Making productive plans
China must take steps to lessen impact of US efforts to bring manufacturing back home
Editor’s note: To help enhance dialogue between scholars from China and overseas to build mutual understanding on many problems the world faces, the China Watch Institute of China Daily and the National Institute for Global Strategy, Chinese Academy of Social Sciences, jointly present this column: The Global Strategy Dialogue, in which experts from China and abroad will offer insightful views, analysis and fresh perspectives on long-term strategic issues of global importance.
After the 2008 financial crisis, the political elites in the United States came to realize the importance of manufacturing. From the reindustrialization strategy of the Barack Obama administration to the Donald Trump administration’s initiative to “bring manufacturing back to the US”, and now the Joe Biden administration’s plan to revive US manufacturing, the nation has been pushing for the resurrection of domestic manufacturing by offering incentives to homemade products, toughening “Buy American” rules, improving the ecosystem for industrial innovation and adopting protectionist measures.
Some progress has been made in bringing manufacturing back to the US, but the target has not been fully achieved.
First, despite a made-in-the-US rebound, the manufacturing sector remains “hollowed out”. The added value of US manufacturing grew from $1.7 trillion in 2009 to $2.79 trillion in 2022, and spending on construction has surged. However, the value added by US manufacturing as a percentage of GDP has been declining. The real economy remains weak, with the added value of manufacturing lower than the financial and services industries.
Second, the increased manufacturing jobs have not rebuilt the country’s middle class.
Data released by the
US Bureau of Labor Statistics indicates that the number of workers employed in manufacturing grew from 11.59 million in 2009 to 13.53 million in 2022, with the unemployment rate dropping from 10 percent to 3.5 percent. However, the share of US aggregate income earned by the middle class shrank from 45 percent in 2011 to 42 percent in 2020. The numbers prove that the “bringing manufacturing back to the US” policy has not addressed the income inequity and failed to raise the share of earnings of the middle class.
Third, “bringing manufacturing back to the US” has bolstered the US supply chain resilience but not altered its dependence on China.
While measures to revive manufacturing have seen made-in-theUS products hit a record high and fewer foreign goods imported, with the sources of US imports diversified away from China, most of the goods the US now imports from Mexico, Canada, and Vietnam have upstream trade and investment links to China.
There are three reasons that the “bringing manufacturing back to the US” strategy has failed.
First, the political divergence on the approach to revitalizing manufacturing has hurt policy implementation. Democrats advocate boosting domestic manufacturing through increasing public investment and government subsidies while Republicans seek to lure manufacturing companies back and reduce the costs of made-in-the-US by lowering taxes and raising tariffs.
As the Republicans regained control of the House of Representatives in the 2022 midterm elections, and with the 2024 presidential election approaching, the Biden administration’s manufacturing initiatives will face stiff opposition from the Republicans. Second, the US is plagued by a shortage of workers. According to official data, the private sector had a deficit of 8.01 million workers at the end of December and it is expected to grow. The lack of interest in blue-collar jobs among the younger generation will complicate hiring difficulties in the manufacturing sector in the long term.
Third, due to the higher costs of labor and land in the US, many manufacturers that left China did not return to the US but relocated to other low-cost countries in Asia or Mexico. Moreover, poor infrastructure, unstable supplies of materials and components, and an incomplete network of upstream and downstream suppliers have dampened the enthusiasm of manufacturers to go back to the US.
As the US policy threatens China’s status as the world’s largest manufacturing power and makes it harder for it to access leading technologies through cooperation, China should take steps to minimize the policy’s negative impacts.
First, China needs to capitalize on its huge domestic market, relatively high productivity, complete manufacturing system, sound supply chain infrastructure, and an everimproving business environment to increase its appeal to foreign capital.
Second, China should keep along the right direction of globalization, deeply participate in the global industrial division of labor and cooperation, and strengthen cooperation in industrial chains and supply chains with third parties. The country must safeguard the diverse and stable international economic landscape and prevent the supply chains from being severed.
Last but not least, China should double down on its efforts to boost independent innovation in manufacturing by promoting industryacademia-research cooperation and improving the innovation ecosystem in manufacturing. The country also needs to build research platforms of key generic technologies to elevate the manufacturing industry to the middle and higher ends and strengthen the core competitiveness of the manufacturing sector.