The COVID-19 pandemic has revealed deficiencies in the U.S. manufacturing sector’s ability to provide necessary products.
With heavy reliance on global supply chains and foreign producers, the pandemic has interrupted shipping of parts and materials to nearly 75% of U.S. companies.
Decades of “offshoring” domestic manufacturing to other countries have led to this problem.
After World War II, U.S. policies promoted more liberal international trade, reducing tariffs and encouraging globalized manufacturing. The process accelerated during the 1980s, and when China opened to foreign investment in 1978, its low-cost manufacturing proved irresistible to many U.S. companies.
The rising importance of shareholder profits in corporate decisions led companies to claim that the only way to remain competitive was by moving offshore. With far fewer factories and factory jobs, the U.S. moved to a post-industrial “knowledge economy.”
But the U.S. no longer has sufficient production capacity or the manufacturing know-how to provide essential goods amidst this current crisis, or to meet defense needs. Globalization has eliminated more than 50,000 U.S. factories in the past 20 years and over 5 million manufacturing jobs.
With a smarter industrial policy, the U.S. could become a world leader.
That’s because a knowledge economy offers relatively few high-paying positions. New technologies invented in the U.S. are often manufactured abroad and imported back.
Three fallacies have caused U.S. policymakers to favor the knowledge economy over a production economy:
• Research results and inventions are sufficient to create jobs and raise living standards.
Many important innovations conceived in the U.S. are then manufactured offshore, creating millions of factory jobs in other countries – while hurting U.S. manufacturers.
A national commitment to domestic manufacturing from its research and development investments would generate high-paying jobs and produce valuable technology exports that would reduce the massive U.S. trade deficit.
• Industrial policy is incompatible with American capitalism.
Across the globe, a range of industrial policies and government actions foster the development of specific industries, usually in support of strategic national goals. In the past, the United States has intervened to develop strong manufacturing in the aerospace, nuclear power, telecommunications and semiconductor industries.
• What’s good for large corporations is good for the United States.
Generally, social interests and corporate interests don’t align.
U.S. multinationals are in business to make money, with cost-cutting as a go-to strategy. Moving factories to low-wage countries has become a default decision. It has devastated domestic manufacturing while boosting corporate profits and executive salaries.
Policies favoring domestic production of essential products would create a large number of well-paid jobs for skilled, innovative workers that can provide resiliency in a crisis. Identification of and support for critical industries and technologies, financial incentives to build U.S. factories and strict “Buy American” requirements for government purchases are examples of possible strategies.
If the products created through taxpayer-funded research were manufactured in U.S. factories, both workers and the economy would benefit.
Sridhar Kota is a professor of mechanical engineering at the Univerity of Michigan. Glenn S. Daehn is a professor of science and engineering at The Ohio State University. Distributed by The Associated Press.