It is impossible to ignore the fact that over the last half-century there has been a persistent decline in the share of total employment in the U.S. attributable to manufacturing. Recently, there has been an alarming drop in the absolute number of manufacturing employees. Many of the largest U.S. corporations continue to shift their production facilities overseas. The fall in manufacturing employment post-2000 has coincided with the U.S. trade deficit, but the problem with U.S. manufacturing is more complex than one for which another country or groups of countries can be blamed.
Economists Martin Neil Baily and Barry P. Bosworth (“U.S. Manufacturing: Understanding Its Past and Its Potential Future,” Journal of Economic Perspectives, Winter, 2014, 3-26) suggest that trade imbalances largely reflect a gap between the willingness of residents of one country to save and the willingness, at the same time, for foreigners to invest in that country. What they are suggesting is that the U.S., and its manufacturing in particular, remains an area of significant technological innovation. Therefore, the U.S. has continued to attract global capital that feeds its way into U.S. private and government spending abroad.
Baily and Bosworth argue that, although consumption has increased in the past decades, a falling share of total U.S. spending is used to purchase manufactured goods and, in particular, goods produced in the U.S. Due to the twin deficits of federal government entitlement spending and international trade, major sectors of the economy have experienced negative job growth, with manufacturing being among the hardest hit.
Economists agree that manufacturing is important in creating higher-paying jobs, insuring against supply disruptions and maintaining U.S. comparative advantage in research and manufacturing machinery. It does not follow, however, that the manufacturing sector justifies special treatment. Nevertheless, in order to offset its large global trade deficit and provide well-paying employment, the U.S. must become a better exporter, particularly of manufactured products.
Appropriate methods of supporting manufacturing include: reducing the federal budget deficit to increase total national saving; negotiating trade agreements to pry open foreign markets; reducing the U.S. corporate tax rate, which is the highest rate among economically advanced nations; reversing the deterioration of U.S. workforce skills; and repairing and modernizing physical infrastructure.
Corporations have shifted away from the prior model of large integrated production units to focus on product design and marketing. They undertake little of their own production, but contract with firms that are part of transnational production networks. Capital and technology move around the globe in search of available skilled and unskilled labor and good manufacturing environments.
Some of this manufacturing is in “processing trade,” an activity whereby locals add value to imported inputs that are assembled into higher-value intermediate or final products and then re-exported.
There is some indication that robotics, 3-D printing and less-expensive energy supplies will assist in a revival of the U.S. manufacturing sector. In the meantime, we are in need of knowledgeable and proficient jobbers willing to assume personal financial risk by jumping onto the global processing supply chain in order to bring home well-paying jobs for local residents.