Manufacturing in the United States

Total manufacturing employment

Manufacturing in the United States is a vital sector.^[1] Manufacturing jobs helped build out the U.S. middle class after World War 2, as the U.S. established pro-labor policies and faced limited global competition. Since the 1990's, several trends, such as the rise of China, globalized free trade, and supply chain innovation, have arguably resulted in the off-shoring of thousands of U.S. manufacturing facilities and millions of manufacturing jobs to lower-wage countries.^[2] Experts continue debating the merits of free trade versus protectionist positions, with job creation or preservation in the manufacturing sector an important topic in the 2016 U.S. presidential election.^[3]

Overview

The U.S. manufacturing industry employed 12.4 million people in March 2017,^[4] generating output (nominal GDP) of $2.2 trillion in Q3 2016, with real GDP of $1.9 trillion in 2009 dollars.^[5] The share of persons employed in manufacturing relative to total employment has steadily declined since the 1960's. Employment growth in industries such as construction, finance, insurance and real estate, and services industries played a significant role in reducing manufacturing’s overall share of U.S. employment. In 1990, services surpassed manufacturing as the largest contributor to overall private industry production, and then the finance, insurance and real estate sector surpassed manufacturing in 1991.

Since the entry of China into the World Trade Organization in December 2001, the decline in manufacturing jobs has accelerated.^[2] The U.S. goods trade deficit (imports greater than exports) with China was approximately $350 billion in 2016.^[6]

The Economist reported in January 2017 that manufacturing historically created good paying jobs for workers without a college education, particularly for men. Unions were strong and owners did not want to risk strikes in their factories due to large capital investments. Such jobs are much less available in the post-1990 era in the U.S. and other developed countries, leading to calls to bring those jobs back from overseas, establish protectionism, and reduce immigration. Manufacturing continues to evolve, due to factors such as information technology, supply chain innovations such as containerization, companies un-bundling tasks that used to be in one location or business, reduced barriers to trade, and competition from low-cost developing countries such as China and Mexico.^[3]

Industry size

The United States is the world's second largest manufacturer, with a Q3 2016 industrial output (nominal GDP, annualized) of approximately $2.18 trillion, a record level. Real output in Q3 2016 of $1.92 trillion (i.e., adjusted for inflation) was still below the 2007 peak before the Great Recession of $1.95 trillion, but has generally been trending upward since reaching a trough of $1.71 trillion in Q1 2009.^[5] The U.S. manufacturing industry employed 12.4 million people in March 2017.^[4]

During 2016, the U.S. exported $1,051 billion in manufactured goods and imported $1,920 billion, a manufacturing goods deficit of $868 billion. The largest exports were transportation equipment ($252B), Chemicals ($174B), Computers and Electronic Products ($116B) and "Machinery-Except Electrical" ($109B).^[7]

History

Panel showing four manufacturing charts, illustrating trends in employment, output, and productivity

Between 1983 and 2005, U.S. exports grew by 340 percent, with exports of manufactured goods increasing by 407 percent over the same period. In 1983, the primary export commodities were transportation equipment, computer and electronic products, agricultural products, machinery (except electrical), chemicals, and food and kindred products. Together these commodities totaled 69 percent of total U.S. exports. In 2005, the primary export commodities were largely the same: computer and electronic products, transportation equipment, chemicals, machinery (except electrical), miscellaneous manufactured commodities, and agricultural products. Together these commodities accounted for 69 percent of total U.S. merchandise exports.

Between 1983 and 2005, exports of computer and electronic products grew by 493 percent, overtaking transportation as the leading export commodity (which grew by 410 percent). Though agricultural products exports grew by 26 percent during this period, its share of overall merchandise exports fell from 12 percent in 1983 to 4 percent in 2005.

In 1983, the top trading partners for U.S. exports were Canada (21 percent of total merchandise exports), Japan (11 percent), United Kingdom (5 percent), Mexico (4 percent), Germany (4 percent), the Netherlands (4 percent), Saudi Arabia (3 percent), France (3 percent), Korea (3 percent), and Belgium and Luxembourg (2 percent).

In 2005, the top markets for U.S. exports were Canada (24 percent), Mexico (13 percent), Japan (6 percent), China (5 percent), United Kingdom (4 percent), Germany (4 percent), South Korea (3 percent), the Netherlands (3 percent), France (2 percent), and Taiwan (2 percent). Between 1983 and 2005, exports to Mexico increased by 1,228 percent, allowing it to replace Japan as the second-largest market for U.S. exports.

In the first quarter of 2010, overall U.S. merchandise exports increased by 20 percent compared to the first quarter of 2009, with manufactured goods exports increasing by 20 percent. As in 2009, the highest export commodities were transportation equipment, computer and electronic products, chemicals, machinery (except electrical), agricultural products, and miscellaneous manufactured commodities.

In the first quarter of 2010, the primary markets for U.S. merchandise exports were Canada, Mexico, China, Japan, the United Kingdom, Germany, South Korea, Brazil, the Netherlands, and Singapore. With the exception of the Netherlands, exports to all of these countries increased in the first quarter of 2010, compared to the same quarter in 2009. Notably, exports to Canada increased by 22 percent, Mexico by 28 percent, and China by 47 percent over this period. Exports to the two NAFTA partners accounted for nearly one-third (32 percent) of U.S. merchandise trade in the first quarter of 2010.

Modern manufacturing

The Economist reported in January 2017 that manufacturing historically created good paying jobs for workers without a college education, particularly for men. Unions were strong and owners did not want to risk strikes in their factories due to large capital investments. Such jobs are much less available in the post-1990 era in the U.S. and other developed countries, leading to calls to bring those jobs back from overseas, establish protectionism, and reduce immigration. Manufacturing continues to evolve, due to factors such as information technology, supply chain innovations such as containerization, companies un-bundling tasks that used to be in one location or business, reduced barriers to trade, and competition from low-cost developing countries such as China and Mexico.^[3]

Manufacturing is conducted among globally distributed supply chains, with various stages of production conducted in different countries.^[8] For example, automotive parts may be manufactured in the U.S., shipped to Mexico for assembly, then sent back to the U.S. In some cases, the components of the final product cross the border multiple times. An estimated 40% of the value of U.S. imports from Mexico is from content produced in the U.S.; this figure is 25% for Canada but only 4% for China. This "production sharing" is an indication of the integrated nature of the supply chains between the U.S., Mexico and Canada in the NAFTA region.^[9]

The largest manufacturing industries in the United States by revenue include petroleum, steel, automobiles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, and mining. A large portion of U.S. industrial output, the United States leads the world in airplane manufacturing. American companies such as Boeing, Cessna (see: Textron), Lockheed Martin (see: Skunk Works), and General Dynamics produce a vast majority of the world's civilian and military aircraft in factories stretching across the United States.

Manufacturing employment and trade policy

U.S. manufacturing employment has declined steadily as a share of total employment, from around 28% in 1960 to 8% in March 2017. Manufacturing employment has fallen from 17.2 million persons in December 2000 to 12.4 million in March 2017, a decline of about 5.7 million or about one-third.^[4] An estimated 1-2 million of the job losses in manufacturing 1999-2011 were due to competition with China, which entered the World Trade Organization in December 2001.^[2]

While U.S. manufacturing employment is down, output was near a record level in 2017 in real GDP terms, indicating productivity (output per worker) has also improved significantly.^[10] This is likely due to automation, global supply chains, process improvements, and other technology changes.^[2]

Economist Paul Krugman argued in December 2016 that due to the long-term decline in manufacturing as a share of overall employment, "America’s shift away from manufacturing doesn’t have much to do with trade, and even less to do with trade policy." He also cited the work of other economists indicating that the declines in manufacturing employment from 1999-2011 due to trade policy generally and trade with China specifically were "less than a fifth of the absolute loss of manufacturing jobs over the period" but that the effects were significant for regions directly impacted by those losses.^[11]

International comparison

The Congressional Research Service reported in January 2017 that:

• "The United States’ share of global manufacturing activity declined from 28% in 2002, following the end of the 2001 U.S. recession, to 16.5% in 2011. Since then,the U.S. share has risen to 18.6%, the largest share since 2009. These estimates are based on the value of each country’s manufacturing in U.S. dollars; part of the decline in the U.S. share was due to a 23% decline in the value of the dollar between 2002 and 2011, and part of the rise since 2011 is attributable to a stronger dollar.
• China displaced the United States as the largest manufacturing country in 2010. Again, part of China’s rise by this measure has been due to the appreciation of its currency, the renminbi, against the U.S. dollar. The reported size of China’s manufacturing sector decreased slightly in 2015 due to currency adjustments.
• Manufacturing output, measured in each country’s local currency adjusted for inflation, has been growing more slowly in the United States than in China, South Korea, Germany, and Mexico, but more rapidly than in most European countries and Canada.
• Employment in manufacturing has fallen in most major manufacturing countries over the past quarter-century. In the United States, manufacturing employment since 1990 has declined in line with the changes in Western Europe and Japan, although the timing of the decline has differed from country to country.
• U.S. manufacturers spend far more on research and development (R&D) than those in any other country, but manufacturers’ R&D spending is rising more rapidly in several other countries.
• Manufacturers in many countries appear to be spending increasing amounts on R&D, relative to their value added. U.S. manufacturers spend approximately 11% of value added on R&D, an increase of more than three percentage points since 2002. A large proportion of U.S. manufacturers’ R&D takes place in high technology sectors, such as pharmaceutical, electronics, and aircraft manufacturing, whereas in most other countries the largest share of R&D occurs in medium-technology sectors such as automotive and machinery manufacturing."^[12]

See also

• Manufacturing in the United Kingdom
• National Network for Manufacturing Innovation
• U.S. Chamber of Commerce

Further reading

• McCormack, Richard; Prestowitz, Clyde; Heidenger, Kate; Russo, John (2009). Manufacturing a Better Future for America. Alliance for American Manufacturing. p. 0615288197. 

References