Oct 07, 2016 - 9:00am

The Great American Manufacturing Myth

Senior Vice President for International Policy


Dispelling the myths surrounding American manufacturing
An employee inspects a Fiat Chrysler Automobiles NV (FCA) side panel as it leave a press at FCA's Sterling Stamping Plant in Sterling Heights, Michigan.

Today is Manufacturing Day. It’s a great day to celebrate the men and women who make things in this country — and a chance to remind the American people and our elected officials that American manufacturing is alive and well.

It’s also a good moment 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 million factory jobs in 2015. 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 75% 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% for about four decades.

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, and after a slow recovery they have recovered the ground they lost in the recession.

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. While it discontinued compilation of these data in 2004, the Bureau of Labor Statistics previously reported the movement of work to overseas locations was a minor contributor to job losses, representing between 0.5% and 1.3% of all U.S. jobs lost in “mass layoffs” in the 1997-2003 period, according to a report by the American Action Forum.

Nor is the decline in manufacturing jobs limited to the United States. 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% 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, they need more customers, and that means better access to 95% of the world’s customers who live outside our borders.

The TPP will sweep away trade barriers that disproportionately hit America’s smaller manufacturers, several hundred thousand of which are exporters today. It could be a game changer for American workers, ranchers, and companies.

Enter the Trans-Pacific Partnership (TPP). The TPP is a 12-nation trade agreement that will sweep away the tariffs and other trade barriers that too often deny a level playing field for U.S. exports.

While U.S. tariffs on imports of manufactured goods average about 1%, U.S. manufacturers often face steep tariffs and nontariff barriers in other TPP countries. The TPP would eliminate those foreign tariffs on U.S.-made manufactured goods, providing a substantial boost to U.S. manufacturers and the workers they employ.

Starting with its most basic provisions, the TPP will eliminate all tariffs and many non-tariff barriers on U.S. exports of manufactured goods to the other TPP Parties. With regard to the four TPP countries with which the United States does not already have a trade agreement, the TPP will immediately eliminate tariffs on 98% of U.S. industrial and consumer goods. Such tariffs range as high as 100%.

In fact, 70% of the considerable length of the TPP text consists entirely of tax cuts: that is, country-by-country schedules for the elimination of tariffs. This translates into approximately 18,000 tax cuts on U.S. goods sold abroad.

So, the TPP includes transparent, non-discriminatory rules for developing technical regulations, standards, and conformity assessment procedures to ensure these norms don’t become stealth barriers to trade—or unintentional ones.

The TPP will sweep away trade barriers that disproportionately hit America’s smaller manufacturers, several hundred thousand of which are exporters today. It could be a game changer for American workers, ranchers, and companies.

So, what’s the best way to celebrate Manufacturing Day? Dispense with the myth that Americans don’t make anything anymore. And do something to help American manufacturers: Pass the TPP.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.