Manufacturing sectorThe Pandemic Has Revealed the Cracks in U.S. Manufacturing: Here’s How to Fix Them

By Sridhar Kota and Glenn S. Daehn

Published 8 September 2020

The COVID-19 pandemic has revealed glaring deficiencies in the U.S. manufacturing sector’s ability to provide necessary products – especially amidst a crisis. Globalization is at the heart of the problem. 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 the U.S. to the current crisis. It has seriously damaged the nation’s industrial base, increased income inequality and caused stagnation in U.S. living standards. How the U.S. responds will determine the long-term health and prosperity of the nation.

The COVID-19 pandemic has revealed glaring deficiencies in the U.S. manufacturing sector’s ability to provide necessary products – especially amidst a crisis. It’s been five months since the nation declared a national emergency, yet shortages of test kit components, pharmaceuticals, personal protective equipment and other critical medical supplies persist.

Globalization is at the heart of the problem. 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 the U.S. to the current crisis. It has seriously damaged the nation’s industrial base, increased income inequality and caused stagnation in U.S. living standards. How the U.S. responds will determine the long-term health and prosperity of the nation.

Manufacturing Offshore
After World War II, U.S. policies promoted more liberal international trade, reducing tariffs and encouraging increasingly globalized manufacturing. The process accelerated during the 1980s, when the production of consumer electronics, vehicle parts, packaged semiconductors and other goods was transferred to Mexico, Taiwan, Malaysia and other low-wage countries. When China opened to foreign investment in 1978, its low-cost manufacturing proved irresistible to many American companies. From 2000 to 2019, U.S. direct investment in manufacturing in China jumped from US$7 billion to more than $54 billion.

The rising importance of shareholder profits in corporate decisions led companies to claim that the only way to remain competitive was by moving offshore to minimize production costs. In the U.S., investment shifted from manufacturing to marketing, branding, and research and development. With far fewer factories and factory jobs, the nation moved to a post-industrial “knowledge economy” driven by information technology, software, advanced communication and cutting-edge basic research.

In our work at the nonprofit MForesight, a technology forecasting project based at the University of Michigan, we address government policy and national manufacturing competitiveness. Our research has confirmed the detrimental effects of these trends on U.S. employment and resilience.

For example, the U.S. no longer has sufficient production capacity or the manufacturing know-how to provide essential goods amidst this current crisis – from pharmaceutical ingredients to fabrics for personal protective equipment – or to meet critical defense needs. Globalization has eliminated more than 50,000 U.S. factories over the past 20 years along with over 5 million manufacturing jobs.