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Is US Manufacturing Losing Its Toolbox?

Aug. 16, 2019
Despite optimists' hope for an American manufacturing Renaissance, many critical industries are actually in decline.

Things seem to be going very well for American manufacturing these days. Since 2009, 1.2 million new manufacturing jobs have been created. The fracking industry has significantly lowered energy costs. Unemployment has reached a low of 3.8%, and 145,000 jobs were re-shored in 2018. We have had 10 years of growth since the Great Recession and many articles in the past year suggest the US is in a manufacturing renaissance.

So are we really in the long-hoped-for manufacturing renaissance? The agency with the most accurate predictions on the future of jobs is the Bureau of Labor Statistics. Their projection to 2026 shows that US manufacturing sector will lose 736,000 manufacturing jobs. I spoke with BLS economists James Franklin and Kathleen Greene, who made the projections, and they were unwavering in their conclusion for a decline of manufacturing jobs.

This prompted me to look deeper into the renaissance idea, so I investigated the changes in employment and establishments in 38 manufacturing North American Industry Classification System (NAICS) industries from 2002 to 2018. I really hoped that the optimists were right about the manufacturing renaissance, but the data I collected in Table 1 (see link) shows some inconvenient truths—that 37 out of the 38 manufacturing industries are declining in terms of both number of plants and employees.

Some of the industries, such as textiles, apparel, furniture, hardware, magnetic media, computers, cutlery, hand tools, and electrical equipment, have been declining for many decades and are probably beyond recovery. And I was surprised to see that industries whose resource material is in the United States, like wood and paper, are also declining.

But the most perplexing of these declining industries are the ones that are fundamental to making other manufactured products. These are industries like machining, machine tools, mold making, tool and die, semiconductors, forging, and foundries. It is difficult to see how we can achieve a manufacturing renaissance while these critical industries continue to decline:

Machine tools. These are the master machines that make other machines and products. Max Holland wrote in his book When the Machines Stopped,

"Thus at the heart of the industrial health of any nation is its machine tool industry. It is no coincidence that the erosion of the machine tool industry parallels the decline of domestic manufacturing".

In 1965 American machine tool manufacturers had 28% of the world market for machine tools, but today we have 5% of the world market. In 2018, U.S. machine tool manufacturers exported $4.2 billion and imported $8.6 billion, according to the U.S. Census Bureau USA trade online. This begs an obvious question: Can a manufacturing renaissance occur if most of the machine tools used by industry are imported?

Machine Shops. Machining is a material removal process that is used on metal, plastics, wood, ceramics, and composites. Machining is essential to hundreds of industries and thousands of products from products as tiny as a machine screw and as large as a turbine bearing for a dam. Machining is absolutely essential for all industrial products but is also used in consumer products to make parts for everything from dishwashers and faucets to cellphones and toys. But, according to BLS statistics shown in Table 1, since 2002 the number of machine shops has decreased by 4874 shops (19.7%) and employment has decreased by 34,444 people (10.9%).

Machining. Two classes of machinists that are critical to manufacturing are tool and die makers and mold makers. They are the highly skilled artisans that make the jigs, fixtures, dies, molds, cutting tools, and gauges used in the manufacturing process. To become a journeyman in either category requires four to five years and 8,000 to 10,000 hours of training. Since globalization began in the 1980s, Asian countries have gone all out to develop more tool and die, mold makers, and advanced machinists. In the U.S.. however, tool and die makers have declined from 162,032 in 1998 to 89,661 in 2010. Table 1 shows further decline: Industrial mold companies lost 1,241 shops (42.7%) and 5,968 workers (12%) between 2002 and 2018. The big question is, since a good deal of machining is now done overseas, is it possible to support all of the industries and companies who need machined products in the U.S by only using foreign suppliers?

Foundries. The process of making parts by pouring metal to make a casting is ubiquitous and is used in the machinery, automotive, pipe, fitting, railroad equipment, valve, and pump industries. Castings are also used in everything from heart valves to aircraft carrier propellers and in every home for bathtubs, sinks, fixtures, and furnaces. In 1984, there were 3,400 ferrous and nonferrous foundries employing 444,827 workers. As of 2018, there are now 1,811 ferrous and nonferrous foundries and 120,919 workers, which is a loss of 73% of the 1984 workforce. The primary driver of this decline is that most American corporations now buy their castings from low-cost countries where there are no environmental regulations and labor is cheap. The numbers for foundries, machine shops, machining and machine tools continue to decline and beg the question of “How can we ever have a manufacturing renaissance if we lose these critical industries?”

Forging and Stamping. The contraction of the forging and stamping industry began in the 1980s because of import penetration. From 1979 to 1990, 25% of the forging companies in the U.S. went out of business. The contraction of this industry goes on today. Since 2002, this industry has lost 416 establishments and 11,290 employees. The demand for forging and stampings has been declining by the industry's major downstream markets, which include aerospace, agricultural machinery and oil and gas machinery. Additionally, the world prices of steel, and nonferrous metals have been volatile, making it hard for the industry to secure stable purchasing contracts. Most projections show that the forging and stamping industry revenue is expected to continue to decline.

Semiconductors. Semiconductors are usually silicon wafers that are used as a platform to make microprocessors. They are used in the electronics, computer, and communication industries. Semiconductors are used to make chips that are used in cellphones, iPods, GPS, solar cells, light emitting diodes, and hundreds of other consumer products. Semiconductors are absolutely fundamental to the electronics and computer industries.

Even though the semiconductor and microprocessor were invented in the United States, the semiconductor industry has been moving offshore for decades.  Table 1 shows that America has lost 792 establishments (11.9%) and 148,499 workers (28.4%) since 2002. One of the big problems is that when the manufacture of semiconductors moves overseas, research and development goes with it. If the decline continues the U.S. is in danger of losing its innovative edge in electronics and computers.

A strong part of the new optimism that US manufacturing is in a renaissance is driven by digital revolution that includes progress in robotics, artificial intelligence, 3D printing, data analytics, and other digital advances. The digital revolution has great potential, but economic numbers show that it is not yet a reality. In fact, economic data from the BLS shows that since 2007, productivity growth has averaged only 1.3% growth. In addition, imports keep growing, the trade deficit for goods and services reached $891 billion in 2018, and American corporations continue to outsource jobs and production. But the biggest problem as shown in BLS data shows that 38 manufacturing industries continue to decline and nine of 10 of these industries are the critical industries that are fundamental to the manufacturing process. The digital revolution is not going to help if we eventually lose the industry.

Some economists view the decline of these industries as the natural progression towards a post-industrial economy and are not a cause for alarm. But if we want to someday have a real manufacturing renaissance, we are going to have to address the long-term economic problems causing the decline of our manufacturing industries. The real solutions will require reducing the trade deficit, addressing the strong dollar problem, stopping currency manipulation, stopping the mercantilist cheating by China, funding a U.S. infrastructure initiative, creating a skilled workforce, and somehow convincing American corporations that they should reduce outsourcing. President Trump now has the world's attention on these issues with his latest round of tariffs. Perhaps we might build on this momentum and find the political will to address the real problems.

Michael Collins is the author of The Rise of Inequality and the Decline of the Middle Class.

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