US Manufacturing Revival: Nostalgia vs Economic Reality

The call to safeguard America's industrial strength has echoed since Ross Perot's prophetic warning in 1993 about the "giant sucking sound" resulting from the Nafta trade deal. This notion gained momentum during Donald Trump's presidency as he vowed to reclaim jobs lost to such agreements. Joe Biden similarly pledged to "rebuild the backbone of America" by focusing on manufacturing and the middle class. Fast forward to 2024, Trump revisited this theme, promising that “jobs and factories will come roaring back into our country.”

Despite the allure of resurrecting the manufacturing sector, reality has presented a different picture. Many promises have fallen short of transforming the sector into a major employment driver, especially considering manufacturing now constitutes less than 8% of all jobs in the United States.

The political landscape has not benefited much from these promises either. A study indicated that job losses in significant manufacturing areas did not necessarily sway voters toward Trump in 2016. While support for Trump increased in predominantly white regions, it diminished in more diverse areas. Even with Biden's intense focus on revitalizing manufacturing, several rust belt counties that gained from his incentives still leaned towards Trump in the 2024 elections.

The strategy to "restore" manufacturing economically appears as retrograde as attempting to return agriculture—which employs less than 2% of Americans—to its 19th-century centrality in the economy.

Protectionist policies such as tariffs, heavily favored by Trump, inadvertently hamstring American manufacturers by boosting the cost of imported equipment and materials, crucial to domestic production. According to a survey by the National Association of Manufacturers, 91% of respondents rely on such imports.

While Biden's policies were less detrimental, they were not more successful. Even with substantial government aid, manufacturing output has not bounced back to pre-pandemic levels and remains reminiscent of two decades ago, with little resurgence in manufacturing jobs.

The Biden administration’s efforts, including major financial commitments through the Inflation Reduction Act, the Chips and Science Act, and the Infrastructure Investment and Jobs Act, inadvertently increased manufacturing costs by raising prices on capital goods and labor, and by maintaining several of Trump's trade barriers.

Factory construction surged, yet investment in industrial equipment lagged. Infrastructure spending, despite federal funding, did not translate to growth in essential areas like bridges and highways, as noted by a Harvard analysis by Jason Furman.

The decline of manufacturing mirrors the broader evolution of the US economy, which has shifted focus towards service sectors such as finance and healthcare—a transformation seen in other advanced economies.

Research indicates a 21% reduction in manufacturing firms from 2002 to 2022, despite a 10% overall increase in US businesses. Notably, industries like beverages and tobacco products have thrived, buoyed by trends in specialty drinks.

Historically, manufacturing saw swift productivity gains, allowing production to expand even with stable or lower employment. However, this productivity growth plateaued roughly 15 years ago, contrasting with continued productivity enhancements across other sectors.

While some strategic industrial investments make sense—such as in sectors critical to national security or environmental sustainability—the attempts to revive manufacturing based on nostalgic views are misguided. Though manufacturing jobs generally offer higher wages, the focus should be on improving wages for low-paid service workers rather than employing protectionist measures that adversely affect American consumers.