A recent Bloomberg article by Dan Wang and Ben Reinhardt had some interesting things to say about US manufacturing. Instead of imposing high tariffs, they suggested that the US encourage foreign investment into facilities producing goods in America. I particularly liked this paragraph:
But the more that Trump makes the country captive to his impulses—whether on trade policy, immigration or the treatment of investors—the more likely that it won’t be China that’s isolated from the rest of the world, but America itself.
But what if the entire premise of the article is false? Is it possible that the US is not, in fact, falling behind in manufacturing? Given all of the stories about the hollowing out of the Rustbelt, that optimistic view seems a bit far-fetched. But consider this graph provided in the Bloomberg piece:
It is important to recall that China has more than 4 times America’s population. Thus, in per capita terms, American manufacturing output is more than two and a half times larger than that of China. Indeed, in per capita terms, the US leads every single country on that list, except for Germany (which has 1/4th our population). We even lead countries like Japan and South Korea in per capita manufacturing output, despite their impressive export sectors.
I suspect that people underestimate American manufacturing because it is a relatively low share of GDP. But that doesn’t reflect the fact that our manufacturing sector is doing poorly—it isn’t—rather, that our other sectors are so productive that our total GDP per capita greatly exceeds that of almost all other countries.
A recent article by Gary Winslett showed that the decline in the Rustbelt was largely caused by a re-allocation of industry to other regions, especially the Sunbelt. Another article, by Ben Glasner, showed that workers in manufacturing are actually more likely to be college graduates than workers in other sectors of the economy. American manufacturing is doing far better than many people assume.
PS. The strong dollar may somewhat overstate our manufacturing strength. But recall that manufactured goods are often traded internationally, and hence “PPP” type adjustments are much less important than in the service sector.
READER COMMENTS
Jose Pablo
May 21 2025 at 6:35pm
they suggested that the US encourage foreign investment into facilities producing goods in America
For instance, by running trade deficits, which “encourage” FDI.
Jose Pablo
May 21 2025 at 7:05pm
Great post, Scott. It’s often overlooked that the United States remains a manufacturing powerhouse.
And by the same metric, value added per capita, America is also an agricultural powerhouse. With around $250 billion in annual agricultural value added, only China (900-1,000 billion) and India (600-650 billion) surpass the U.S. in total value added. But when adjusted for population, or better yet, productivity per worker, the U.S. stands out even more.
The same holds true across other sectors: the U.S. is also a technological, financial, and military powerhouse.
So why are so many Americans voting for political change at any cost?It seems driven less by reality and more by myths, especially fear-based narratives about foreign threats or decline.
Ironically, it’s often the rest of the world that’s more concerned about the overwhelming power and influence of the United States—and justifiably so.
steve
May 23 2025 at 12:44pm
Ahhh, but you dont win elections by telling the truth.
Steve
David Henderson
May 22 2025 at 9:43am
Good post.
One correction: U.S. per capita manufacturing is not more than two and a half times larger than China’s. It’s more than one and a half time larger, and two and a half times as large.
Scott Sumner
May 22 2025 at 11:54am
Good point.
nobody.really
May 22 2025 at 3:22pm
I stumble on that one, too.
What bothers me more are statements such as “X costs $6, but you could instead by Y for three time less!” So Y would cost -$12? No, I expect the speaker meant to say “you could instead buy Y for one third that price”–that is, for $2. At least the usage “three times less!” has the advantage of being so absurd as to signal that the speaker must have a different meaning in mind.