Policy Recommendations to Stimulate U.S. Manufacturing Innovation

Stephen Ezell May 18, 2020
May 18, 2020
The health of U.S. manufacturing cannot be taken for granted, especially in the face of ever-more-intense international competition and the rapid pace of technological change.

After dropping significantly in the Great Recession, inflation-adjusted U.S. manufacturing output has continued to decline as a share of gross domestic product (GDP), down 3.5 percent between 2009 and 2019 (0.41 percentage points), even with the strong cyclical rebound in the motor vehicle sector. While U.S. manufacturing performs adequately in a few sectors—such as primary metals, chemicals, computers and electronic products (including semiconductors)—most other sectors are smaller as share of the U.S. economy than they were a decade ago. To boost U.S. manufacturing output and innovation, effective manufacturing strategies—articulated at both the federal and state levels and underpinned by a suite of effective, specific policies—will be needed. 

This report, commissioned by the Indiana University Manufacturing Policy Initiative in parthership with the Hudson Institute, first examines the underperformance of American manufacturing and then examines how a concerted suite of policies—focused on addressing strategy and analysis, technology development and diffusion, finance, tax, and talent challenges and opportunities—could be implemented to revitalize America’s manufacturing economy.