AIF Blog

Has the Death of American Manufacturing Been Exaggerated?

Jul 11, 2017
CATEGORY: Economy

By Krishnadev Calamur, The Atlantic

Manufacturing’s share of U.S. employment has been on a steady decline since the end of World War II. In May, the figure touched 8.48 percent, the lowest level since the Labor Department first began keeping records in 1940. The decline has been linked to the growth in income inequality, the weakening of the American middle class, and the rise of populist politics. But as the country appears to rethink free trade and automation appears to be finishing what trade agreements like NAFTA began, U.S. manufacturing still has some things working to its advantage.

Lisa Cook, a professor of economics at Michigan State University who worked on President Obama’s transition team, said it “was industrial production that was getting us out of the recession. So we were watching that very closely.”

Manufacturing, which represents 12 percent of GDP, is the “essence of … high-value exports from this country,” Cook said at a Thursday session at at the Aspen Ideas Festival, which is cohosted by The Aspen Institute and The Atlantic. And while manufacturing’s share of the U.S. economy has declined, it still draws more than a third of foreign direct investment in the country, and foreign companies still employ nearly 1 in 5 people in manufacturing jobs . “This represents good jobs in America,” Cook said, adding “This is where family wealth came from in America.”

Economists are rethinking the factors that drove manufacturing away from the U.S. to cheaper destinations like China and Mexico. In recent years, there has been some “reshoring” of manufacturing jobs to the U.S. Jamie Bonini, a vice president at Toyota who spoke on the same panel as Cook, said cheaper labor costs abroad are just one consideration for businesses that might migrate their factory work overseas. Companies that “can make a product here in North America, near to their customer, much faster than they could ever in most cases do it if they move that production to a different site where the labor costs may be lower … [it’s the] more profitable proposition—even if one factor, of costs, [is] a little more,” he said.

Cook agreed. “It’s not just the cost of the worker,” she said. “First of all, I think the bigger question is how productive the worker is: We still have the most productive workers in the world. So, yes they are more expensive, but I would say … we need to stop thinking about just the cost of the worker. And we need to start thinking about the total product: … [the] human capital, … the rule of law that are part of this supply chain that I’m talking about.”

During the Obama years, manufacturing did make a comeback—even if it did not bring with it the hundreds of thousands of jobs it had once created. The Obama administration made a push for advanced manufacturing to create high-quality jobs, but the fact remains the U.S. has a singular advantage over its often cheaper-rivals: established supply chains. “Grand Rapids has been the source of furniture manufacturing for over 150 years,” Cook said. “Chicago is a place where there have been supply chains for over 150 years. UMass Lowell has been one center of advanced manufacturing. Lowell is the center of the industrial revolution in the United States—so over 200 years.”

“I would say,” she went on, “it would be very difficult to replicate these supply chains and these lineages that we’ve had and that we have a comparative advantage that we don’t think about.”

But there are challenges to this advantage: prime among them the state of the U.S. infrastructure, which President Trump says he wants to overhaul with a massive spending bill. “The president is onto something with respect to focusing on infrastructure—that’s the only way the economy is going to grow that we’re going to be able to maintain these supply linkages, that we will continue to have these kinds of comparative advantages,” she said.

This article originally appeared at The Atlantic.

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