Trying to Revive American Manufacturing Is a Fool's Errand


The phrase “Made in the USA” is music to American ears, bringing to mind a salt-of-the-earth workingman making a quality product at a good wage, likely before driving his Chevy home to his modest house to greet his three children and cute dog. This emotional resonance has made American manufacturing a staple of political speeches, news reports, and Bruce Springsteen songs. Recently, news outlets have seized on anecdotes about companies bringing their manufacturing back to the United States. These rumors of a “manufacturing renaissance” are greatly exaggerated. As a share of the economy, manufacturing will continue to decline as it has since the 1970s, and the manufacturing jobs of the future will be high-skill enterprises that barely resemble the Detroit factory lines of yesteryear. If politicians try and fight this inevitable trend, they will only cause more economic harm to Americans in the long term.

The "manufacturing renaissance" narrative, advanced by TIME, The Atlantic and other media outlets, is that the rising costs of Chinese labor combined with falling American energy prices will make America an attractive place for manufacturing again. This narrative is little more than wishful thinking and sugarplum delusions completely unsupported by economic data.

American manufacturing employment has been in decline since 1979, when the sector employed a record high 19.6 million employees, even as American manufacturing output — the total value of goods produced by the American manufacturing sector — steadily increased. Automation has allowed American factories to produce more with fewer workers, and globalization has allowed corporations to move production of labor-intensive goods to factories overseas. On the whole, this has been good for Americans, because although some workers have seen their jobs eliminated, everyone has been able to enjoy the lower costs of consumer goods, which is functionally identical to a pay raise, since workers can purchase more with their salaries.

There have been no fundamental changes in American manufacturing competitiveness since the recession, and the small uptick in manufacturing jobs is just a correction from the recession, not evidence of a manufacturing renaissance. The average price of imported goods is still getting cheaper, falling 0.5% in April, and studies from both the Dallas and Kansas City Federal Reserve banks have observed major declines in manufacturing activity in the past two months. Though manufacturing costs are rising in China, manufacturing will move to lower-cost countries like Bangladesh, not back to American factories. And although there will always be some high-skill manufacturing jobs in America, these jobs will be mostly working in middle management and with computer systems, not performing the kind of unskilled labor that used to provide good wages to blue-collar workers.

Faced with this pessimistic outlook on American manufacturing, politicians have done what they do best – make empty promises. In the 2012 elections, both Barack Obama and Mitt Romney told voters they would bring back American manufacturing jobs, Romney through lower corporate taxes and Obama through specific tax breaks for manufacturing combined with direct government investment in industry. These positions were politically savvy, since polling shows voters believe manufacturing jobs are essential to the economic recovery. As public policy however, they would be meaningless at best and harmful at worst.

Lower corporate taxes would certainly boost overall American economic competitiveness, but the benefits would hardly be enough to overcome the forces driving manufacturing overseas. No matter how low American taxes are, labor will always be cheaper in third-world countries and automation will always be more appealing than relying on large amounts of expensive skilled labor. Specific tax breaks for manufacturing would likewise be too little too late. Direct government investing, most notably in the green technology sector, won’t lead to meaningful improvement in the manufacturing sector because government makes a lousy venture capitalist. It is inevitably forced to make loans based on political incentives instead of business viability. Even if technocrats could make effective investments in green technology, it would be like throwing a life preserver to a drowning man heading over Niagara Falls — he’d stop drowning, but the fall would still kill him.

American manufacturing as a source of low-skill employment with good wages is gone, and no amount of wishful thinking or half-baked political proposals will bring it back. In the face of this inevitability, Americans should move on. Our economy will survive the transition away from manufacturing just like we survived the end of widespread agricultural employment. It won’t be painless, since workers will need more skills than they did before and widespread automation threatens to erode jobs in the service sector as well as in manufacturing, but America will be unable to confront the future if it cannot abandon revanchist economic thinking for halcyon days that will never return.