US manufacturing – The OM Blog by Heizer, Render, & Munson

OM in the News: Why U.S. Manufacturing is Poised for a Comeback

Manufacturing in the U.S. is starting to make a comeback, and is poised for even bigger gains in the years ahead, opines The Wall Street Journal (June 2, 2014). The number of factory jobs has started to rise after plunging for decades, edging up by about 600,000 over the past 4 years to more than 12 million. Some U.S. companies are bringing jobs back home, and foreign businesses are setting up shop. “The economics of the world are changing in favor of U.S. manufacturing,” says Boston Consulting Group. Here are 4 proposals why this is so:

1: U.S. Costs Are Getting More Competitive. While wages soar at double-digit rates in China and some other emerging countries, they have stayed roughly level in the U.S. in recent years, narrowing the gap between America and Asia. China’s overall manufacturing-cost advantage has shrunk to just 4%. When wages are adjusted for productivity and the costs of shipping and inventories are included, it can be more economical to make some products in the U.S. than in Asia. Further, the surge in U.S. production of oil and natural gas, made possible by fracking, has pushed down energy costs.

2: Companies Are More Eager to Produce Near Their Customers. Companies are increasingly focused on reacting quickly to changes in demand, which is a lot easier when they’re making their products close to the customer. Manufacturing here can reduce the time needed to obtain goods to days or weeks from the 2 months needed to ship goods across the Pacific and get them through customs.

3: The Political Climate for Manufacturing in the U.S. Has Improved. State and local governments in the U.S. now are competing fiercely for investments and offering some rich packages. The declining power of U.S. unions also encourages some manufacturers to set up here rather than Europe or elsewhere.

4: Foreign Companies Are Betting on U.S. Manufacturing. China remained the No. 1 destination for foreign direct investment in 2013, but its total last year rose just 2% from 2012 to $258.2 billion. The U.S. attracted $193.4 billion, up 16%, to rank No. 2.

Classroom discussion questions:

1. Ask your students to make a rebuttal to each of these 4 cases.

2. Which factor do you think is most important?

OM in the News: American Manufacturing Heads to Mexico

With labor costs rising rapidly in China, The New York Times (June 1, 2014) reports that American manufacturers of all sizes are looking south to Mexico with an eagerness not seen since the early years of the NAFTA in the 1990s. From border cities like Tijuana to the central plains where new factories are filling farmland, Mexican workers are increasingly in demand. American trade with Mexico has grown 30% since 2010, to $507 billion, and foreign investment in Mexico last year hit a record $35 billion. Over the past few years, manufactured goods from Mexico have claimed a larger share of the American import market, reaching a high of about 14%, while China’s share has declined.

“When you have the wages in China doubling every few years, it changes the whole calculus,” says Chris Wilson, at the Mexico Institute in D.C. “Mexico has become the most competitive place to manufacture goods for the North American market, for sure, and it’s also become the most cost-competitive place to manufacture some goods for all over the world.” Wilson calls for a focus on “globally literate workforces in both countries.”

Many American companies are expanding and spending billions in Mexico — including well-known brands like Caterpillar, Chrysler, Stanley Black & Decker and Callaway Golf. Economists say that the U.S. benefits more from outsourcing manufacturing to Mexico than to China because neighbors tend to share more of the production. Roughly 40% of the parts found in Mexican imports originally came from the U.S., compared with only 4% for Chinese imports.

Yet Mexico is still a country of vast differences in efficiency and education, where only a small minority of the population has the training needed to compete with the world. The kinds of companies succeeding now in Mexico are those big enough to manage their own factories and those that did not give up their technical knowledge by outsourcing to China. To draw more companies now, experts say, Mexico and the U.S. will need to be more focused on sharing labor and moving products.

Classroom discussion questions:

1. Why Mexico?

2. Why does Chris Wilson say that “a globally literate workforce” is needed in both the U.S. and Mexico?

OM in the News: Textile Plants Humming Once Again in the Carolinas

The old textile mills in the Carolinas are mostly gone now. Gaffney Manufacturing, National Textiles, Cherokee — clangorous, dusty, productive engines of the Carolinas fabric trade — fell one by one to the forces of globalization. Just as the Carolinas benefited when manufacturing migrated first from England to New England and then to here, where labor was even cheaper, they suffered in the 1990s when the textile industry mostly left the US. It headed to China, India, Mexico — wherever people would spool, spin and sew for a few dollars or less a day.

But remarkably, Parkdale Mills, the country’s largest buyer of raw cotton, has reopened and is thriving–another indication of the resurgence of US manufacturing, reports The New York Times (Sept. 20, 2013) in its cover story. For example, just last year, clothing maker American Giant was buying fabric from a factory in India. Now, it is cheaper to shop in the US, using Parkdale yarn.

American manufacturing has several advantages over outsourcing. Transportation costs are a fraction of what they are overseas. Turnaround time is quicker. Most striking, labor costs aren’t that much higher than overseas because the factories that survived the outsourcing wave have turned to automation and are employing far fewer workers. Further, monitoring worker safety in places like Bangladesh, has become a huge challenge.

In 2012, textile exports were $22.7 billion, up 37% from just 3 years earlier. That the industry is thriving again is indicative of a broader reassessment by companies about manufacturing in the US. A recent M.I.T. survey found that 1/3 of American companies with manufacturing overseas said they were considering backsourcing some production, while 15% said they had already decided to do so. This means jobs–but on nowhere near the scale there was before, because machines have replaced humans at almost every point in the production process. Take Parkdale: The mill produces 2.5 million pounds of yarn a week with about 140 workers. In 1980, that production level would have required more than 2,000 people.

Classroom discussion questions:

1. What are the reasons Parkdale is thriving?

2. What is the role of automation in the return of manufacturing to the US?

OM in the News: The Rise of American Manufacturing

A US that’s a world beater on manufacturing costs?

It could be, according to the just published Boston Consulting Group (BCG) report (discussed in The Wall Street Journal, Aug. 30, 2013), about how the U.S. is fast becoming one of the developed world’s lowest-cost manufacturers. The report details how declining energy costs—the result of the shale boom—are giving the U.S. a greater competitive edge globally. As seen in the graph, this translates to a double-digit percentage advantage in key costs by 2015. “The trends are accelerating,” says BCG.

U.S. manufacturing is becoming so cost competitive that by the end of the decade it will grab away $70 billion to $115 billion in annual exports from other countries—products that will be made in the U.S. and shipped abroad. The losers: chiefly Europe and Japan. Add to this some manufacturing that will be “reshored” from China, and the U.S. could gain up to 5 million new jobs, including service jobs, BCG forecasts.

Productivity gains in the U.S. are another tailwind. BCG looked at 8 low-cost states, primarily in the Southeast, to which manufacturing is already gravitating. Adjusted for productivity, average labor costs by 2015 will beat Japan by 18%, Germany 34%, and France 35%.

The study helps explain why Dow Chemical this week confirmed it will expand its manufacturing operations in Texas and Louisiana, and why scores of other companies—from Siemens to Toyota to Michelin—are expanding U.S. production, too. More than a year ago, Siemen’s CEO stated that cheap energy in the U.S. was already a game changer—the biggest competitive advantage the U.S. has gained in decades. The wholesale price of natural gas in the U.S. has dropped by half since 2005, cutting the cost of feedstock and fuel. By comparison, natural gas costs 2.6 to 3.8 times more in Europe and Japan.

Discussion questions:

1. What factors are helping turn around US manufacturing?

2. Propose an alternative, more pessimistic, view–and defend that position.

OM in the News: Still Made in America

Chinese manufacturers long ago wreaked havoc on the U.S. textile, apparel, toy and electronics industries. But disruption has come more slowly to the brush business, writes The New York Times (June 18, 2013). There are simply so many types of brushes for so many applications that many Chinese manufacturers thought the business wasn’t worth the hassle. Despite the recession, there are still more than 200 brush, broom and mop makers in the U.S. These companies have employed two strategies to stave off Chinese competition: 1) change everything all the time, or 2) don’t ever change a thing.

Kirschner Brushes hasn’t changed a thing. The Bronx, NY company makes brushes the very same way, employing many of the same machines it bought 50 years ago. Kirschner sticks with the old ways because, unlike with toys and T-shirts, a big chunk of the brush business caters to professionals who aren’t merely shopping for price but rather for quality.

At the other end of the business is Braun Brush, which is constantly creating innovative brushes so that it never has any competition. Bruan makes a beaver-hair brush that’s solely for putting a sheen on chocolate, an industrial croissant-buttering brush, a heat-resistant brush that can clean hot deep fryers, and a tiny brush that helped Mars rovers dust debris from drilling sites. When Braun sees other firms making one of it brushes, it often drops the product rather than enter a price war. Braun has grown at 15-20% annually for the past 5 years.

Despite all the doom-and-gloom US manufacturing stories, there are still more than 200,000 small factories, like Kirschner’s and Braun’s, that provide a solid, if rarely heralded, base line of American business. Very quickly though, the US is becoming a nation of Brauns–one in which a product faces extinction, or a rebooting, shortly after it is unveiled. This flexible economy has many advantages–and over time, it delivers more economic growth to the US.

Discussion questions:

1. Which operations strategy will be more successful in the long run–Kirschner’s or Braun’s?

2. Why will customers stay loyal to Kirschner Brushes?

OM in the News: The New Industrial Revolution

The upper for Nike's Flyknit shoe — The upper for Nike’s Flyknit shoe

“Welcome to the New Industrial Revolution,” writes The Wall Street Journal (June 11, 2013)—a wave of technologies and ideas that are creating a computer-driven manufacturing environment that bears little resemblance to the gritty and grimy shop floors of the past. The revolution threatens to shatter long-standing business models, upend global trade patterns and revive American industry.

“Manufacturing is undergoing a change that is every bit as significant as the introduction of interchangeable parts or the production line,” says the head of GE’s global research lab. “The future is not going to be about stretched-out global supply chains connected to a web of distant giant factories. It’s about small, nimble manufacturing operations using highly sophisticated new tools and new materials.” The upheaval is accelerating thanks to the convergence of a number of trends: the low cost and accessibility of Big Data associated with cloud computing; the plummeting cost of electronic sensors and microprocessors that can be used to make machines more adept; and software advances that allow a whole new level of manufacturing precision.

To get an up-close look at how the new technologies are already disrupting the old ways of doing things, consider Nike’s Flyknit shoe. As high-tech as some sneakers may be in materials and appearance, almost all of them are still made on assembly lines that put heavy emphasis on human labor. Workers sit side by side in enormous facilities, cutting material and stitching and gluing shoe components together. But with new technology, Nike has begun to make a shoe with just a few parts instead of dozens– and with up to 80% less waste. Out of the blue, the reason for making shoes in low-wage countries begins to evaporate and the advantages of locating the machine closer to the customer—in part for faster delivery—begin to loom much larger.

Boston Consulting Group just published a report predicting that as much as 30% of America’s exports from China could be domestically produced by 2020.

Discussion questions:

1. What is the “new industrial revolution”?

2. Will the number of manufacturing jobs in the US increase dramatically? Why?

OM in the News: Manufacturing Makes Its Comeback

“Made in the USA is making a comeback,” writes Time (April 11, 2013). The U.S. has seen its manufacturing growth outpace that of other advanced nations, with 500,000 jobs created in the past 3 years. It marks the first time in more than a decade that the number of factory jobs has gone up instead of down. Apple just decided to assemble one of its Mac computer lines in the U.S., and Walmart, which pioneered global sourcing, said it would pump up spending with American suppliers by $50 billion over the next decade. Airbus will build JetBlue’s new jets in Alabama.

U.S. factories increasingly have access to cheap energy thanks to oil and gas from the shale boom. For companies outside the U.S., it’s the opposite: high global oil prices translate into costlier fuel for ships and planes. And workers from China to India are demanding and getting bigger paychecks, while U.S. companies have won massive concessions from unions over the past decade. One economist went so far as to say: “The offshoring boom does appear to have largely run its course.”

Modern factories, though, have more machines and fewer workers — and many new manufacturing jobs require at least a 2-year tech degree to complement artisan skills such as welding or milling. Some experts believe it won’t be too long before employers will expect a 4-year degree. “Manufacturing is coming back, but it’s evolving into a very different type of animal than the one most people recognize today,” says a McKinsey director. “We’re going to see new jobs, but nowhere near the number some people expect, especially in the short term.”

Still, manufacturing represents a whopping 67% of private-sector R&D spending as well as 30% of the country’s productivity growth. Every $1 of manufacturing activity returns $1.48 to the economy. “The ability to make things is fundamental to the ability to innovate things over the long term,” says one Harvard prof.

Discussion questions:

1. Why will the US never recover all of the manufacturing jobs lost in the past 50 years?

2. What factors create more opportunities for “reshoring”?

OM in the News: Innovation and U.S. Manufacturing

The government has long heralded the potential of American factories to offer good, stable middle-class jobs. But there might be another advantage to expanding manufacturing: a more innovative economy, says The New York Times (Dec.14,2012). The evisceration of the manufacturing work force over the last 30 years might have dimmed the country’s capacity to innovate and stunted the prospects for long-term growth. “In sector after sector, we’ve lost our innovation edge because we don’t produce goods here anymore,” says ASU’s dean of technology and innovation.

In industries that produce complex, high-technology products, companies that keep their R&D and manufacturing employees close together are more innovative than businesses that develop a schematic and send it overseas for low-wage workers to make. Moreover, clusters of manufacturers, where workers and ideas can naturally flow between companies, are more productive and innovative than the same businesses if they were spread across the country.

At one massive G.E. facility in NY, workers are casting into thin tubes a ceramic that G.E. invented. Those tubes get packaged into batteries and shipped across the world. The plant sits near the research campus where G.E. scientists developed the technology. That allows them to work out kinks on the assembly line, and test prototypes of and uses for the battery. “We’re not thinking about just one generation,” says G.E.. “We’re working on the 2nd, the 3rd, the 4th, the 5th.”

Can such a strategy offer the same benefits for other businesses? M.I.T. analyzed what happened to towns after marquee manufacturing plants, like a BMW factory, moved in. Other factories in the town became more productive. Wages rose, too. Such evidence leads to concerns about the overseas movement of manufacturing jobs and facilities over the past 30 years. “Outsourcing has not stopped with low-value tasks like simple assembly or circuit-board stuffing,” writes the Harvard Business Review. “Sophisticated engineering and manufacturing capabilities that underpin innovation in a wide range of products have been rapidly leaving too.”

Discussion questions:

1. What are the dangers of sending low-end manufacturing jobs overseas?

2. Why is clustering important to manufacturers?

Good OM Reading: GE’s American Manufacturing Comeback

For much of the past decade, GE’s storied Appliance Park, in Louisville, appeared less like a monument to American manufacturing prowess than a memorial to it. Six factory buildings, each one the size of a large suburban shopping mall, line up neatly in a row. The parking lot in front of them measures a mile long and has its own traffic lights, built to control the chaos that once accompanied shift change. But in 2011, Appliance Park employed not even a tenth of the people it did in its heyday.

Back in 1951, GE didn’t build an appliance factory so much as an appliance city–a facility so large it got its own ZIP code (40225). By 1955, Appliance Park employed 16,000 workers and by the 1960s, the workforce was turning out 60,000 appliances a week. Employment peaked at 23,000 in 1973, but by 1984, it had fewer employees than it did in 1955. Former CEO Jack Welch suggested shuttering it. Current CEO, Jeffrey Immelt, tried to sell the entire appliance business in 2008, but as the economy nose-dived, no one would take it. In 2011, the number of employees bottomed out at 1,863.

Yet this year, writes The Atlantic (Dec., 2012)– in a great cover story article you may want your students to read–something exciting has begun to happen! Appliance Park opened an all-new assembly line (its 1st in 55 years) in Building 2— dormant for 14 years—to make low-energy water heaters, which had previously been made for GE in China. Then GE opened a 2nd new assembly line, this one in Building 5, to make new high-tech French-door refrigerators that had been made in Mexico.

Another assembly line is under construction in Building 3, to make a new stainless-steel dishwasher. Building 1 is getting an assembly line to make front-loading washers and matching dryers; GE has never before made those in the United States. And a new plastics-manufacturing facilities is now making parts for these appliances.

In the midst of this revival, Immelt made a startling assertion. Writing in Harvard Business Review, he declared that outsourcing is “quickly becoming mostly outdated as a business model for GE Appliances.” Just 4 years after he tried to sell Appliance Park, believing it to be a relic, he’s spending some $800 million to bring the place back to life.

OM in the News: US Manufacturing and the Skills Shortage

Today’s Wall Street Journal (Feb.27, 2012) reports that “following 12 straight years of declines, US manufacturers added 109,000 workers to their payrolls in 2010 and another 237,000 in 2011”, with more to come in 2012. But this vibrant sector, it turns out, is being held back–and not by imports. American manufacturers claim that 5% of their jobs remain unfilled simply because they could not find workers with the right skills. That 5% vacancy rate means an astounding 600,000 jobs are left unfilled during a period where unemployment is over 9%.

According to manufacturers, work-force shortages or skill deficiencies in production positions are keeping them from expanding operations or improving productivity. The majority of US manufacturing jobs used to involve manual tasks such as basic assembly. But today’s industrial workplace has evolved toward a technology-driven factory floor that increasingly emphasizes highly skilled workers.

“In the 1980’s,” says the president of a technical college in Kentucky, “US manufacturing was 80% brawn and 20% brains, but now its 10% brawn and 90% brains.” This new trend in advanced manufacturing leans heavily on computers, software, sensors, networking, and the use of emerging capabilities from the physical and biological sciences.

What’s the solution? The National Association of Manufacturers (NAM) has endorsed a Manufacturing Skills Certification System, which already has 35 states showing support and interest behind it. It would develop credentials for advanced manufacturing in 10 areas–ranging from production and automation to distribution and logistics. Last year, the US government announced a national goal of credentialing 500,000 community college students with skill sets similar to those of the NAM initiative.

“For manufacturers to continue expansion, it’s critical that our shortage of skilled workers be addressed,” concludes the Journal.

Discussion questions:

1. Would any of your OM students consider a high-tech, high-paying factory job?

2. Why is there such a shortage of skilled workers?

Video Tip: Why the US Needs Innovation and High Tech Manufacturing

If you want to show a 6 minute video that will set your semester on fire, try this interview with Henry Nothhaft, author of Great Again and former CEO of Tessera. Nothhaft starts by saying the only way the US can recover from the recession is to deal with the 5 million manufacturing jobs lost in the past decade. He believes we can bring back high-tech manufacturing with some basic tax and policy changes.

The US has the world’s 2nd highest corporate tax rate in the world (and California is the 48th worst in the US). Good tax policies are the reason Israel and Germany have had a revitalization of their manufacturing bases. And offshoring in high-tech is unnecessary when labor costs are only 3% of total product cost. Nothhaft points out that 70% of high-tech innovation goes on during production on the factory floor. Give up the factory and in 10-15 years “you have sown your own seeds of destruction”.

Nothhaft also takes on the US Patent Office and its 3.7 year average approval wait time. He points out that in Silicon Valley this is two or three product life cycles—an immeasurable delay. And finally, he asks for a new green card policy for foreign grads in technology areas. “We need to hang out a sign by the Statue of Liberty that says Geniuses Welcome“, he says, noting that the founders of Intel, Google, ebay, and Yahoo! were all immigrants.

OM in the News: Is the Pentagon Harming US Manufacturing?

It was easy to miss the announcement in The Federal Register (the US’s little read journal of record) that the US Air Force was asking for a waiver on the “Buy American” requirement for 37 items it needed at its Eielson Base in Alaska. The products included screws, ceiling fans, light fixtures, towel rods, shower rods, and handrail brackets. The Air Force got its exemption on buying American with this statement: “Extensive market research and thorough investigation of the domestic manufacturing landscape” showed these items were made almost exclusively in China.

Is this shocking? We know that over 57,000 factories disappeared in this country between 1999 and 2009 (see Businessweek, May 9,2011). But the Pentagon may have actually accelerated this trend. According to Businessweek, flat-panel displays, machine tools, and advanced electronics and IT goods are now also obtained from non-US suppliers. Further, armor-plate steel, defense-specific integrated circuits, and night vision goggles are among the items the DOD says it must obtain overseas. The goal of cost-cutting has ended up increasing the military’s reliance on overseas suppliers. It may also mean the US may be opening itself to the danger that an overseas manufacturer could place a “Trojan horse” component in to critical equipment. (Does this sound like what happened to Iran’s nuclear reactors)?

Of 16 manufacturing sectors that underpin America’s military, 13 suffered erosion between 2001-2008, as measured by decreased employment, output, and number of factories. These industries, which include foundries, forging and machine shops, have wide applications in civilian industry as well.

We all know that some decline in America’s low-end manufacturing is to be expected. Imports, for example, make up more than 95% of sales of silverware, men’s clothes, and woman’s shoes. But according to the National Research Council, “the movement of manufacturing offshore is weakening American R&D capability” in some areas.

Discussion questions:

1. How has the military affected US manufacturing, according to this article?

2. Should we be making towel bars in the US?

OM in the News: Outsourcing Offshore No Longer an Advantage?

The strategy embraced over the past decade by US manufacturers to shift production to countries with cheap labor may longer be appropriate, according to the outsourcing consulting company Accenture. In Manufacturing & Technology News (April 29,2011), Accenture reports that 61% of US firms are considering shifting manufacturing back home. Why the change? It turns out that most companies that shifted to offshore “likely did so without a complete understanding of the total costs. Those seemingly initial cost savings are no longer so big”, says Accenture. As transportation, commodity, exchange rates, and in-country labor rates all rise, companies are finding that managing their supply operations from afar weakens their overall planning, forecasting, and flexibility.

By coincidence, yesterday’s Wall Street Journal (May 5,2011) drives home the same point. “A combination of forces”, says the WSJ, “are changing some of the calculations by which companies decide to move production abroad”. With annual wage increases over 15% in China, for example, the “low wage advantage will disappear over the next 5 years. Supply chains are already being disrupted”.

US states meanwhile, panicked by loss of jobs and worsening budgets, are hanging out “Open for Business” shingles. The Boston Consulting Group adds, “China has been the default for production. Sometime around 2015 it will make more sense to put the incremental plant in the US as opposed to China”.

Why not just shift production to Vietnam or India? It turns out that few other locations have the supply base, shipping infrastructure, and skilled labor to pull off what China does. The conclusion of both articles: Manufacturing will see a renaissance in the next 5 years as production returns home.

Discussion questions:

1. What factors are involved in the return to on shore production?

2. Why was outsourcing viewed as a panacea 10 years ago (see Supp. 11)?

OM in the News: Chip Makers Bet the Farm on Future Demand

The New York Times (May 3, 2011) has just reported some good news for US manufacturing, namely, the massive expansion of chip makers who are counting on continuing heavy demand for chips in smartphones, tablet computers, refrigerators, cameras, and GPSs. Samsung, the huge Korean chip maker, is betting $3.6 billion in expanding its US factory to make logic chips for iPhones and iPads. The plant in Austin, scheduled to be completed next month, will be 2.3 million sq.ft., about the size of 40 football fields and one of the biggest factories in the country. Samsung chose Austin because of “the infrastructure and support system here–you can’t get that from anywhere else”.

Intel, the world’s largest chip maker, is spending $13 billion to build 2 new factories and upgrade 4 others in Oregon and Arizona, with the work to be complete in 2013. “When you make an investment in a factory, you’re essentially placing a bet on a manufacturing process that’s not yet done, for products that are not yet designed, to sell in market that is not yet there”, says Intel.

Global Foundries, a contract maker (also called a foundry) of chips, is investing $4.6 billion in a new plant near Albany, NY, that will build 28-nanometer chips for customers. (Small companies cannot afford the $ multibillion investment in making their own). Its 1.5 million sq. ft. plant will also open in 2013. “The appetite for tablet computers is a huge part of this move” to become the biggest contract chip producer in the world, says the Milpitas, CA, company.

The chip industry “is a risky business that’s not for the faint at heart. Its like putting down $1 billion on the craps table”, adds an industry analyst.

Discussion questions:

1. The NYT article focuses on new chip plants in the US. But chip makers are also expanding this year in China, Germany, Japan, S. Korea, and Taiwan. Why the global move?

2. What happens to plants that are out-of-date?

OM in the News: The Startling Loss of US Manufacturing Capacity

The Sunday New York Times headline (Feb.13,2011) reads, “When Factories Vanish, So Can Innovators”. With the closing of the last spoon and fork (“metal flatware”) factory, in Sherrill, N.Y., the US lost an industry that traces its roots to Paul Revere. Just as Sherrill Manufacturing succumbed to less expensive Chinese imports, so have the sardine cannery, stainless steel rebar, vending machine, incandescent light bulb, cellphone, and laptop computer industries.

Less noticeably, says The Times, the imported portion of components that go into American-made products has risen from 17% to 25% over the past 13 years. For example, the wings of many Boeing jets are now made in Japan. With the inclusion of these imported components, manufacturing’s share of the GDP is actually 10.5%, not the government-reported 11.2%. (This, of course, is down sharply from 14.2% a decade ago and 30% in 1950). Moody’s chief economist states: “I think there is a growing recognition that a diminished manufacturing sector will undermine our economy”.

The US has long appreciated that low-wage workers abroad would cut consumer costs on a wide array of manufactured products. But the theory was that US producers would be the world’s best innovators, developing (and at least initially, producing) sophisticated new products here at home. Somehow, though, Apple’s spectacularly designed iPad and iPhone are being made in Asia, not here. Likewise, Maglev (high-speed rail) was invented here, but the technology and production has transferred to Japan.

Many experts believe that the engineers and factory workers in Asia may become the next innovators. One economist is quoted as saying: “The big debate today is whether we can continue to be competitive in R&D when we are not making the stuff that we innovate. I think not”.

Discussion questions:

1. Do we need to worry that “young people stop thinking about making things” in the US?

2.If consumers have benefited from unrestricted lower-priced imports, what is the negative of the equation?

3. Is innovation falling in the US? Rising in Asia?