This Is Our Chance To Redefine What "Made in America" Really Means
The recent emphasis placed on initiatives attempting to resurrect America's manufacturing industry coincides with a decreasing of the nation's trade deficit. Despite the economic benefits increased manufacturing output can have on the economy, globalization might not allow the U.S. to regain it's manufacturing dominance.
In 1970, manufacturing accounted for 24.3% of U.S. GDP and employed 25% of the American workforce. By 2010, the lingering effects of the 1970's energy crisis, global competition, and deindustrialization caused manufacturing to slip to just 12.8% of U.S. GDP, with manufacturing workers comprising a little over 10% of the total workforce. Data shows that this is not an uniquely American phenomenon. The U.S.' share of global manufacturing output hasn't dropped much since the 1970s and wages have actually been rising despite the decline in manufacturing's share of GDP, suggesting the industry is becoming more high skill labor and machine intensive.
America's dominance in a diverse range of manufactured products may be over for good, given the intense competition from low wage labor in developing nations. If more American products were mandated to be produced domestically, similarly to "buy American" legislation, prices for consumers would rise and capital would be put to less productive use.
According to U.S. census data, 17 of the 18 most rapidly declining industries in terms of employment were either in manufacturing or the textile, fabric and paper milling industries. Textiles have a long history in America and may even be partially connected to the start the civil war. Throughout the years, textiles and closely related clothing manufacturing industries have seen their competitive advantage evaporate as traditionally unethical labor practices were ultimately addressed through legislation, the mafia infiltrated the garment industry, and foreign competition eventually stripped its market share. A similar scenario plays out in the other effected industries usually ending with loss of market share to foreign firms.
Following the end of WWII, American dominance and manufacturing market share began to shift to competitive rivals in the developing world, especially East Asia. The comparative advantage these countries possessed over the U.S. eventually necessitated off-shoring in order to remain competitive on the world market. The money not spent on manufacturing left corporations with more capital to invest in areas the nation possessed comparative advantages in, such as high skill intensive services because of its relative abundance of highly skilled workers compared with developing nations. Its not surprising that almost all the industries with the largest and fastest projected growth are in services.
Imagine if tomorrow, Congress was able to miraculously pass legislation mandating American-based firms to shift 20% of their outsourced production back to the U.S. This would raise production costs leading to reductions in output and almost assuredly increases in consumer prices. For example, what if Nike were forced to start making 20% of its foreign made shoes at home? Lets say they produce one billion shoes abroad at an average cost of $2 a shoe in Southeast Asia compared to labor costs of $7 a shoe in the U.S. for labor. This means this legalisation would more than double the costs of production for these 200 million shoes from $400 million to $1.4 billion, an $1 billion increase! This would mean higher costs and a scarcer supply of shoes. It may be unpopular, especially in the absence of fair warning allowing for the workforce to adjust, but delaying taking appropriate competitive measures such as factory relocation hurts both domestic firms and consumers.
Globalization gives poorer nations the opportunity to improve their economic status, and provides richer nations with the opportunity to focus on the things they are relatively more proficient at. As someone who appreciates and actively supports U.S. made products in industries dominated by foreign manufacturers such as clothing and increasingly automobiles, the fact of the matter is the majority of domestically consumed goods and services are already being produced in America and for the time being we can benefit from having other countries making some products for us. This does not mean we shouldn't still strive for greater domestic manufacturing efficiency and innovation, which will lower the cost of keeping and reshoring manufacturing operations. The "Made in America" badge of authenticity still denotes a high level of quality, which many global consumers are willing to pay a premium for. The push for greater domestic manufacturing output and jobs must also ensure economic and environmental sustainability and livable wages for workers. As the recent history of Detroit shows us, the inability of individuals, businesses, and politicians to adjust to changing market conditions can have disastrous effects.