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Is Made in America Manufacturing a Thing of the Past?

Posted on November 06, 2013 in Manufacturing

From movies to manufacturing plants, there is a steady hum to restore ‘made in America' manufacturing back to its former glory. You know, when middle class jobs were born out of middle class citizens making and buying products right here in the country. Then, globalization happened and one by one, manufacturing plants that were known for producing reliable consumer goods closed shop.

Towns and cities that depended on the economics spurred by local manufacturing began to dwindle. Only places with a plan C, which were few, managed to reinvent their economy. Now, with the resurgence of manufacturing through acts of the U.S. Senate and private companies, America is finding a way back to making goods that support consumers and the economy.

History of Manufacturing Decline

There are varied analyses about the decline of U.S. manufacturing. Some economist and experts point to international trade agreements, such as NAFTA, as changing the face of U.S. manufacturing. They define this period as the beginning of plants closing shop on U.S. soil and moving to foreign countries for a cheaper frontier. Imports to the United States increased, at cheaper prices largely due to cheaper labor costs.

Others identify the 2001 recession as the main contributing factor for manufacturing job losses in the nation's economy. This may be true as the numbers show that from July 2000 to January 2004, manufacturing jobs decreased by 17.5 percent with three million less jobs in the country.

The recession of 2001 accelerated the decline in manufacturing employment after a weak recovery. Demand was down not only in the U.S. but also in the rest of the world. Cyclical losses continued during the recovery's first two years.

Long-term trends indicated that manufacturing was not going to return to prerecession levels after a full recovery. Productivity in manufacturing areas that remained consistently increased even without the expansion of sales. This lack of growth in demand did not keep pace with productivity because many consumers devoted their spending habits to services more than goods.

Additionally, U.S. manufacturers that remained continued to face competition from foreign countries with lower labor costs. Furthermore, much of the labor that remained in U.S. manufacturing was through temporary and contract workers. These jobs are not counted in manufacturing employment statistics.

Part of the long-term employment decline for some manufacturing industries is linked to trade expansion. Gains arose as nations began to specialize in efficiently produced goods and services. With the expansion came a mix of products that were no longer limited to being produced in the U.S. Instead, U.S. manufacturing began to rely more on highly skilled labor. At the time, many accepted this shift that left lower skilled workers without jobs.

These losses created a burden for the workers affected, but did not have an immediate lasting effect on employment as a whole. Generally, the U.S. labor market is quite flexible and aggregate employment does not suffer permanently. Gains in productivity, shifts in consumer demand and increases in global competition may change the labor market. However, expectations are that changes only last during a period of adjustment when displaced workers get hired through other forms of employment.

Reasons for U.S. Manufacturing Resurgence

Ironically, many of the factors that caused a decline in the manufacturing industry are the same ones that will lead the resurgence for American made products. Manufacturers are poised to power the 21st century economy. With the right policies and technologies, these companies will have a significant role in transforming the sluggish recovery left behind by the Great Recession of 2008, which technically began in 2007.

On balance, U.S. manufacturing has the highest multiplier effect on the economy. Making investments in manufacturing creates jobs and growth in other sectors. A number of manufacturing companies have begun to appreciate this fact as they are considering re-shoring some production facilities.

There are three main drivers prompting these companies to return to the U.S., or seriously consider doing so: labor costs, quality of production and closer distribution channels for American consumers.

Dynamics in the once attractive foreign countries are changing. Once the manufacturer's dream for cheap labor, countries like China and India are experiencing rising labor costs and labor shortages. Simultaneously, labor costs in America and energy prices are also declining.

Call it an American Manufacturing Comeback

Made in America manufacturing is making a comeback and the recent pick-up is becoming a crucial plank in the nation's recovery story. After losing ground over the last 20 years to China and India, manufacturers are regaining some of that ground.

Although a trade deficit in exports currently remains, signs are that some areas are narrowing. This is good news for the U.S. manufacturing industry, which has a history of being one of the most important economic drivers for the country. Millions are employed when manufacturing thrives and significant contributions are made to GDP.

Several technology giants have already shifted production facilities back to the United States. For instance, Google executives say production of some devices in Asia costs about the same in America. Not to be outdone, Apple also plans to move production of Mac computers back to the country.

Can the New American Manufacturing Industry Compete?

Even though a stronger push by technology companies is unlikely, this is a good place to start. Nevertheless, suppliers of component parts for these companies remain in Asia. Currently, China can meet global demand to design smartphones and other devices with more skilled engineers than the United States.

Recent decades show, however, that U.S. manufacturers are investing more in producing high-quality goods. They are actively improving manufacturing techniques to maintain competitiveness in global markets. Making these smart investments has enabled manufacturers to raise output levels that can keep pace with economic growth. They are doing so without increasing the number of skilled workers.

For some, this creates a dichotomy for the industry. Even as employment in U.S. manufacturing reached a historical peak in 1979, productivity grew at an average annual rate of 3.3 percent. The share of GDP from manufacturing output has also remained constant for the past 50 years, according to research by the Bureau of Economic Analysis. In an ideal manufacturing world, technological advances should continue to bring economical benefits with lower prices, greater profits and higher wages.

In the real world, manufactured goods have experienced a decrease in pricing, but this has not translated into increased sales. Strong productivity growth with slower growth for demand leads to a decline in manufacturing's share of national employment. Therefore, wages are stagnant across many different sectors.

Good or Bad for Global Economics and Manufacturing?

Loss of manufacturing output led to the loss of manufacturing jobs in the U.S. Output was lost due to the inability to compete in global markets because of higher U.S. wages. As this occurred, the global economy made tremendous gains as other countries stimulated their economy with U.S. consumer demand. Manufacturing growth within any country depends on having global consumers.

Innovation propelled the global leadership of U.S. manufacturing, but other nations are eager to take that place. It is true that gains were caused by egregious foreign mercantilist policies that some countries used to manipulate the system. However, others behaved fairly with competitive policies such as lower corporate tax rates.

Currently, manufacturers have many attractive options to invest, conduct research and build new facilities to create jobs. The U.S. must continuously adopt similar policies that will give manufacturers access to newer markets while expanding existing ones. Better trade agreements, training American workers for 21st century jobs and employing newer technologies will put the United States on the right path. This will aid in maintaining the leadership mantle in manufacturing.

With the right policies, the United States can become the better place to manufacture products for the global economy. Attracting foreign direct investment will strengthen an environment that supports economic growth and manufacturing jobs. Accelerated activity will give Made in America manufacturing a solid future.