The revival of its manufacturing industry (i.e., the restoration of its international competitive edge) is a crucial agenda for the US. Although direct employment in the manufacturing industry has been on the decline in recent years due to the trend for labor saving at manufacturing sites, it is still expected that, if revived, the industry will create a significant number of jobs and improve the trade surplus thanks to its exports. Hence, manufacturing’s revival has a huge potential to raise the standard of the US economy. That said, however, just sparking attention to the issues without formulating concrete scenarios for their solution, as Mr. Trump did, is quite dangerous. Sufficient clarification of the causes of the decline, as well as searching for the conditions that will allow a revival of the manufacturing industry, are now called for.
In 2011, US manufacturing fell to second place globally behind China after that country overtook the US. The GDP share (value added) of US manufacturing in the global market, which once accounted for almost 30% in the 1980’s, fell to as low as 17.2% in 2014 (Fig. 1). Also, manufacturing’s share of the total US GDP decreased from 26.8% in 1950 to 12.1% in 2015. Moreover, the number of people employed in manufacturing has decreased by 7.11 million (36%) to 12.31 million in 2015, after peaking at 19.42 million in 1979¹. Given below are the factors considered to have contributed to this decline of the US manufacturing industry.
1) Companies have remained satisfied with being comfortably settled in the huge US market. As a result, they lacked motivation to export their products, and have been negligent in developing new products targeted for overseas markets.
2) Personnel costs are higher than those in other countries: When NAFTA came into force in January 1994, many companies relocated their manufacturing bases to Mexico and Canada, where wages were lower. Mexico especially became a hub for export of automobiles to the US (the ratio of vehicles shipped to the US was 90% in 2015). As a result, the number of factories in the US decreased just as the vehicle production in Mexico increased. (The number of automobiles manufactured in Mexico increased from 1.05 million units in 1993 to 3.56 million units in 2015, while in the US, 55 automobile-related factories were shut down during the period from 2005 to 2011²).
3) Financialization of the economy: After a policy for a stronger dollar was proposed by then-Secretary of the Treasury Robert Rubin in 1995, the foreign exchange rate rose from JPY 79.92/USD in 1995 to JPY 147.62/USD in 1998. Although the policy for a stronger dollar dampened the manufacturing industry’s motivation for export, for the financial industry, there was an advantage to the policy in that it induced capital return from abroad. Furthermore, the abolishment of the Glass-Steagall Act in 1999 opened a way for banks to be engaged in the business of both commercial banks and investment banks, thereby shifting the center of the US economy from the manufacturing industry to the financial industry. Concurrently with this move, talented human resources with scientific backgrounds are also said to have flown from the manufacturing industry to the financial industry.
4) Offshoring: Companies have established international manufacturing value chains premised on the global economy. Taking Apple’s iPhones as an example, Apple has very few manufacturing sites in the US. This is because only the core parts of iPhones are being manufactured on US soil, while the manufacture of almost all of the iPhone parts and the assembly process are done at plants overseas entrusted with such work.
5) China’s accession to the WTO (2001): Although the US-China trade has soared rapidly since China’s accession to the WTO, the US’s light industry (such as toy and furniture industries) has been in decline since then. In the US, the number of manufacturing businesses decreased by 78,000 (22.2%) in the period from 2000 to 2014, and 4.86 million jobs were lost (a 28.3% decrease) in the period from 2000 to 2015.
6) Spillover effect of the shale gas revolution: The gas-derived chemicals industry has surely gained a competitive edge thanks to the shale gas revolution. However, the industry has not developed as much as expected, with some new plant construction plans having been put on hold due to the recently lowering prices.

In the US, since the 1980’s, both the President’s Commission on Industrial Competitiveness and its succeeding body, the U.S. Council on Competitiveness, have taken the lead in formulating solutions to the issues of how to rebuild the US economy and to eliminate the twin deficits (i.e., the current-account deficit and budget deficit). The so-called Young Report, issued in 1985, proposed the following, based on the premise that the US should not try to compete by leveraging low wages: (i) creation of new technologies and protection of intellectual property rights (i.e., the so-called pro-patent policy), (ii) raising of the low saving rate, and a more stable monetary policy, (iii) re-employment support for displaced workers, and enhanced elementary education, and (iv) strengthening of measures against the unfair trade practices of foreign countries. Then, in 2004, the so-called Palmisano Report was published. This report acknowledged the more-than-ever heightened importance of innovation, with a focus on the globalized economy and the manufacturing industry, which had been increasingly growing in a service-oriented direction (one typical example is the evolution of telephones: from phones with a single function to smartphones with a variety of applications installed). The report suggested (i) a national strategy on innovative education, (ii) revitalization of research in frontier fields, and (iii) creation of diverse industrial clusters, among others. These propositions were based on the idea that as free trade progresses, both industrialized and developing nations will be able to amicably coexist by focusing on their respective strong industrial areas, and that in the case of the US, new industries will be created one after another through innovation, which will ultimately expand the size of the global economy on the whole. Although the number of people directly employed at manufacturing sites has decreased, some companies such as Intel, which gave up on semiconductor memories and specializes in the manufacture of logic semiconductors, maintain production bases in the US and contribute to whole regions in the country by creating a large amount of indirect employment³. The same can be said about the pharmaceutical and aircraft industries, which boast a competitive edge on the technological front. That said, however, if we take a panoramic view of the whole US economy, we can see that (i) the twin deficits described above are still on the rise (Fig. 2), (ii) the automobile industry has lost the competition against German and Japanese companies in the global market, (iii) reemployment of former factory workers in the Rust Belt has not much progressed, and (iv) the service industry has not been able to increase, by a sufficient number, jobs for which salaries are higher than those paid in the manufacturing industry. Moreover, the number of new businesses started, which can be said to be a barometer of innovation, has been on the decline since the Lehman crisis (The number of newly founded businesses in the manufacturing industry decreased by 45% (16,000 cases) in the 15 years from 2000⁴). Unfortunately, in the US, amid the ongoing hollowing-out of the domestic manufacturing industry, overall upgrading of the industrial structure is still only half done.