For U.S. Manufacturers, the Best is Yet to Come

by John Murphy

In his Outlook piece “The Old Titans All Collapsed. Is the U.S. Next?,” Kevin Phillips foresees the "multi-decade endgame of U.S. ascendancy" and ascribes it to America’s "unhealthy reliance on the financial sector as the engine of its growth" coupled with the supposed shriveling of U.S. manufacturing.  He notes that in the 1970s, "manufacturing occupied 25 percent of GDP and financial services just 12 percent, but by 2003-06, finance enjoyed 20-21 percent, and manufacturing had shriveled to 12 percent."

This selective use of statistics obscures more than it reveals about the health of U.S. manufacturing.  According to the Federal Reserve, U.S. industrial production - 78% of which is manufacturing - rose by 57% between 1993 and 2007, a period when the North American Free Trade Agreement and the World Trade Organization brought new opportunities as well as new competition for U.S. manufacturers.  This performance significantly outpaced the 28% increase in U.S. industrial production between 1981 and 1993. 

And contrary to popular perception, the United States remains the world’s largest manufacturer.  The UN Industrial Development Organization reports that the U.S. share of world manufacturing output held steady at 21% from 1993 to 2005, during which time U.S. manufacturers set new records for output, revenues, profitability, and return on investment.  By contrast, the Japanese and European shares of world manufacturing fell by about 3% each during this period.

Bottom line, American manufacturers face challenges, but they continue to compete and win - just as the United States is doing.