Can the US create more manufacturing?
Since the 1940s, manufacturing has been a cornerstone of the US economy, employing tends of millions of Americans. By the 1990s, nearly 18 million Americans worked in manufacturing for industries like automotives, textiles and electronics.
Like the decline of grunge music in the 1990s, the decline of US manufacturing jobs can’t be attributed to a single cause. Several key factors, including globalization, trade policies and shifts in the structure of the economy have all had their impact.
- The passage of the North American Free Trade Agreement (NAFTA) in 1992 marked a significant turning point, increasing trade between the US, Mexico and Canada, but also incentivized companies to relocate production to Mexico, where labor was cheaper. This led to the closure of many American factories.
- A decade later, China joined the World Trade Organization (WTO) which allowed the country to become a global manufacturing powerhouse, attracting foreign investment and interest due to low labor costs and growing industrial capacity. As a result, many American companies shifted manufacturing operations to China, contributing to what is now known as the China shock, which displaced millions of American manufacturing jobs.
- The 2008 financial crisis further accelerated declining US manufacturing. During this period, American manufacturing employment saw a sharp drop, and many of the jobs lost were never recovered, even after the economy stabilized.
- When the COVID-19 pandemic severely disrupted supply chains and reduced demand for manufactured goods, factories closed temporarily. While the sector has since recovered, the event highlighted the vulnerability of global manufacturing networks and raised questions about supply chain resilience.
Looking ahead: To address some of these issues, the Trump Administration the US-Mexico-Canada Agreement (USMCA) replaced NAFTA in 2020, aiming to protect jobs by including provisions on labor rights and domestic production. However, the long-term effects of these policies remain uncertain, as technology and automation continue to reshape manufacturing.
Aaron Foyer is Vice President, Research and Analytics at Orennia. Prior to Orennia, he leveraged his technical background in management consulting and finance roles. He has experience across the energy landscape including clean hydrogen, renewables, biofuels, oil and gas, petrochemicals and carbon capture.
