How America lost manufacturing

[WendyBG]

https://www.wsj.com/opinion/how-america-lost-manufacturing-reporter-1980s-watched-us-industries-fail-to-adapt-926753f0?mod=hp_opin_pos_6#cxrecs_s

How America Lost Manufacturing

As a reporter in the 1980s, I watched U.S. industries as they failed to adapt to foreign competition.

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By Amal Naj, The Wall Street Journal, April 22, 2025

By putting eye-popping tariffs on imports, President Trump hopes to bring manufacturing back home. What his administration overlooks is U.S. industries’ culpability in the current state of affairs. It’s an open question whether American companies can change course…

Last year, steel, autos, machinery, electrical equipment and pharmaceuticals together accounted for 77.5% of the country’s $1.2 trillion trade deficit. …

Seemingly thinking the auto manufacturers could never be knocked off their pedestals, they changed little about how they fundamentally operated [when foreign competition arrived in the 1980s]…

Unions didn’t help. …

The U.S. auto industry’s demise inflicted collateral damage on other domestic manufacturing…The robots that U.S. automakers had embraced also fell by the wayside. …

Far from learning from their mistakes, U.S. automakers repeated them as foreign competition intensified…

American manufacturers have always known that remaking domestic manufacturing would be hard. It would require winning labor concessions, investments in training workers in new skills, creating a factory culture that fostered creativity and innovation on the floor level, and taking a longer view on the investments to fight competition. Instead, companies circumvented these challenges by relocating offshore. They took their business wherever they could make money; shareholders demanded it. … [end quote]

While the peak of manufacturing employment was in 1980 the real losses happened after 2000.

All Employees, Manufacturing

Industrial production recovered after the 2000 recession but has stagnated since.

Industrial Production: Total Index

Manufacturing was crushed during the Great Recession and never fully recovered.

Industrial Production: Manufacturing (NAICS)

The business and cultural factors undermining American manufacturing in the 1980s are still in place. They are a barrier to constructing new manufacturing plants.

Tariffs may protect American manufacturers. But building new capacity will take a lot of time and confidence that the administration is undermining by its repeated shifts in policy. In the meantime, prices will rise.

There is no guarantee that companies will increase manufacturing capacity in the U.S. even if their domestic markets are protected by tariffs.

Wendy

[dividends20]

Tesla and SpaceX have the best manufacturing in the world.
Machines that make machines that make cars.

[steve203]

@WendyBG

Far from learning from their mistakes, U.S. automakers repeated them as foreign competition intensified…

Ossified management. Like I saw up close, at RS and the pump seal company. Friedman said they could offshore production, where labor and running costs were vastly lower, gain an advantage over others who did not offshore, and pocket fat profits. So, TPTB embraced Friedman’s mantra of unilateral free trade, and borrowing to infinity to pay for the imports.

As the President of the UAW pointed out, during the 2023 strike, Mexican autoworkers make a tenth what USians do, but the automakers charge just as much for the Mexican cars as they do for US built cars. Pretty clear that offshoring is nothing but a profit grab.

Honda, Toyota, and Nissan, have been building cars in the US, since the 80s. The big three, and their ossified managements, have continued to lose market share.

1983 Honda Accord, in the Henry Ford Museum. On loan from Honda of America. The first car off Honda’s assembly line in Marysville, Ohio.

Steve

[WendyBG]

@steve203

Pretty clear that offshoring is nothing but a profit grab.

Do I need to remind you that companies exist to make profits?

Wendy

[albaby1]

@WendyBG

Do I need to remind you that companies exist to make profits?

Yes - we can’t forget that a major part of why manufacturing concentrated in China is due not just to firm behavior, but the government’s industrial policy there. Which shapes firm behavior, of course, but is another lever that a nation can use to influence economic outcomes.

So while firms might maximize profits by outsourcing/offshoring manufacturing to facilities outside the U.S., government policy can change the behavior of those firms by changing the profit incentives they face. That’s what the CHIPS act was intended to do - alter the economics of domestic vs. foreign manufacturing.

[steve203]

@albaby1

That’s what the CHIPS act was intended to do - alter the economics of domestic vs. foreign manufacturing.

Subsidies and tariffs seem to be two sides of the same coin: either subsidize domestic production, to make it cheaper, or make imports more expensive with tariffs.

Steve

[albaby1]

@steve203

Subsidies and tariffs seem to be two sides of the same coin: either subsidize domestic production, to make it cheaper, or make imports more expensive with tariffs.

Not entirely.

Subsidies change the market equilibrium to get more consumption of something. If you subsidize semiconductors (for example), you would expect consumption of semiconductors (combination of domestic and imported) in your economy to rise above what it would otherwise be, and the nominal price of the semiconductors to be lower.

Tariffs have the opposite effect - you get less consumption of the thing (in total), since prices rise.

Additionally, subsidy programs allow the national government more levers in implementing industrial policy, since the government can give itself some control over the terms and circumstances that attach to the subsidies. You get more of a say on what firms are doing in your country.

[Goofyhoofy]

@albaby1

Additionally, subsidy programs allow the national government more levers in implementing industrial policy, since the government can give itself some control over the terms and circumstances that attach to the subsidies. You get more of a say on what firms are doing in your country.

Ideally subsidies are used to get people over the hump of “getting started with no sales.” That is useless if you’re proposing to make Beanie Babies because who cars (?), but if it’s a strategically important industry, or one that you think is going to lead to domination of an industrial sector, then it becomes important.

China is famous for having an industrial policy - but I note that the largesse doesn’t last forever. Their EV industry has shed most of the subsidies that got it going, and indeed there are over 200 companies now “going it alone”, and doubtless most will fail - but a few will be wildly successful, as we have seen.

Foxconn still gets subsidies from the Chinese government, but they are different now than they were when it was being set up. Now the government is offering subsidies to build plants in interior parts of the country (not unlike how local or state governments here give incentives to local plants within their borders). The original subsidies which helped Foxconn become a colossus have largely expired.

Meanwhile in the US we have been subject to a litany of moaning about “picking winners and losers”, and have watched potentially gigantic industrial sectors move offshore, simply because the payback wasn’t sure enough or rapid enough to satisfy our ADHD quarterly-focused CEO’s and investors.

I keep bringing up Solyndra, an attempt by Obama to get us into the solar game, and while that individual company failed (as do many Chinese subsidized firms) the entire portfolio that Solyndra was part of was wildly successful . But Fox News and Talk Radio harped on Solyndra and Solyndra alone, championing the FREEEEEE market as the one-and-only possible way to run an economy without, you know, being totally socialist.

Meanwhile we still give farmers crop support monies for not-planting thanks to the politically powerful rural states’ lobby, and starve emerging technologies because somehow offering aid to technical sectors is verboten.

Bah. Subsidies are one thing, and can be excellent when applied judiciously. Tariffs are almost always bad, because while they keep out foreign products they also eliminate the incentive for domestic producers to improve.

Trump’s steel tariffs did, indeed, produce more domestic steel-making jobs. Unfortunately everybody raised the prices of the metal, and other jobs which relied on the material: autos, washing machines, bridges, lost more jobs than were created in the steel industry.

Double Bah.

[steve203]

@WendyBG

Do I need to remind you that companies exist to make profits?

As we know, Mexican auto workers are paid a tenth what USians are paid. These are the window stickers from two trucks in stock, at a Chevy dealer near me. Same model. Same trim. One built in the US. One built in Mexico. They are exactly the same price. Where is the money going that is not paid to the Mexican workers? The savings from using Mexican labor is not being passed to the consumers via lower prices.

Steve

[Leap1]

@WendyBG

As a reporter in the 1980s, I watched U.S. industries as they failed to adapt to foreign competition.

Amal Naj has no clue what they are discussing. Corporate taxes went down and reinvestment dropped, R&D dropped, the economies of scale disappeared.

Raise the corporate tax and it all comes back.

As for the WSJ, they are a corporation that does not want higher taxes. Their reporting is inadequate.

[albaby1]

@steve203

As we know, Mexican auto workers are paid a tenth what USians are paid. These are the window stickers from two trucks in stock, at a Chevy dealer near me. Same model. Same trim. One built in the US. One built in Mexico. They are exactly the same price. Where is the money going that is not paid to the Mexican workers? The savings from using Mexican labor is not being passed to the consumers via lower prices

How do you know? You can’t tell just based on the fact that the same truck has the same price.

If I have a store and I have two different suppliers of apples that charge different prices, I’m not going to charge two different prices to my customers for the same apples. I’ll set my prices based on demand and the average cost of my inputs.

[pauleckler]

@WendyBG

Do I need to remind you that companies exist to make profits?

Let’s remember that Henry Ford decided to pay his workers $5/day so they could afford to buy the cars they produced.

That’s not a bad strategy. It seems to have been forgotten. Apparently profits are more important than having workers driving cars made in USA.

[Leap1]

@WendyBG

Do I need to remind you that companies exist to make profits?

The US corporations cut off their nose to spite their faces.

Besides, if profits mattered, the CEOs would not be paid nearly as much as they are.

[steve203]

@pauleckler

Let’s remember that Henry Ford decided to pay his workers $5/day so they could afford to buy the cars they produced.

Actually, he raised the pay rate to reduce turnover at the plant. There were some conditions the workers had to meet to actually get that $5 too.

Steve

[dividends20]

End plan is

a) tariffs: increase taxes on foreign goods → increase govt. revenue
b) lower taxes on domestic manufacturers (hope that loss of tax revenue is compensated by GDP growth)
c) build durable supply chains within the country
d) increase energy supply
e) lower trade deficit ($1T → $500B ?)
f) DOGE: reduce fed spending
g) lower budget deficit
h) lower interest rates
i) rinse and repeat

[steve203]

@albaby1

I’ll set my prices based on demand and the average cost of my inputs.

Nope. The market doesn’t care what your cost is. There are a lot of apple vendors. The price will settle out where the highest cost provider can make ends meet. Everyone with lower costs makes a fatter profit.

All of the Ford F-series trucks are final assembled in the US. So, even though the F-series is the most popular, Ford is the high cost provider. GM builds Silverados in the US, Canada, and Mexico. Ram builds 1500s in the US, but the Heavy Duty models are built in Mexico. Chevy and Ram can pocket a fatter margin, than Ford, on the trucks that are built in Mexico, because Ford is setting the market price.

Steve

[NewInvestorKinda]

@albaby1

If I have a store and I have two different suppliers of apples that charge different prices, I’m not going to charge two different prices to my customers for the same apples. I’ll set my prices based on demand and the average cost of my inputs.

Ive never seen this to be true. Every grocery store ive been too charges different amounts for the same products from different suppliers. Bread. Rice. Noodles. Mac n cheese. Even crushed red pepper. Ive never seen them average out the price

[albaby1]

@steve203

Nope. The market doesn’t care what your cost is. There are a lot of apple vendors. The price will settle out where the highest cost provider can make ends meet. Everyone with lower costs makes a fatter profit.

Not in a competitive market. If other participants have lower costs than the high-cost provider, they will lower their prices to steal market share from the higher cost provider. Not all goods are fungible, and the market is never perfectly competitive, etc. But the market for new passenger auto vehicles is fairly competitive as far as markets go, with lots of manufacturers offering a wide variety of competing products.

So suppose I’m competing against SteveCo, and we’re both selling a product at $10, and my unit cost of production is $9. I make $1 of profit. Then I’m able to open a plant abroad that can make about half of my units at only $8 per unit (assume the units are fungible). I’m not going to start offering some of my products for sale at $10 and some at $9 - which is why Ford doesn’t sell the Mexican truck for less. But neither am I going to keep my price at $10 - because now I can lower my price and steal market share from you, which will maximize my overall profits. I can make more profit by moving down a little in price and up in volume, while still keeping a very healthy profit margin.

[albaby1]

@NewInvestorKinda

Ive never seen this to be true. Every grocery store ive been too charges different amounts for the same products from different suppliers. Bread. Rice. Noodles. Mac n cheese. Even crushed red pepper. Ive never seen them average out the price

For fungible products under the same brand, not different branded products.

If Costco has different suppliers providing them the ingredients to make their Kirkland brand products, they’re not going to have two different Kirkland bags of exactly the same product with different prices. Every identical product will have the same price, regardless of where it was sourced from.

So when you buy a Costco rotisserie chicken, it will have the same price (per pound) whether it came from their own internal poultry sourcing (which is much of their sourcing), or whether it was one that came from Tyson. Their costs will differ, but the price they charge you will not vary based on where the product was sourced from.

[albaby1]

@dividends20

End plan is

a) tariffs: increase taxes on foreign goods → increase govt. revenue
b) lower taxes on domestic manufacturers (hope that loss of tax revenue is compensated by GDP growth)
c) build durable supply chains within the country
d) increase energy supply
e) lower trade deficit ($1T → $500B ?)

Intermediate plan is:

a) tariffs: create shortages of goods imported from China by essentially imposing a de facto embargo, which cuts out products and generates no revenue
b) major retailers like WalMart meet with the President to let him know they will have virtually no beach chairs, pool toys, bathing suits, and a host of other things for July 4th
c) and even worse for Christmas
d) President realizes this is bad: while he can pretend that news stories about higher prices are “fake news,” he can’t fight video of bare shelves that look like Soviet-era markets
e) President indicates he will backtrack on tariffs and will be super-duper-nice to China, in a desperate effort to be able to climb off the branch he put the country on
f) Xi laughs and laughs at how foolish we were to start a trade war without preparing for it first.