No, the U.S. Industrial Base Is Not Collapsing
Our manufacturing output, even adjusted for inflation, is near all-time highs.
If you believe the political rhetoric, you probably think America's industrial base has been hollowed out, gutted, or "shipped overseas." Across the ideological spectrum, people say U.S. manufacturing is in decline. They argue mostly about who's to blame and how many tariffs we need to fix the problem.
This widely told tale is wrong.
For one thing, for all the talk of job losses and economic decline, it's worth remembering that the unemployment rate is a very low 4.1 percent, and real wages (those adjusted for inflation) have been growing. If anything, manufacturing is suffering a labor shortage, with more than 600,000 open jobs in the sector.
It's also worth noting that U.S. manufacturing output, even adjusted for inflation, is near all-time highs. While about 5 percent below its December 2007 peak, it's up 177 percent compared with 1975, the year America last ran an annual trade surplus. Industrial production—manufacturing, mining, and utilities combined—is higher than ever. That's hardly a collapse.
A principal source of confusion is the difference between jobs and output. Yes, the number of workers in manufacturing has declined dramatically—from around 19 million in 1980 to about 13 million today. But that didn't happen because America stopped making things. It happened because we got incredibly good at making things.
Productivity in manufacturing has surged thanks to automation, technology, and global supply chains. Just as we now produce more food than ever with just over 1 percent of Americans working in agriculture (down from around 75 percent in 1800), we produce more manufactured goods with far fewer workers. That's not economic decline; it's progress.
Also fueling the perception of decline are regional factors. Shuttered factories in Detroit or Youngstown, Ohio, bring concentrated pain and struggle for affected workers. No one denies this. But manufacturing didn't disappear; it relocated and upgraded.
That makes conversations about its so-called demise counterproductive. The conversation should be about how we can best help these communities, including empowering them to benefit from changes that have been more helpful than harmful for the country as a whole.
High-tech manufacturing has boomed in other parts of America, creating jobs in aerospace, semiconductors, pharmaceuticals, and advanced machinery and services. These jobs command much higher wages than manufacturing jobs used to. Output of computer and electronics products has grown 1,200 percent since 1994. Motor vehicle output is up well over 60 percent. America and its workers excel in these industries, where we have significant comparative advantages.
The biggest job and output losses were in sectors like apparel, textiles, and furniture. Apparel and leather goods output, for example, have fallen more than 60 percent since 2007. Should we do something about this?
If we could reverse these trends, it would mean pushing relatively prosperous manufacturing workers back into lower-paying jobs making clothing and shoes. If we could generate a manufacturing boom, we still wouldn't turn back into a nation of factory workers, because the way to manufacturing competitiveness is through automation.
Then there's the reality that young people would rather work in the service industry. That leads us to another myth: that a service-heavy economy is somehow weak or unproductive. In truth, services now make up about 79 percent of U.S. gross domestic product. That's what rich economies look like. As we grow wealthier, our demand for services such as health care, education, and entertainment rises relative to demand for manufactured goods.
It's a consequence of rising prosperity, which also spurs innovation and helps explain why manufacturing gets more efficient. As service-sector jobs become more attractive, manufacturers must raise wages or invest in labor-saving technology to compete for workers. If Americans today were willing to work for 1950s wages in 1950s factories, we'd have less automation. We'd also be much poorer.
Finally, some argue we must protect domestic industries like steel or semiconductors for national security reasons. Even famed economist Adam Smith, who laid out the case for free trade, carved out an exception for defense. But the notion that defense protectionism creates all that many jobs is another myth. They will be offset by job losses in other U.S. industries.
"America doesn't make anything anymore" is a powerful talking point, but it's false. We make plenty, including some of the most complex, high-valued goods in the world, from aircraft to pharmaceuticals to advanced electronics. Our workers don't make many T-shirts or toasters; other countries can do it more cheaply. And the more successfully we produce and export advanced machinery, the more foreign goods we can afford to import.
America's industrial base is not collapsing. It's evolving—becoming more productive, more specialized, and more capital-intensive. Protectionism won't bring back the past or revive old jobs. It will just make the future more expensive and shift workers into lower-paying jobs.
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