Heat Waves - In Red & Black: American is ready and reindustrializing

WILLIAM RAU

Globalization was not kind to American factory workers. When the United States forged the rules for post-WWII global commerce at Bretton Woods in 1944, it created a world trading block of non-communist countries where raw materials, capital, jobs, and goods moved across national boundaries more freely than any time in history. Globalization contained communism and generated unprecedented world economic growth and prosperity. It also hollowed out American manufacturing and left wrack and ruin in our industrial communities.

Manufacturing claimed roughly 30% of our workforce in the 1950s. It then declined slowly through 1970 but dropped notably when the Nixon Administration turned a blind eye to price dumping by our Cold War ally Japan which destroyed our TV industry, made huge inroads into our auto industry, and almost undermined our faster-moving CPU firms. Factory jobs stabilized under Jimmy Carter only to drop again under Ronald Reagan and George H.W. Bush as their policies hit basic industries hard (Reich 1985; Strachan & Shehadi 2021). Since then, manufacturing jobs declined, precipitously under Gorge W. Bush, until bottoming out at 6.7% of the workforce in 2018 (DeConcini 2023). The unkind cuts have all transpired under Republican Administrations.

That long decline is over. We are reindustrializing at a rapid rate and will continue to do so for at least a decade. Two big drivers will reinvent our economy: (1) pro-manufacturing industrial policy, such as the Inflation Reduction Act (IRA) and the CHIPS Act (Financial Times 2023); and (2) decoupling from China as a trading partner (Black & Morrison 2021). Over the next 10 years the IRA alone provides more than $1 trillion in federal incentives that will catalyze at least $3 trillion in private investment and create millions of good jobs (DeConcini 2023). The leading edge of that process, construction for manufacturing plants, has already begun with a bang. Since 2022, CHIPS- and IRA-related construction has almost quadrupled (above). And as jobs quickly follow, with many of them in red and purple states, the IRA will become as immune to political attacks as Obamacare. With more and more steel going into the ground, attempts to undo the IRA will become a new third rail in American politics.

Next, reinvestment in America or Mexico, our largest trading partner, becomes more attractive as China-America problems and conflicts grow. First, major supply chain disruptions due to China’s COVID lockdowns provided painful lessons on the value of other, closer supply chains. Second, China’s policy of reducing dependence on foreigners emphasizes co-opting technology and trade secrets from Western firms and then turning this technology over to its own subsidized companies so that it can take over Chinese and eventually global markets (Black and Morrison 2021). Third, China’s increasingly despotic government, and the risk of war over Taiwan, increases the possibility of a Vladimir Putin-like seizure of western business assets.

In sum, America has a chance to regain its status as a world leader in manufacturing. Hopefully we will take this unique opportunity to create the leanest, cleanest, and greenest manufacturing machine on the planet. I will explore why we must do so next month when I turn to Johan Rochström and the problem of impending climate tipping points.

References

Black, J. Stewart & Allen J. Morrison. 2021 (May-Jun). The Strategic Challenges of Decoupling: Navigating your company’s future in China. Harvard Business Review; https://hbr.org/2021/05/the-strategic-challenges-of-decoupling
DeConcini, Christina, et al. 2023 (Aug 9). One Year In, How the Inflation Reduction Act Is Creating a Manufacturing Resurgence in the US. World Resources Institute; https://www.wri.org/insights/inflation-reduction-act-anniversary-manufacturing-resurgence
Financial Times. 2023 (Dec 6). How Biden’s Inflation Reduction Act changed the world. FT Film: YouTube; https://www.youtube.com/watch?v=cfaubxeS5HU
Reich, Robert B. 1985 (Aug 4). Reagan’s Hidden ‘Industrial Policy’. New York Times; https://timesmachine.nytimes.com/timesmachine/1985/08/04/issue.html
Strachan, Ruth & Sebastian Shehadi. 2021 (May 12). Who killed US manufacturing? Investment Monitor; https://www.investmentmonitor.ai/manufacturing/who-killed-us-manufacturing/?cf-view
Van Norstrand, Eric, et al. 2023 (Jun 27). Unpacking the Boom in US Construction of Manufacturing Facilities. U.S. Treasury; https://home.treasury.gov/news/featured-stories/unpacking-the-boom-in-us-construction-of-manufacturing-facilities