ITIF Disputes Boston Consulting Group (BCG) Report that U.S. Set for Industrial Revival

A BCG report out today claims the United States is on course to regain its status as a global industrial powerhouse, arguing that several forces—including lower U.S. energy costs, rising labor costs in competitor nations, and idle port capacity—will empower the United States to boost goods exports by up to $130 billion by 2012, creating 5 million jobs in the process. But as ITIF explains in Worse Than the Great Depression: What Experts Are Missing About American Manufacturing Decline, in the last decade the United States lost one-third of its manufacturing jobs (5.7 million—a rate of loss worse than during the Great Depression) and 11 percent of its manufacturing output due to structural weaknesses that won’t simply be rectified by market adjustments.

Chinese manufacturing wage costs are still a small fraction of the United States’, and the hollowing out of the U.S. industrial base over the past decade has meant that the United States simply cannot manufacture a range of high-tech products (from LCD screens to electrophoretic displays to polycrystalline solar panels), explaining why the United States still runs a trade deficit in advanced technology products approaching $100 billion annually. Meanwhile, data from the Institute for Supply Management already shows the manufacturing recovery weakening. And even at the rate of growth in manufacturing jobs that did occur in 2011, it would take until at least 2020 for employment to return to the number of manufacturing jobs the United States had at the end of 2007.

BCG is correct that the United States can become an industrial powerhouse again, but they are wrong that market forces acting alone will produce such a result. Rather, as ITIF explains in Innovation Economics: The Race for Global Advantage and reports like A National Traded Sector Competitiveness Strategy, it will take a coordinated set of policies around the “4Ts” of Technology, Tax, Trade, and Talent to power sustained American industrial renewal. U.S. manufacturing simply won’t be globally competitive if we continue to impose the world’s third-highest corporate tax on manufacturers, permit continued foreign mercantilism through currency and standards manipulation or IP theft, and fail to address skills, education, and immigration challenges. U.S. industrial revival can happen—but it won’t without a serious commitment by policymakers to address underlying structural weaknesses in the U.S. manufacturing economy.