A common perception is that the U.S. “doesn’t make anything anymore.” According to this narrative, the country is a former manufacturing titan brought low by the forces of globalization that have left the rusting hulks of once‐humming factories in its wake. But The Wall Street Journal (April 2, 2024), quotes a recent Cato Institute study that U.S. manufacturing accounts for a larger share of global output than Japan, Germany, South Korea and India combined.
It appears that America’s productivity is far ahead, too. In 2019, the value added by the average American manufacturing worker was $141,000, exceeding second-place South Korea by more than $44,000 a worker and China by more than $120,000.
Global markets reflect this strength. Between 2002 and 2021, U.S. manufacturing exports more than doubled, with sales second only to China, which dominated low-end production. America’s success is thanks to its ability to move from low-tech, less-productive sectors to higher-value ones such as computers, pharmaceuticals, medical and scientific instruments, aerospace, and electrical machinery. (The U.S. even understates its performance because its definition of manufacturing is old. Software, for example, now accounts for about half the value of a new car).
American manufacturing is productive, requiring fewer workers. Consider the much-protected steel industry. U.S. steel output increased 8% between 1980 and 2017, despite a workforce 1/4 its prior size. America isn’t the only country moving to higher-productivity manufacturing with fewer workers. From 1976 to 2016, manufacturing employment fell by 1/2 in Germany and 2/3 in Australia.
The U.S. has adapted to huge economic transitions before. In 1900, some 40% of Americans toiled in agriculture. Today farmers account for 1- 2% of workers, but they grow much more food. Between 1948 and 2017, U.S. agricultural output tripled while the number of hours worked plunged 80%.
The U.S. economy’s evolution from agriculture to manufacturing and now to services, a topic we discuss in Chapter 1, reflects changes in what Americans buy. Today, that means spending on healthcare, entertainment, sophisticated equipment and education. Commercial services now account for a quarter of all exports, with computers, research and development, and health activities in the forefront.
The 21st-century economy, including modern manufacturing, will depend on innovation in AI, quantum computing and other technologies.
Classroom discussion questions:
- Explain the 2 models by which productivity is measured.
- What are the main strengths of U.S. manufacturing?