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Happy Manufacturing Day! It’s a great day to celebrate the men and women who make things in this country — and a chance to highlight the importance of manufacturing to the U.S. economy.
It’s also an opportunity to consider how important manufacturing is to America’s success in international trade — and vice versa. The U.S. Department of Commerce estimates that exports of manufactured goods directly supported 6.2 million jobs in 2014. That’s about half of the 12.3 million Americans employed in manufacturing.
You don’t have to dig deep into the numbers to see that reports of the demise of U.S. manufacturing are greatly exaggerated. According to economic data from the Federal Reserve Bank of St. Louis, U.S. real manufacturing output has risen by approximately 80 percent over the past 25 years. This represents the continuation of a long trend: U.S. manufacturing value-added has grown eightfold since 1947 in real terms.
Contrary to popular misconception, the U.S. share of world manufacturing output has remained fairly steady at approximately 20 percent for about four decades. According to the UN Industrial Development Organization, the United States was the world’s largest manufacturer in 2014, the most recent available estimate.
American manufacturers were hammered by the painful 2007–2009 recession and a steep fall in demand. But throughout the preceding two decades, U.S. manufacturers set new records for output, revenues, profits, profit rates, and return on investment.
The same can’t be said for factory jobs. The United States has lost approximately 5 million manufacturing jobs over the past 25 years. The number of Americans employed in manufacturing reached a new low of 11.4 million in early 2010. A recovery driven to a significant degree by exports has since boosted manufacturing employment to about 12.3 million today.
Where have the lost manufacturing jobs gone? Not to Mexico—or China. Survey data from the federal government consistently show that less than 1 percent of layoffs is attributable to offshoring. Research by the RAND Corporation found that China shed 25 million manufacturing jobs between 1994 and 2004, 10 times more than the United States lost in the same period.
Rather, the combination of rising output (up 80 percent in the past quarter century) and declining employment (down by 5 million in the same period) reveals that most of these jobs have been lost to a country called “productivity.” Technological change, robots, automation, and widespread use of information technologies have enabled firms to boost output substantially even as some have cut payrolls.
In this context, what do America’s manufacturers — who are among the most productive in the world — most need if they are to create more jobs? They need a workforce with the appropriate skills and education. They need a policy environment that isn’t biased against job creation (for instance, by taxing enterprises based on head count or payroll). Above all, though, they need more customers -- thus, greater access to the 95 percent of the world’s customers who live outside our borders would be a big step in the right direction.
One last point: American manufacturers last year contributed $2.09 trillion to the nation’s GDP, according to data from the National Association of Manufacturers, while U.S. exports of manufactured goods topped $1.4 trillion.
Do the math, and you’ll find exports generated revenue of $113,000 for each American factory worker. Compare this with the average annual earnings — including pay and benefits — of an American manufacturing worker: $77,500. How could manufacturers make their payrolls without the revenues they earn by exporting?
The short answer is, they couldn’t.
It’s a great day to celebrate manufacturing — and trade, too.