Tag: U.S. manufacturing

OM in the News: A Brief History of How the U.S. Lost Its Manufacturing Edge

In the 1950s, 35% of private-sector jobs in the U.S. were in manufacturing. Today, there are 12.8 million manufacturing jobs in the U.S., about 9% of  private-sector jobs. To understand whether restoring manufacturing to the U.S. is possible, it helps to first understand how the U.S. lost its place as the world’s manufacturing powerhouse.

In the early 1900s, the U.S. pioneered the use of interchangeable parts and organizing factors for mass production. World War II prompted a massive increase in manufacturing capacity. In the postwar years, more Americans joined the middle class, driving jumps in spending on the cars and appliances for their newly purchased homes. America was America’s best customer for manufactured goods.

A North Carolina textile mill in 1960, when U.S. manufacturing was still dominant

Many of these goods were high tech for the time, such as dishwashers, TVs and jets, brought about by wartime innovations. Making them in America, as opposed to some other country, made sense because staying on the leading edge required R&D teams working closely with the factory floor. It helped, too, that the U.S. had the most educated workforce in the world.

After the 1950s, manufacturing’s role in the U.S. economy began to slip, writes The Wall Street Journal (April 14, 2025). More people were going to work for service-sector employers such as hotels, banks, law firms and hospitals. Manufacturing employment leveled off, as services jobs grew. Around this time, less developed parts of the world, where labor costs were much lower, began dialing up manufacturing of nondurable goods in Latin America and Asia. The U.S. started importing more and more of those items. Over time, the same thing happened with light durable items, such as blenders.

In the 1980s, things began to change. American manufacturers of nondurable goods had an increasingly difficult time competing with countries where labor costs were lower. That intensified in the 1990s, in part as a result of NAFTA lowering duties on Mexican goods.

There were also job losses at steel producers after developing countries such as South Korea built up their steel industries and left the world awash in excess capacity. But what happened in the 1980s and 1990s pales in comparison to what happened after China joined the World Trade Organization in 2001, opening its country to foreign investment and gaining access to global markets. Manufacturers of low-tech items such as furniture and small household appliances, in particular, suffered.  It was called the China Shock.

The U.S. now exports in excess of $1 trillion-worth of services—far more than any other country.
Classroom discussion questions:
1. How can the U.S. best restore its manufacturing leadership?
2.What makes the U.S. the leader in exporting of services?

OM in the News: Tariffs and a Strategic Move to Reshore Manufacturing

“President Trump has certainly employed tariffs as a strategic tool to reshape the American manufacturing landscape,” writes  UCLA Prof. Chris Tang in Industry Week (March 10, 2025).   The vision driving these initiatives, at its core, aims to bring manufacturing back to the U.S., reduce trade deficits, and protect national security.

Reshoring The central pillar of the strategy is to incentivize both American and foreign companies to establish manufacturing operations here. Imposing tariffs on imported goods provides a financial rationale for companies to rethink their offshoring strategies. The goal is to rebuild a robust industrial ecosystem that produces goods domestically for world markets.

Trade deficits  Most countries impose higher tariffs on American goods than the U.S. imposes on theirs. For example, the U.S. has relatively low tariffs on dairy products, around 25%, whereas Canada imposes tariffs of over 200% on certain dairy imports from the U.S.  With reciprocal tariffs and higher import tariffs, the U.S. seeks to make it less attractive for companies to rely on cheap foreign labor –and more feasible to invest in America. This shift is expected to reduce the trade deficit and boost domestic economic growth.

National Security Implications Dependency on foreign manufacturing in critical sectors like technology and pharmaceuticals poses risks. By encouraging companies to produce these goods domestically, the U.S. can ensure a more secure and reliable supply chain (critical during crises such as the pandemic).

Many firms have shifted operations from China to other countries to avoid paying higher tariffs associated with Chinese imports. For example, Apple shifted some operations from China to friend-shoring countries such as India. Likewise, toy manufacturer Mattel and tech manufacturer HP expanded operations to Mexico as a near-shoring strategy.

A significant outcome on the new tariffs is the renewed focus on building domestic manufacturing capabilities and its significant infrastructure.  Apple plans to invest more than $500 billion in the U.S., Eli Lilly $27 billion, and Taiwan’s TSMC over a $100 billion (for 3 new semiconductor plants).

Rebuilding an industrial ecosystem that was hollowed out over decades requires substantial investment, skilled labor and modern infrastructure. There are many long term benefits, including growing the U.S. economy through economic revitalization.

Classroom discussion questions:

  1. What is the difference between near-shoring, reshoring, and friend-shoring?
  2. Summarize the advantages of tariffs as a tool, according to Prof. Tang.

OM in the News: America Is Back in the Factory Business

Manufacturing has always been an integral part of American life. Paul Revere opened a foundry that produced bells and cannons following his famous midnight ride. Ford’s assembly line made cars affordable to the masses. And U.S. industrial might helped win World War II, when nearly half of private-sector employees worked in factories. That portion plunged after the war, thanks to automation and U.S. companies seeking lower costs overseas.

Here is the good news. The Wall Street Journal (April 8-9, 2023) writes: “Record spending on manufacturing construction heralds a made-in-the-U.S. rebound, stoked by green-energy incentives and concerns about foreign supply chains; this is here to stay.” New factories are rising in urban cores and rural fields, desert flats and surf towns. Much of the growth is coming in the high-tech fields of electric-vehicle batteries and semiconductors, national priorities backed by billions of dollars in government incentives. Other companies that once relied exclusively on lower-cost countries to manufacture eyeglasses and bicycles and bodybuilding supplements have found reasons to come home.

Retailers don’t want to carry excess inventory in their stores, and the U.S. factory allows the company to quickly replenish stock. Time is also of the essence for companies like FutureStitch, which sells socks commemorating events like the NBA Finals or the Kentucky Derby. It has factories in China and Turkey, but just opened a new one in California–the company’s first in the U.S. “There is more and more equity around Made in the USA,” said FutureStitch’s CEO.

Nearly 800,000 jobs were added in the manufacturing sector over the past 2 years. But the industry is actually hurting for workers—about 800,000 more are needed, which has lead to concerns that labor shortages and other bottlenecks could short-circuit the boom.

An despite the surge in factory building, many industries are unlikely to create entirely homegrown supply chains. An automated shoe factory Adidas built in Atlanta so it could get its products to market faster shut down in 2019, two years after its opening. (See our 2017 blog announcing its opening.) The firm moved production to Vietnam and China to achieve what it called “better utilization of existing production capacity and more flexibility in product design.”

Classroom discussion questions:

  1. What factors are driving the manufacturing in U.S. resurgence?
  2. What factors are working against it?

OM in the News: The U.S.’s Supply Chain Review

The U.S. government is directing a broad review of supply chains for critical materials with the aim of spurring domestic production while strengthening ties with allies. As noted in our Feb. 18th blog, chip shortage is squeezing auto makers in the U.S. and world-wide. Cars use chips for numerous systems, including engine management, automatic braking and assisted driving.

The U.S. mandates a review of supply chains for four areas reports The Wall Street Journal (Feb. 25, 2021): semiconductors, used in products from cars to phones; large-capacity batteries used in electric vehicles; pharmaceuticals and rare-earth elements that are key to technology and defense, and supply chains covering six broader sectors, from technology to food production.  Senators Rubio (R., Fla.) and Coons (D., Del.) recommended the government invoke the Defense Production Act to “incentivize or, if necessary, require American companies to retain their domestic capacities during this time.”

Bags of rare-earth concentrates at a California mine. China dominates the market for rare-earth elements.

The government intends to encourage domestic production with incentives such as job-training programs and business loans, in addition to using the federal procurement process for more American-made purchases. “This problem was decades in the making. We can solve it by making smart investments that are long term in nature,” said the National Economic Council. While China was not named directly, it dominates the rare-earths market and is a major player in other supply areas, including pharmaceuticals. “Right now, semiconductor manufacturing is a dangerous weak spot in our economy and in our national security. That has to change,” added Sen. Schumer.

 A group of associations representing technology companies, the automotive industry and other businesses called for action to improve supply chains, including promoting the construction of semiconductor-manufacturing facilities and investing in research.

Classroom discussion questions:

  1. What are the obstacles to revamping these “critical” supply chains?
  2. Are the government incentives sufficient? What else can be done?

OM in the News: Made in America–Again

Looking to 2021 and beyond, there is more reason for hope in U.S. manufacturing than at any time since the 1990s, reports The Wall Street Journal (Dec 17, 2020). Three major themes are gaining traction that will carry manufacturing to new prosperity: a quick recovery from the recession; localization of supply chains (onshoring); and technological advancements that level the playing field between the U.S. and low-cost countries.

U.S. manufacturing lost its lead some time ago. Lack of sustained investment, noncompetitive labor rates and degrading infrastructure opened the door for low-cost countries, notably China, to take the lead as manufacturers shifted production overseas. The end result was an industrial sector that leaked jobs and fell behind in technology. So why a turnaround?

N95 face masks being made at a GM plant in Mich. The auto maker started processing face masks in response to the pandemic.

First, the industry is poised to emerge from the Covid-19 recession much more quickly and robustly than it usually does from downturns.  Data are overwhelmingly supportive of an industrial economy on the mend. With low interest rates and rising order books, manufacturers are boosting investments in both factories and new products.

Second, pre-pandemic, there was already a rising concern around supply-chain risks. Companies that a decade ago felt comfortable as suppliers consolidated and centralized—often solely in China—began to lose faith in globalization and made plans to onshore. Firms began to see that shipping intermediary products halfway around the world and often back again was no longer productive. These concerns were elevated to near panic as supply chains shut down in the early days of Covid. High-profile shortages, such as the lack of PPE, served as a broader wake-up call for the localization of supply-chains.

Third, automation and other technologies are almost at the point where the U.S. can produce the same quantity of product with half of the employees that would be needed in a similar factory in China. And advancements are accelerating. With progress in data analytics, low cost cloud computing and AI, the American factory is evolving into a new age. 

Classroom discussion questions:

  1. Chapter 1 in your Heizer/Render/Munson OM text describes 3 productivity variables. How does each apply in this article?
  2. What other current problems have encouraged the localization of supply chains?

OM in the News: How Services Drag Down Productivity Growth

Technology advances have boosted productivity in many sectors, but we still haven’t figured out how to build a better barber
Technology advances have boosted productivity in many sectors, but we still haven’t figured out how to build a better barber

As we point out in Chapter 1, growth in productivity—the goods and services a worker produces in an hour, a key determinant of wages and living standards—has petered out along with a slowdown in technological advances, which typically reduce the time spent to build a laptop or car. “It has been even more stubborn, though, on the services front,” writes The Wall Street Journal (Oct. 31, 2016). People want their hairdresser, therapists, accountants and lawyers, to take their time, often the definition of good service.

American households spent $8.3 trillion on services last year, more than double their expenditure on goods. Meanwhile, the share of Americans employed in the more-productive manufacturing sector has shriveled from 13% to 8% since 2000. At the same time, those working in the fast-growing health, education and food-and-beverage services has swollen from 17% to 23%.

This is where the big drag is: Average annual productivity growth in these three sectors—from hospitals to the corner bar—ranged from minus-0.6% a year to zero over the 10 years to 2014. “The changing distribution of workers might be able to explain up to one-half of the slowdown in labor productivity growth from 2.5% to 1.5% per year since the 1960s,” says a U. of Houston economist.

Reforms that remove barriers to entry and promote competition in services, especially in health and education, could have a massive impact on aggregate productivity growth. Almost 30% of U.S. jobs—from carpenters and accountants to florists, dance teachers and interior designers—now require an occupational license, up from 5% in the 1950s. Absent such reforms, the service sector, expected to generate almost 95% of new jobs in the next decade, might be a ball and chain on productivity growth for some time.

Classroom discussion questions:

  1. Why is productivity such an important issue?
  2. What can be done to increase service-sector productivity?

OM in the News: Manufacturing in the U.S.–The Negative View

manufacturingExemplified by headlines such as “The Insourcing Boom” and “More U.S. Companies Are Reshoring,” the publicity for these cases has influenced public opinion and public policy. About 57% of U.S. manufacturing CEOs now believe that the U.S. is undergoing a manufacturing renaissance. But “the purported increase in the reshored jobs to offshored jobs ratio has not materialized,” writes Industry Week (Jan. 12, 2015). Around 30,000-40,000 manufacturing jobs are reshored while 30,000-50,000 jobs are offshored annually. Certainly this is an improvement from the 2000s, when the U.S. offshored as many as 150,000 jobs annually. U.S. manufacturing has been growing since 2010, adding 520,000 jobs and expanding 2.4% in real value added growth. But almost all of this growth represents cyclical recovery from the lows of the Great Recession.

Industries that suffered large declines in demand during the recession have increased production as demand has recovered. This is most evident in durable goods, which typically have the largest cyclical swings. In fact, durable goods have accounted for 72% of manufacturing job growth since 2010. By comparison, all non-durable goods together comprised just 3% of the job growth and had negative real value added growth of 6.8% from 2010 to 2013. So why is the reality so much more disappointing than the hype?

Experts cite increased global shipping costs with making producing in America more cost effective. In fact, global shipping costs, while elevated significantly in the late 2000s, have fallen dramatically and are back to normal. Likewise those who claim that a weak dollar will spur reshoring ignore that the value of the dollar is no lower than it was in mid-2000s when the U.S. lost a significant share of manufacturing to foreign competition, and has increased 13% in the last year.

Others write that labor cost differentials are narrowing with China. While this is true, the Chinese manufacturing laborer earns just 12% of U.S. wages and it appears that Chinese productivity is growing significantly faster than U.S. productivity. Finally, many tout the miracle of shale gas. While lower energy costs certainly help, energy costs are less than 5% of total costs in 90% of U.S. manufacturing industries. In other words, for most manufacturing industries energy savings are modest.

Classroom discussion questions:

1. Why is reshoring so difficult?

2. Is there a resurgence in American manufacturing?

OM in the News: Offshoring Still Outpaces ‘Reshoring’

Black & Decker recently opened a plant in N.C. to assemble power drills previously made only overseas. But that factory relies on parts and materials bought outside the U.S
Black & Decker recently opened a plant in N.C. to assemble power drills previously made only overseas. But that factory relies on parts and materials bought outside the U.S

The U.S. has continued to grow more reliant on imports from China and other Asian countries despite a much-discussed trend toward “reshoring” of manufacturing, reports The Wall Street Journal (Dec.15, 2014). Consultants in recent years have heralded the potential for the U.S. to regain many of the manufacturing operations sent overseas in the past 2 decades in search of lower costs. A variety of companies, including Whirlpool and G.E., have moved production of some items back to the U.S. But there is still a gap between hopes raised by these scattered developments and the reality of a deteriorating U.S. trade performance.

Reshoring “is not what it’s cracked up to be,” says consulting firm A.T. Kearney. “There’s basically still more stuff being pushed out of the U.S. to lower-cost countries than is brought back.”

The U.S. is gradually becoming more competitive in manufacturing, partly because energy costs are lower than in most other countries and the gap between U.S. and Asian wages is narrowing. Companies also can reduce shipping costs and respond faster to shifts in demand if they produce closer to their customers. That trend doesn’t yet show up in the data, however. In 2009 through 2013, U.S. manufacturing output grew by an average rate of nearly 6% a year. But U.S. imports of manufactured goods from China and other low-cost Asian countries grew even faster, at an average rate of 8%.

One big hurdle for efforts to move production from Asia to the U.S. is that American manufacturing expertise and supplier networks have withered. Companies considering moving production to the U.S. often worry about finding enough suppliers and skilled workers. “They’re looking for an ecosystem to plug into,” says A.T. Kearney.

Classroom discussion questions:

1. Why are more companies reshoring?

2. Why don’t more companies reshore?