Editor’s Note: The views expressed in this column are solely those of the author.
Many economists generally assume that the erosion of American manufacturing is an acceptable premise in a changing economy. Instead of a healthy process, it has become a large-scale experiment in deindustrialization. Globalization and imports have caused income stagnation, the loss of millions of family-wage jobs, and growing inequality. We need to abandon the grand experiment of deindustrialization before it’s too late and the reasons are compelling:
1. The Middle Class: Outsourcing has destroyed thousands of communities and families across the U.S. Millions of workers have had to take low-pay jobs in the service industries and now struggle from paycheck to paycheck, which has led to anger, fear of the future, and the rise of populism.
2. Innovation: Just about everybody, from the conservative right to the liberal left, believes that innovation is the primary strategy that America must depend on to compete in the global economy. However, the loss of our technologies through joint venture agreements and technology transfer is rapidly handing over our technologies to foreign competitors. If we can’t stop the ongoing technology loss or halt the manufacturing decline, we will not be able to compete on innovation. When a country loses its capability to manufacture, it loses the ability to innovate. Innovation and manufacturing are inextricably linked.
3. Domestic Market Share: The U.S. share of its domestic market has fallen to 67.8%, meaning that imports are now 32.2% of our own market.
4. Trade Deficit: The goods deficit in 2023 was -$1,063,288. The interest on the trade deficit is added to the federal deficit, making it worse. The only way to reduce the goods trade deficit is to reshore manufacturing.
5. Manufacturing is Key to National Security: Thirteen industries are declining that manufacture products and technologies critical to our defense, including propellant chemicals, batteries, specialty metals, hard disk drives, flat panel displays, semiconductors, printed circuit boards, machine tools and advanced materials. We can’t have strong national security if we continue to outsource components and critical materials to low-cost countries.
6. Manufacturing Means Global Power: From the rise of England in the 19th century to the rise of America, Japan, and Germany in the 20th century, and the rise of China, Taiwan, and Korea in the 21st century, manufacturing has been the key to the growth and power of each country. If we want to remain the number one economy in the world, we must do something about the trade deficit and reshore manufacturing.
Productivism
A new economic policy prioritizes production instead of consumption; it is called “productivism.” It puts less faith in markets, is suspicious of large corporations, and emphasizes production and investment over finance, and revitalizing communities over globalization.
Productivism is an economic concept that supports key industries essential to economic growth and national security.
Essentially, it is a major reorientation toward an economic policy framework rooted in production, work, and localism instead of finance, consumerism, and globalism.
Tariffs
In 2018 and 2019, President Donald Trump implemented Section 232 tariffs on aluminum, steel and iron products and Section 301 tariffs on roughly half of U.S. imports from China. Tariffs are essential in productivism because they protect key industries and promote domestic investment.
The steel tariffs led to investment in some 15 new steel facilities, including steelmaking and steel mills, all over the U.S. The investment also led to thousands of new jobs. Tariffs saved the steel and aluminum industries, vital to national security. Tariffs also provide the federal government approximately $80 billion annually in revenue.
Perhaps the most significant advantage of the Chinese tariffs is that they are our only defense against Chinese cheating, i.e., subsidies, IP theft, forced labor, dumping, and espionage. Tariffs protect key industries, benefit the middle class, and reduce income inequality. Trump has promised to extend Section 301 China tariffs to cover the other half of Chinese imports that are currently not covered.
Tax Rebates
Productivism is also about tax rebates. The Biden administration has three major achievements:
- The Infrastructure Bill: The $1.2 trillion package includes a five-year allocation of $550 billion in federal investments in America’s infrastructure to upgrade highways and major roads, bridges, airports, ports, and water systems.
- The Chips Act: About $30 billion in proposed CHIPS private sector investments spanning 23 projects in 15 states. These projects include 16 new semiconductor manufacturing facilities and are expected to create more than 115,000 manufacturing and construction jobs nationwide.
- The Inflation Reduction Act: Another $900 billion in clean energy and manufacturing investments.
The three tax credit policies have led to big investments in new plants and equipment, mostly in the electric vehicles, battery, and semiconductor industries. The credits have been enacted on a 10-year timescale, which gives corporate investors the certainty that an investment today will earn tax credits for years to come.
Given the huge wage differential between the U.S. and low-wage countries and the weakened state of our industries, both tariffs and tax credits are needed to restore manufacturing and rebuild our economy.
Key Industries
Another important part of productivism is the belief that investing in key industries is the best strategy for long-term economic growth. Table 1 is a list of industries I have been following since 2001. The last two percentage columns in the table show the losses of employment and establishments since 2001.
We have allowed these industries to erode over the last 22 years, which also led to the erosion of our industrial commons. In their book Producing Prosperity, Gary Pisano and Willy Shih define the Industrial Commons as “the knowledge and skills embedded in suppliers, skilled workers, infrastructure, research and development, process know-how, and engineering which are sources of competitiveness.”
If we are really going to rebuild American manufacturing industries using productivism, we will first have to select the industries vital to the growth of all other sectors. Of these 38 industries shown in Table 1, I highlighted the ten key industries because they make products or services used by all other industries. The table shows that all ten industries have lost factories and skilled employees since 2002.
I believe these ten industries should be protected by tariffs and receive tax rebates because they offer the special manufacturing and technical capabilities that support innovation across a broad range of industries such as automobile parts, electric vehicles and semiconductors. Creating skilled employees who can work in these industries will also require a big investment in apprentice training.
These ten industries are important because, without their specialized capabilities and the ability to develop new processes, it will be challenging to develop new products. In the long term, an economy that lacks these capabilities loses its ability to innovate. This is perhaps the most critical point of the book because it throws cold water on the idea that America can have a national innovation strategy and, at the same time, outsource manufacturing. Innovation and domestic manufacturing are inextricably linked.
With Trump’s re-election, it looks like more tariffs and tax abatements will be in the future. If we are ever going to find a solution to the six problems described above, productivism is the strategy and policy we need to implement.
Michael Collins is the author of a new book, “Dismantling the American Dream: How Multinational Corporations Undermine American Prosperity.” He can be reached at mpcmgt.net.