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What Happened to the U.S. Manufacturing Industry?

Manufacturing photo

Manufacturing photo

We don’t make anything anymore.

That’s a refrain heard often in Rust Belt regions and elsewhere in the country.

Actually, the United States still has a viable manufacturing sector.

It’s just we don’t make what we produce in the past and manufacturing is no longer the dominant component it once was in our economy.

Consider these facts.

In the 1960s, the United States was responsible for 50 percent of the world’s manufacturing output. Today, it’s about half that.

In the 1960s, factory production was about 25 percent of the nation’s gross domestic product. In 2019, it was about 11 percent, the smallest percentage since 1947.

We produce steel at about 78 percent of the level we did in the 1970s despite the fact global production of that vital industrial product has tripled in the same time period.

Nearly 13 million cars rolled off assembly lines in the United States in 1978. We now produce 11 million motor vehicles vehicles, far behind the 25 million China manufactures and just ahead of the 10 million coming out of Japan.

In 1979, there were nearly 20 million manufacturing jobs in the United States. Today, there are less than 13 million.

Some of our great industrial cities are shadows of their formal selves. St. Louis, Cleveland, Buffalo and Cincinnati all used to be in the top 10 in population. They are nowhere near that today.

“The inner cities and the rural towns were really basically decimated,” said Sandy Montalbano, a consultant with the Reshoring Initiative, an organization that was formed in 2010 to help bring back manufacturing jobs to the United States. “These were really good-paying jobs with benefits and these wage earners were able to provide for their families.”

So, what happened to American manufacturing? How did we go from an industrial powerhouse that led the world to a country with a service-based economy?

Here’s a look at where we once stood, how we got to where we are and the changes that are slowly bringing back U.S. manufacturing.

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For most of the 1700s, American industry was made up of craftspeople producing household items for their colonial communities.

That changed drastically at the turn of the century.

From 1800 to 1830, industrial manufacturing was born where a wide variety of items were mass produced and shipped to places far away.

The first factory in the United States was actually built in 1790 by Samuel Slater. It was a cotton spinning mill in Pawtucket, Rhode Island, that used water to power its operations.

In the early 1800s, other manufacturing quickly sprouted with the help of some new inventive processes.

In 1801, Eli Whitney, who would later become famous for inventing the cotton gin, came up with a system of using interchangeable parts while manufacturing muskets.

In 1804, Oliver Evans developed an adaptable high pressure steam engine that could power ships, saw mills, printing presses, factories and flour mills.

Among the first industries to benefit were textile mills. They were followed by iron furnaces and rolling mills that replaced small local forges.

Canals and railroads were built to transport the growing quantity of products. That prompted the manufacturing industry to expand even more.

The value of goods produced in the United States increased by tenfold between 1860 and 1916.

This industrial growth changed American society in a number of ways.

It brought in a flood of immigrants, mostly from Europe, who were eager to help fill the burgeoning labor pool.

People moved from rural towns to cities. Between 1860 and 1916, the percentage of people living in urban areas rose from 25 percent to 50 percent.

The manufacturing industry produced a number of steady, higher paying jobs, creating a middle class as well as labor unions. It also widened the gap between rich and poor.

The industrial output gobbled up the nation’s natural resources, in particular coal and iron ore.

It also provided the U.S. military with an abundance of hardware, increasing the country’s status as a world power.

The United States dominated the world manufacturing market until the 1970s.

And then things began to crumble.

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So, what happened?

There a number of factors for the decline in the U.S. manufacturing, according to Montalbano.

One of the biggest was the move in the late 1900s and early 2000s to “offshore” work in other countries. U.S. companies moved operations overseas to take advantage of lower wages and fewer regulations.

Montalbano told 60 Days USA that these companies were focusing on short-term gains for shareholders instead of investing in capital equipment, innovation and workforce training.

The federal government also allowed the U.S. dollar to appreciate 300 percent vs. our trading partners over the past 40 years, causing it to become overvalued.

That was all compounded, she adds, when the country began to promote a “college for all” education system, putting less emphasis on skills-based training, credentialing and apprenticeship.

Consumers also encouraged offshoring by demanding and buying the cheapest products available. That created a trade deficit, which has continued to impact the country’s manufacturing industry.

A number of U.S. industries also failed to adapt as the world changed.

The automobile industry is a prime example.

The United States dominated vehicle manufacturing from the time Henry Ford rolled his $850 Model T cars off his newly formed assembly lines in 1908 until the late 1970s when Japan and then China took over the leadership.

The decline of the U.S. auto industry began in the 1960s when safety related defects started to plague vehicles made here.

Between 1966 and 1976 the federal government imposed automotive safety standards, clean air requirements and energy efficiency goals. In addition, the oil shortages of the 1970s drove up the price of gasoline.

Japanese and European auto companies filled the gap by producing reliable, fuel efficient cars. U.S. automakers clung to their gas guzzling, air polluting large vehicles for a few years too long.

Automobile manufacturing assembly line in Detroit, Michigan

Sale of vehicles made in America peaked at nearly 13 million in 1978 before falling to less than 7 million in 1982. The share of imports in the U.S. automotive market rose from 17 percent to 28 percent as Japan became the world’s leading automobile producer.

In the 1980s, the U.S. auto industry under went a $80 billion modernization and retooling program. Part of that revitalization, however, resulted in a reduction of workforce and factory capacity to allow companies to maintain profit levels on less volume.

The auto industry nearly collapsed during the 2008 financial crisis. Federal loans rescued General Motors and Chrysler. GM still filed for bankruptcy in 2009 and reemerged after a series of downsizing moves.

The rubber industry is another poster child for the decline of American manufacturing.

At one time in the early 1900s, there were 300 companies in the country making tires. The largest four firms were in Akron, Ohio, and they were dominant.

In 1910, the Firestone Tire and Rubber Company produced 1 million tires.

In 1913, the B.F. Goodrich Company manufactured enough tires to outfit 1 million cars.

In 1916, the Goodyear Tire and Rubber Company was the world’s largest tire manufacturer.

In the 1930s, the General Tire Rubber Company was the number one producer in the country of truck tires.

Some of these behemoths started to branch out into the aviation industry in the mid-1900s, producing blimps as well as tires and other items for aerospace.

The decline started in the 1960s when the French company Michelin developed the radial tire. Other foreign companies followed suit, but U.S. tire makers were slow to respond and floundered.

The tire manufacturing business in the United States is still a $17 billion industry. There remain 113 businesses in the country making tires, but most of them are foreign owned.

The last automobile tire that was manufactured in Akron was in 1982. The only tire manufacturer left in town is Goodyear, whose local factory produces tires for race cars.

The steel industry is another piece of the decline of U.S. manufacturing.

In 1910, the United States produced 24 million tons of steel, about 40 percent of worldwide production. Today, the country produces more than 80 million metric tons of steel, but it is now fourth in this field. China produces more than 50 percent of the world’s steel with Japan and India also ahead of the United States.

That dramatic drop in market share has shown up in jobs. In the 1950s, the U.S. steel industry employed 700,000 workers. That has fallen to under 100,000.

The loss in jobs has devastated former steel-reliant towns near Pittsburgh such as Clairton, Duquesne and Braddock.

Montalbano notes that much of the Chinese steel industry is government subsidized, which allows it to dump cheap steel into the world market. That lowers the price.

“We just can’t compete with that,” she said.

The final sector of the economy to profile here is the coal industry.

There are about 50,000 coal mining jobs left in the United States, down from the peak of 800,000 in the 1920s.

There are a number of reasons for this decline.

First, only 27 percent of the nation’s electricity is produced by coal-fired plants. That’s down from 48 percent in 2008.

Air pollution regulations have also dampened coal production.

There’s also the expense.

Coal costs between $60 and $143 per megawatt hour compared to $41 to $74 for natural gas. Wind power now costs $29 to $56 per megawatt, down from $70 a few years ago. Solar power’s price range is $40 to $46 per hour compared to $120 in 2010.

A comeback is unlikely. A 2019 report predicted that renewable energy will replace coal as the world’s main fuel source by 2030

A fix for the manufacturing industry is a must for the U.S. economy.

Manufacturing remains the nation’s fifth largest employer and the automobile industry is still the largest single entity in the manufacturing sector.

There are signs of a rebound as jobs slowly from overseas. In addition, some industries are adapting to changing technologies and the shifts in consumer demand.

And the automotive, coal and rubber industries are doing their part.

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There are some encouraging numbers in recent years for U.S. manufacturing.

But, as Montalbano and others point out, there’s still a long way to go.

The Reshoring Initiative reports that 110,000 manufacturing jobs returned to the United States in 2020. There have now been more than 1 million “reshored” jobs since 2010, when U.S. manufacturing jobs hit a low of 11.4 million. They’re now back up to nearly 13 million.

However, there is a caveat.

A Brookings Institute report notes that manufacturing output is keeping pace with the country’s gross domestic product growth. However, the bulk of that increase is computers and electronics. The rest of the manufacturing economy is not keeping pace with GDP.

In addition, while manufacturing nationwide increased 20 percent from 2009 to 2017, employment in the industry only increased by 5 percent.

Montalbano says there are a number of things that need to be done to rev up the nation’s manufacturing sector.

First, she says, is to make the U.S. industry competitive again through a variety of initiatives, including action against other countries such as China to avoid a repeat of the “steel dumping” of recent decades.

“The government needs to level the playing field,” Montalbano said.

That can also be accomplished by fine tuning American industry with automation and other new technologies.

The country, she says, also needs to invest in workforce training.

“There is a mismatch between the skills that are needed and the skills we are teaching,” Montalbano said.

Government, education and business need to collaborate to get U.S. workers up to speed. Part of that process should include apprenticeships and vocational education.

“Workers are going to need more than a high school education,” said Montalbano.

And that process needs to be ongoing.

“There needs to be lifelong learning because technology is moving so quickly,” she said.

It’s part of a new future that workers and businesses have to face.

“I don’t think the jobs are going to be the same and I don’t think the amount of jobs will be the same,” said Montalbano.

The Reshoring Initiative sees an encouraging trend.

They say U.S. companies are slowly starting to turn away from offshoring jobs in other countries and returning work to the United States.

Montalbano said the companies have realized there are quality control issues as well as transportation and other costs.

“The local-to-local market makes more sense,” said Montalbano. “It makes more sense to manufacture the product in the market where it’s sold.”

That’s particularly true when the products are large, such as with appliances.

“Anything that is big it doesn’t make sense to ship it 8,000 miles,” Montalbano said.

She noted that Tesla had adopted this philosophy. They build cars sold in the United States in American factories. The vehicles sold in China are made there.

There is also a move toward foreign direct investment where companies from other countries build and operate facilities in the United States to sell goods here.

Montalbano said those kinds of ventures are also key to the future.

In a column published in Industry Week, Harry Moser, the founder and president of the Reshoring Initiative, said the push to bring back jobs got off to a good start under President Donald Trump due to tax cuts and reductions in regulations.

However, Moser wrote, tariff policies and other uncertainty put a damper on that progress.

The COVID-19 pandemic of 2020, ironically, actually helped U.S. manufacturing. Moser said that the pandemic encouraged local production with shorter supply chains and fewer people handling merchandise.

Moser appears to be cautiously optimistic about the administration of President Joe Biden.

The new president is promising 5 million new manufacturing jobs. Moser said the nation will need to reduce manufacturing costs, improve worker skills and strengthen the U.S. dollar to get there.

Moser wrote that expanding the Affordable Care Act is a positive, but he cautioned against raising corporate taxes or instituting a $15 per hour minimum wage.

Montalbano says the infrastructure program being proposed by Biden could be helpful because of the jobs it could create not only in the actual construction but also in the materials that would be needed.

She also thinks the Green New Deal could also be helpful if done correctly.

One of the new electric trucks that will be produced at Lordstown Motors in Ohio

“I do believe we have to go toward renewable sources of energy,” Montalbano said.

There are signs that some American industries are catching on to all this.

Wyoming is by far the top coal producing state in the country. However, many of the coal mining operations are shifting from digging underneath their land to putting energy-producing wind mills on top of their property.

The automobile industry also appears ready to pivot.

Electric cars are on the drawing boards in a big way in Detroit, although there are concerns about how many jobs these factories will actually produce.

This future is already here in the community of Lordstown, Ohio. In 2019, General Motors closed its plant there and was planning to sell the site. However, Workhorse Group negotiated a deal to manufacture electric trucks in the old factory. The Lordstown Motors plant is expected to create 450 union jobs. So far, there are 100,000 fleet preorders, a demand that could take years to fill.

The new factory has also created an ancillary industry.

In July 2020, construction began on a $2.3 billion battery cell plant on 158 acres next to the former GM plant. It’s a joint venture between GM and LG Chem of South Korea. The factory is expected to provide 1,100 new jobs. The facility is about halfway completed and appears to be on schedule to begin operations in 2022.

Finally, back in Akron, the rubber industry has given way to polymers.

Polymers are molecular structures used in the formation of rubber, glass, paper, Silly Putty, waterproof sealants and other products.

The industry put down stakes in the region in the 1980s to take advantage of the mineral and transportation resources here. There was also an available skilled workforce from the fading rubber industry.

This area in northeast Ohio is known as Polymer Valley with its center in Akron. There are more than 400 polymer manufacturers in this part of the state with 94 located in the Akron region.

The Goodyear Polymer Center at the University of Akron employs scientists who work in two tall towers that include 60 labs amid its classrooms.

In whichever direction, the U.S. manufacturing industry heads, Montalbano urges patience.

“It took decades to get where we are and it’ll probably take decades to get us back on track,” she said.

 

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