes every individual worker incredibly valuable.
The sheer instability of domestic supply lines is especially apparent during global disruptions, such as the COVID-19 pandemic. As trade declined due to global pandemic restrictions, we became increasingly reliant on disrupted imports. Even this massive disease was a relatively small disruption. While the virus definitely slowed global trade, it did far less than the 2007 global economic crisis. That itself did far less damage than the fundamental destruction of our technological supply chains that could be caused by numerous geopolitical flashpoints, including a hypothetical Chinese invasion of Taiwan, which in the status quo would induce the greatest economic collapse since the Great Depression.
While some of the damage over the past several decades is irreversible, the U.S. still has a powerful enough industrial sector to lead us into a bright manufacturing future with proper governmental support. In recent years, the CHIPS and Science Act and the Executive Order On America’s Supply Chains (its official title) have led to a relatively recent American manufacturing boom, especially in key industries like semiconductor manufacturing. These bills are steps in the right direction, but more could be done to ensure an American manufacturing rebirth. To start, as mentioned earlier, American research and development is still the best in the world, but our factories remain less technologically advanced than many of our competitors. This is due to a lack of applied proof of concept research because it’s simply less profitable in the short term. The government should seek to set up a program to help incentivize American firms to produce research in this vital area. This could be done through a modification or expansion of the existing Manufacturing Extension Partnership or the creation of a new program, but either way, it would vastly improve the efficiency of our factories. We should also require the government to purchase the majority of needed goods from American manufacturers that meet wage and workforce training standards. This helps indirectly fund a manufacturing buildout while also incentivizing firms to treat their laborers well and provide them with a diverse skill set to receive coveted government contracts. Finally, we should streamline the legal immigration of skilled laborers, allowing them to lessen our labor shortage. All of these initiatives taken together would help America recover and perhaps even reclaim its formerly coveted place as the number one global producer of industrial goods. The results of whatever plans the government puts into place will determine the future of our nation for the next several decades, and as people living in this country, it is our responsibility to do our collective best to ensure that the government implements a successful industrial growth policy. Otherwise, our nation’s future will be challenging, to say the very least.