MEP Program Critical for Small Manufacturers Underpinning America’s Manufacturing Revival

The Trump administration has appropriately placed emphasis on American manufacturing revitalization, and even touts as much as $5 trillion in new investment commitments. While this represents tremendous progress, these investments will only succeed if America demonstrates it possesses the manufacturing workforce and supply chains—often anchored in small- to medium-sized (SME) manufacturers with fewer than 500 workers—to make that vision a reality. Since 1998, the Manufacturing Extension Partnership (MEP) program, with centers in every U.S. state, has played an indispensable role in enhancing the competitiveness, productivity, and innovation capability of America’s SME manufacturers. Unfortunately, the Trump administration’s proposed 2026 budget has repeated calls from his first administration to eliminate MEP funding and in April the Department of Commerce moved to cease funding 10 MEP centers, a clear prelude to terminating the program. American manufacturing is only as strong as its smallest manufacturers, and Congress should make clear to the administration the MEP program plays a vital role in this regard.

More than 98 percent of America’s 244,000 manufacturers employ fewer than 500 workers, while 83 percent employ fewer than 50, and 74 percent employ fewer than 20. About 70 percent of America’s 13 million manufacturing workforce is employed by small manufacturers. In short, SME manufacturers constitute the backbone of America’s manufacturing sector, and “Tier 1” U.S. manufacturers such as Boeing, Ford, GM, Intel, John Deere, and Merck depend upon SMEs for parts, inputs, and components to make price-competitive final goods.

Unfortunately, America’s small manufacturers have been struggling for some time. For example, while the number of America’s large manufacturers increased by 14 percent from 2010 to 2021, the number of small manufacturers fell by 8 percent. Research has long shown that America’s small enterprises (in manufacturing and other sectors) are less productive than larger firms. In fact, studies estimate that the inability of small firms to invest in equipment and plant upgrades contributes to a stark 40 percent productivity gap with large manufacturers. Faltering SME manufacturer productivity helps explain why, from 2004 to 2013, U.S. manufacturing productivity actually fell by 5 percent. For comparison, it had increased by 20 percent from 2004 to 2013. Notably, from 2004 to 2013, only five of 21 top-level U.S. manufacturing sectors increased their productivity. Faltering productivity also helps explain why, from 2012 to 2024, U.S. gross domestic product (GDP) grew by 34 percent, while the manufacturing sector grew by only 21 percent.

Despite the importance of manufacturing—and SME manufacturers in particular—to a nation’s economic vitality, a number of systemic market failures and externalities affect manufacturing activity in general, and SME manufacturers in particular. First, SME manufacturers underinvest in R&D and innovation relative to levels that benefit society as a whole. Second, smaller manufacturers are less likely than larger ones to implement new technology, to adopt modern manufacturing processes, to invest in worker training, to adopt new forms of work organization, and to deploy improved business practices. That is, SMEs lag in adopting new technologies that would make them more productive, especially with regard to incorporating digital technologies. Finally, since SME manufacturers play a key role in most manufacturing supply chains, their competitiveness (or lack thereof) has an impact on the competitiveness of other firms in those supply chains and on the broader economy.

Recognizing that there’s a public interest in supporting the competitiveness of small manufacturers, countries throughout the world—including Australia, Brazil, Canada, Germany, Japan, Mexico, and many others—have established specialized manufacturing (or technology) extension programs to support small manufacturers. These programs perform functions such as: helping SME manufacturers adopt modern practices, or technologies (such as quality, lean manufacturing, or manufacturing digitalization); supporting technology transfer, diffusion, and commercialization efforts; offering direct research and development grants; and providing export assistance and training.

As noted, America’s MEP program is delivered at the state level through centers in each of the 50 U.S. states (and Puerto Rico). MEP operates as a public-private partnership, designed from inception as a cost-share program. Federal appropriations pay one-half, with the balance for each MEP center funded by state and/or local governments and/or private entities, plus client fees. Since 2000, the MEP National Network has worked with 77,409 manufacturers, leading to $60 billion in new sales and $26.2 billion in cost savings and has helped create or retain 1,456,889 jobs. The National Institute of Standards and Technology (NIST, a division within the U.S. Department of Commerce, which administers the MEP program) estimates that in 2024 the MEP program saved U.S. manufacturers $2.6 billion, generated $5 billion in manufacturing investment, and created or retained 108,000 manufacturing jobs.

Unfortunately, the United States has long underinvested in the MEP program, both relative to international peers and to its own historical terms. As a share of GDP, Japan invests 30 times as much in its SME manufacturing support program (the Kohsetsushi Centers) as the United States, while Germany invests over 20 times as much, and Canada almost 10 times as much in its Industrial Research Assistance Program. And as a share of GDP, the federal government invested about 1.3 times more in MEP in 1998 than it does today.

As noted, the MEP program has been targeted for zeroing-out since the first Trump administration and was one of the programs cited for elimination in Project 2025 initiative. As Thomas F. Gilman, a top official in the Commerce Department during Trump’s first term and one of the Project 2025 authors, wrote, “Business advisory services would be more properly carried out by the private sector. The next Administration should propose legislation to zero out this $150 million program and fully privatize existing MEP center.”

But this neglects that, as previously noted, there’s a compelling public interest to support the competitiveness of small businesses which merits government intervention in the form of a public-private partnership that helps defray the cost for SMEs to access these services, services which SME manufacturers would be hard-pressed to otherwise afford. For instance, a recent McKinsey study found that fully one-quarter of SMEs in the mid-Atlantic region lack the capital even to meet their weekly working-capital needs. The Organization for Economic Cooperation and Development (OECD) finds that access to capital has generally been tighter for SMEs in the United States than in other OECD countries ever since the Great Recession.

The point is that if America’s SME manufacturers can barely meet their weekly working capital costs, how are they going to be able to invest in modernized, productivity-enhancing equipment, new digital technologies such as AI, or the business services needed to understand how to effectively deploy these technologies? Indeed, in addition to maintaining MEP, this is why ITIF has suggested that Congress also launch a “U.S. Manufacturing Digitalization Investment Fund” that would provide repayable, low-interest loans to American SME manufacturers to help finance upfront investment in digital manufacturing technologies and solutions.

To be sure, there are opportunities to improve America’s MEP program. In particular, policymakers need to ensure there’s better coordination between the MEP centers and America’s 18 Manufacturing USA Institutes. The Institutes should operate as the “tip of the spear” to develop new technologies in areas such as robotics, additive manufacturing, lightweight manufacturing, digital and cybersecurity tools, biologics manufacturing, etc., while the MEP centers operate as the means to diffuse such technologies through America’s small manufacturing community. MEP also needs to do a better job at surfacing and harvesting best practices at the state level and socializing them throughout its network.

That said, overall, the MEP program has represented a tremendous success. It has played a crucial role in enhancing the innovation capacity of the SME manufacturers that underpin America’s manufacturing economy. Congressional policymakers should make clear their view that MEP represents an essential program for U.S. manufacturing and innovation competitiveness and reject calls to fully sunset the program.