EP5.4: Can Manufacturing Come Back?

As I said in the video, the DNA of the world has changed. Tariffs can’t undo 30 years of manufacturing decline. But what I couldn’t mention in the video is manufacturing never really shrank in America, depending on how you measure. And it’s a good starting point for bringing some of it back.

Three Views of ‘Manufacturing Decline’

There are many ways to look at the state of manufacturing in our economy. I’ll explore three here: as a share of GDP, as a share of global production, and total output vs value-add. (You can see why this wonky stuff is impossible to do in a short video). That last one gets at the question of dollars vs. units. The latter being more interesting since China is purposely devaluing its currency to juice exports.

1. Let’s start with the obvious – manufacturing as a percent of GDP has been falling. Depending on the year and source, manufacturing is down to about 11% of GDP from 28% in the 60s. That’s exactly where it is now in China. By itself, this is not necessarily a negative. It just as easily shows we’ve successfully diversified our economy in ways others have not. (I’ll explain later in this series, that diversification is also a double-edged sword.) Either way, production is less pivotal to our economy…at least in dollars.

2. A second way to look at production is compared to world manufacturing output. Here, things start looking better for the US. As we’re down slightly from 1980 to 2023 from 211 to 17.2%. Meanwhile, China is on a tear, producing almost 29% of the world’s manufactured goods.