Made in the USA

1. American manufacturing's rise to global dominance (1865-1940) transformed the nation

"Between 1865 and 1900 the annual primary energy use multiplied nearly 12-fold and average per capita use nearly tripled."

Unprecedented growth. The period between the Civil War and World War II saw the United States transform from a largely agrarian economy to the world's leading industrial power. This transformation was driven by several key factors:

• Technological innovations: Steel production, electricity generation, telecommunications
• Abundant natural resources: Coal, oil, iron ore
• Large domestic market and expanding transportation networks
• Entrepreneurial spirit and business innovations

Key industries and innovations:

• Steel: Bessemer process, open-hearth furnaces
• Electricity: Edison's electric light and power systems
• Transportation: Railroads, automobiles (Ford's Model T and assembly line)
• Communications: Telephone, radio

By 1890, the US had surpassed Britain as the world's largest manufacturer, and by 1914, it produced more than a third of the world's manufactured goods.

2. World War II mobilization showcased US manufacturing prowess but masked productivity issues

"The inevitable disruptions and inefficiencies associated with a rapid mobilization for war and a similarly rapid postwar reconversion to a civilian economy meant that between 1941 and 1948, growth in manufacturing productivity was actually much lower than during the 1930s."

Wartime production surge. World War II saw an unprecedented mobilization of American industry:

• Aircraft production increased from 6,000 in 1940 to 96,000 in 1944
• Ship production rose from 23 vessels in 1941 to 1,896 in 1943
• 2.6 million trucks, 88,000 tanks, and 257,000 artillery pieces produced

This massive output was crucial to Allied victory, but it came at a cost:

• Emphasis on speed over efficiency
• Influx of inexperienced workers
• Focus on existing designs rather than innovation

Post-war challenges:

• Reconversion to civilian production
• Labor disputes and strikes
• Pent-up consumer demand vs. production bottlenecks

Despite these issues, the war left the US as the world's dominant economic and industrial power, accounting for nearly half of global manufacturing output by 1950.

3. Post-war economic expansion (1948-1973) created the first true mass consumption society

"During the quarter century of postwar economic expansion between 1948 and 1973, America's manufacturing progress made it possible to create, for better or for worse, the world's first true mass consumption society."

The American Dream realized. This period saw unprecedented growth in both production and consumption:

• GDP grew at an average annual rate of 3.8%
• Manufacturing employment peaked at 19.4 million in 1979
• Real wages doubled between 1947 and 1973

Key factors driving this boom:

• Pent-up consumer demand and high savings rates
• Technological innovations (transistors, plastics, jet engines)
• Government policies (G.I. Bill, highway construction)
• Relatively weak international competition

Consumer revolution:

• Automobile ownership: 59% of households in 1950 to 82% in 1970
• Home appliances: Washing machines, refrigerators, televisions became standard
• Suburban expansion: New housing starts averaged 1.5 million annually in the 1950s

This era of prosperity created a large middle class and set expectations for the "American way of life" that would prove difficult to maintain in later decades.

4. Oil shocks and foreign competition in the 1970s-80s signaled the beginning of manufacturing decline

"The combination of rising oil prices and declining American energy productivity made the oil shock of 1973–1974 particularly devastating for American manufacturing."

Economic headwinds. The 1970s marked a turning point for US manufacturing:

• Oil price shocks (1973 and 1979) increased energy and production costs
• Stagflation: High inflation combined with slow growth and rising unemployment
• Increased competition from rebuilt economies (Japan, Germany) and newly industrializing countries

Key industries facing challenges:

• Automotive: Japanese imports gained market share with fuel-efficient models
• Steel: Foreign producers with newer facilities outcompeted aging US plants
• Consumer electronics: Shift of production to Asia began

Policy responses:

• Voluntary export restraints (VERs) on Japanese automobiles
• Trade protections for steel industry
• Efforts to improve energy efficiency and reduce dependence on foreign oil

Despite these measures, US manufacturing's share of GDP and employment began a long-term decline. The trade deficit in manufactured goods, which first appeared in 1971, became a persistent feature of the US economy.

5. Outsourcing and offshoring accelerated the hollowing out of US manufacturing in the 1990s-2000s

"Not a single flat-screen, laptop, or tablet computer, not a single cell phone, not a single digital camera (to say nothing of TVs, DVD, and Blu-ray players, and electronic games) is now made in the United States."

Globalization's impact. The 1990s and 2000s saw an acceleration of manufacturing job losses and plant closures:

• NAFTA (1994) facilitated the movement of production to Mexico
• China's entry into the WTO (2001) opened floodgates for imports
• Advances in logistics and communication technology enabled global supply chains

Industries most affected:

• Textiles and apparel
• Furniture
• Consumer electronics
• Automotive parts

Corporate strategies:

• Outsourcing of non-core functions
• Offshoring production to low-wage countries
• Focus on design, marketing, and high-value activities

By 2010, manufacturing employment had fallen to 11.5 million, the lowest level since 1941. While overall manufacturing output continued to grow, much of this was concentrated in high-tech sectors with relatively low employment.

6. China's economic rise posed unprecedented challenges to American industrial competitiveness

"In 2010 the US trade deficit with China was more than twice as large as the combined deficit with Japan and Germany, making China the United States' most worrisome competitor and presenting the most formidable challenge because the Chinese have felt least constrained to adhere to international norms, both in domestic production and in foreign trade."

The China factor. China's rapid industrialization and export-led growth model created significant disruptions:

• Massive trade imbalance: US-China trade deficit reached $295.5 billion in 2011
• Currency manipulation accusations
• Concerns about intellectual property theft and forced technology transfers

Impact on US manufacturing:

• Job losses: Estimated 2.4 million manufacturing jobs lost to China between 2001-2008
• Downward pressure on wages
• Closure of factories and hollowing out of industrial communities

Policy challenges:

• Balancing consumer benefits of cheap imports vs. domestic job losses
• Addressing China's industrial policies and trade practices
• Maintaining competitiveness in high-tech manufacturing

The rise of China as a manufacturing powerhouse has forced a reassessment of US industrial policy and trade strategies, with ongoing debates about how to level the playing field and revitalize American manufacturing.

7. The retreat of US manufacturing has had profound economic and social consequences

"Perhaps the most disconcerting trend, income inequality resembling more the distribution of wealth in China than in Canada or France."

Economic impacts:

• Stagnant wages for middle-class workers
• Increased income inequality (Gini coefficient rose from 0.39 in 1970 to 0.48 in 2010)
• Persistent trade deficits
• Loss of innovation capacity in some sectors

Social and regional effects:

• Decline of industrial cities and regions (e.g., Detroit, Rust Belt)
• Erosion of middle-class job opportunities
• Increased economic insecurity and social dislocation
• Political polarization and populist movements

Long-term concerns:

• Loss of critical manufacturing capabilities and know-how
• Reduced capacity for innovation in some sectors
• National security implications of reliance on foreign suppliers

The decline of manufacturing has contributed to a broader trend of economic polarization, with growth concentrated in high-skill, high-wage jobs and low-skill, low-wage jobs, while middle-skill jobs have declined.

8. Calls for manufacturing revival face significant obstacles and uncertain prospects

"I see the odds of America's true manufacturing renaissance and the sector's further retreat to be no better than even."

Arguments for revival:

• National security concerns
• Need to balance trade and reduce deficits
• Potential for job creation and innovation
• Reshoring trend due to rising wages in China and automation

Challenges to revival:

• Global competition and established supply chains
• Skill gaps in the US workforce
• High corporate tax rates compared to other countries
• Regulatory burdens and infrastructure deficiencies

Potential strategies:

• Investment in education and workforce training
• Research and development support
• Tax incentives for domestic production
• Strategic industrial policy to support key sectors

While there is growing recognition of manufacturing's importance, the path to revival remains uncertain. Automation and new technologies like 3D printing may change the nature of manufacturing, potentially creating new opportunities but also limiting job growth. The future of American manufacturing will likely depend on a combination of policy choices, technological developments, and global economic trends.

Last updated: October 19, 2024