The purported decline and fall of American manufacturing is a bipartisan obsession. Despite all their differences, Republican and Democratic politicians favor similar policies to restore bygone glory days: an industrial policy directed from Washington, based on subsidies and tariffs. They have both the problem and the solution wrong.
American manufacturing is far healthier than pandering politicians say it is. And the best stimulus for American manufacturing isn’t giving more money and power to those same politicians. It is open competition and a more flexible regulatory system.
The popular belief that nobody makes anything in America anymore is a myth. Many cable news viewers might guess that American manufacturing output reached its all-time high in the 1950s, during America’s post-war boom, and the Big Three automakers had the industry to themselves.
Instead, inflation-adjusted manufacturing output today is about five times higher than in the 1950s. It would be higher still if not for post-Great Recession financial regulations and the Trump-Biden trade wars.
In the 1950s, domestic manufacturing output was about 12 percent of GDP. Today, it is also about 12 percent of GDP.
American manufacturers crank out more goods than Japan, Germany, South Korea, and India combined. The only country with higher manufacturing output is China, mainly because it has quadruple America’s population. Thanks to Beijing’s interventionist policies, Chinese workers are less than a third as productive as Americans.
Manufacturing doomsayers are correct that US manufacturing jobs are down quite a bit since their 1979 peak. It was almost 20 million people then, and less than 13 million people now. Even this is good news. Ask any room of people how many of them want their children and grandchildren to spend their working years on factory floors. You will get few raised hands, even in the Rust Belt.
Even with all those factory jobs lost, mostly to automation, unemployment is currently 4.2 percent, compared to 6 percent in 1979. Average income and living standards are up across the board since the 1970s.
Manufacturing could be in even better shape if, instead of making American companies dependent on Washington’s corporate welfare and all its strings attached, companies were allowed to thrive in open competition. That means a combination of free trade and regulatory reform that reflects the American tradition of innovation and entrepreneurship.
Trump’s steel tariffs cost 175,000 jobs due to higher costs in steel-using industries outweighing any benefits to the steel industry itself. This is bad policy, and not just because tariffs cause higher car and housing prices at a time when people are still hurting from inflation.
US Steel, long dependent on these government privileges, has grown antiquated and uncompetitive. Nippon Steel, which is hardened by actual competition, wants to spend $14 billion to buy US Steel and modernize it. US Steel’s employees favor the deal. American manufacturers who use steel in their products would also benefit.
Instead, both Joe Biden and Donald Trump pledged to block the deal on national security grounds, even though Nippon Steel’s home country, Japan, is one of America’s closest allies, biggest foreign investors, and a needed counterweight in Asia against China.
Throwing money at the problem hasn’t worked either. Washington’s attempts to subsidize chipmakers, build new factories, and grow EV charging networks have been no match for permitting regulations and environmental reviews. National Environmental Policy Act (NEPA) reviews can take average of 4.5 years to complete before construction can begin.
In 2021, Congress allocated $7.5 billion to build EV charging stations. In the three years since, that has yielded just 243 charging stations, or less than 1 percent of what was promised. If the full complement of 24,800 stations gets built, the cost would be about $302,000 each.
Compare this to the nationwide network of gas stations that emerged without subsidies when cars first became widely affordable a century ago. Politicians and regulators cannot drive innovation. Entrepreneurs can, if they are allowed to.
Americans do many things well, and one of those things is manufacturing. Output is near record levels, even after a trade war and a pandemic. There is no need for vote-chasing politicians to waste that potential with their tariffs, subsidies, and cronyism. Americans would be better served with free trade and regulatory relief.
