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As I said in the video, the DNA of the world has changed. Tariffs can’t undo 30 years of manufacturing decline. But what I couldn’t mention in the video is manufacturing never really shrank in America, depending on how you measure. And it’s a good starting point for bringing some of it back.
Three Views of ‘Manufacturing Decline’
There are many ways to look at the state of manufacturing in our economy. I’ll explore three here: as a share of GDP, as a share of global production, and total output vs value-add. (You can see why this wonky stuff is impossible to do in a short video). That last one gets at the question of dollars vs. units. The latter being more interesting since China is purposely devaluing its currency to juice exports.
1. Let’s start with the obvious – manufacturing as a percent of GDP has been falling. Depending on the year and source, manufacturing is down to about 11% of GDP from 28% in the 60s. That’s exactly where it is now in China. By itself, this is not necessarily a negative. It just as easily shows we’ve successfully diversified our economy in ways others have not. (I’ll explain later in this series, that diversification is also a double-edged sword.) Either way, production is less pivotal to our economy…at least in dollars.
2. A second way to look at production is compared to world manufacturing output. Here, things start looking better for the US. As we’re down slightly from 1980 to 2023 from 211 to 17.2%. Meanwhile, China is on a tear, producing almost 29% of the world’s manufactured goods.
3. Now, let’s look at value-added output (same measure as above). On an absolute dollar basis, US value-added manufacturing is up. Basically, this includes any assembly or extra work that increases the value of a physical good, even imports. That second line (red), shows industrial production in units. That’s where you see us tapering and China taking off (though that part isn’t on this chart).
On balance, we’re not as bad off as it seems. We still make things in America, just not as many compared to our own or the world’s GDP. This gives me hope. We have a good starting point for bringing back more strategic industries, along with others we need for scale.
China Is In Our Blood
China’s industrial output is truly jaw-dropping—bigger than the next six countries combined. And it’s the only economy whose share of global manufacturing has been growing, as the G7 mostly sinks. Some of that is from cheating. Keeping its currency artificially low, subsidizing domestic manufacturers and international shipping, stealing designs, keeping foreign competitors out, etc.
Not only that, but the entire global supply chain is wired into China, relying on its inputs for their outputs.
The good news is there’s been a slowdown in globalization (as measured as (exports+imports)/GDP). That flattening buys us time to make moves.
Where Net Exporters Succeed
I looked at the top countries with trade surpluses and top two exports. I eliminated countries with mostly commodity exports. You either have a resource or you don’t. There’s only a handful of categories that can generate high value manufacturing: semiconductors, electronics, machinery, automobiles, pharmaceuticals, and chemicals.
| Country | Top Export (2023) | Resource Type | % of Total Exports (Est.) | GDP (Est., $B) | Total 2023 Manufacturing GDP (Billions USD) | Manufacturing GDP/Total GDP % (2023) | Total Exports ($B) | Total Exports/GDP (%) | Trade Surplus ($B) | Surplus/GDP (%) |
| China | Electronics | Manufactured Good | 30% | 18,000 | 5,124.0 | 28% | 3,161.6 | 17.6% | 823.2 | 4.6% |
| Machinery | Manufactured Good | 20% | ||||||||
| Germany | Automobiles | Manufactured Good | 20% | 4,500 | 826.2 | 18% | 1,512.9 | 33.6% | 225.8 | 5.0% |
| Machinery | Manufactured Good | 15% | ||||||||
| Ireland | Pharmaceuticals | Manufactured Good | 50% | 600 | 163.5 | 30% | 181.2 | 30.2% | 62.4 | 10.4% |
| Organic Chemicals | Intermediate Good | 15% | ||||||||
| Italy | Machinery | Manufactured Good | 15% | 2,200 | 298.5 | 15% | 518.7 | 23.6% | 37.3 | 1.7% |
| Vehicles | Manufactured Good | 12% | ||||||||
| Netherlands | Machinery | Manufactured Good | 15% | 1,000 | 118.9 | 12% | 646.3 | 64.6% | 92.5 | 9.3% |
| Chemicals | Intermediate Good | 12% | ||||||||
| Singapore | Electronics | Manufactured Good | 25% | 500 | 100.2 | 20% | 426.4 | 85.3% | 52.8 | 10.6% |
| Chemicals | Intermediate Good | 15% | ||||||||
| Switzerland | Pharmaceuticals | Manufactured Good | 30% | 900 | 132.8 | 15% | 278.0 | 30.9% | 56.1 | 6.2% |
| Machinery | Manufactured Good | 20% | ||||||||
| Taiwan | Semiconductors | Manufactured Good | 40% | 800 | 225.3 | 30% | 336.7 | 42.1% | 73.4 | 9.2% |
| Other Electronics | Manufactured Good | 20% |
There are small economies like Taiwan and Ireland that are at 30% of GDP from manufacturing. But they’re too small and homogeneous to learn from.
Where Do We Start?
Much of America’s GDP isn’t very exportable. What is?
In terms of physical goods, manufacturing ($1T+) remains our biggest export sector. Then natural resources ($300B mostly energy and minerals) and agriculture ($150B). Nothing else breaks $100M.
see data here| Category | 2023 US Export Value (Billions USD) | |
| Merchandise Exports (USITC) | $’s Exported | Percent of Total Exports |
| Energy-related products | 334 | 11.0% |
| Chemicals | 320 | 10.5% |
| Cars/Transportation Equip. | 356 | 11.7% |
| Electronics | 306 | 10.0% |
| Agriculture | 184 | 6.0% |
| Minerals & metals | 172 | 5.6% |
| Machinery | 165 | 5.4% |
| Special provisions | 67 | 2.2% |
| Other goods | 115 | 3.8% |
| Total Services Exports | 1030 | 33.8% |
| Total Merchandise Exports | 2019 | |
| Services Exports (BEA) | ||
| Services by Type (from attachment) | ||
| Other business services | 281.9 | 9.2% |
| Travel | 189.1 | 6.2% |
| Transport | 97.8 | 3.2% |
| Financial services | 167.5 | 5.5% |
| Telecom, computer & info | 64.7 | 2.1% |
| Insurance services | 25 | 0.8% |
| Personal, cultural & recreational | 30.7 | 1.0% |
| Government goods & services n.i.e. | 12.8 | 0.4% |
| Maintenance and repair n.i.e. | 14.4 | 0.5% |
| Construction | 8.3 | 0.3% |
| IP | 137.8 | 4.5% |
| Subtotal from Attachment | 1030 | |
| Total Exports (Merchandise + Services) | 3049 | |
| https://www.usitc.gov/research_and_analysis/tradeshifts/2023/us_trade_industry_sectors_and_selected_trading | ||
On the services side, our biggest expert is tech ($655B scattered across Professional/Business Services, IP, and Information services). Financial services is between $175-200B. Entertainment is only a marginal export at $60B. Real Estates/Construction, most services, education, healthcare, retail and wholesale are structurally domestic. (I excluded government GDP, which is never exportable and exists as a function of private industry.)
Despite these big numbers, we import far more than that. We produce too little of what others want—or what we need, creating big annual trade deficits. To close that gap, we have to build on our strengths in these top export sectors.
The Bottom Line
With some help from AI, I estimated that—with spectacular execution, the US could get 15-20% of GDP from manufacturing. Even with public incentives, private investment, and workforce development, it won’t be easy.
A semiconductor plant costs $10-20 billion to build. But when Taiwan Semiconductor built one here in Arizona, it bled cash as soon as its supply chain was interrupted by the trade war. Countries like China and Germany aren’t just going to lay there and take it. They’ll double down on their subsidies, tariffs, or play hardball with needed inputs to keep their edge. If we’re successful, there could be skill and talent shortages that require…(gulp)…immigration.
Going from 11% to 15% or 20% wouldn’t be all additive. On the plus side, there’s the direct GDP boost, halo of jobs servicing new manufacturers, and replacing imports. On the downside, expect talent wars, ramp-up costs, and global trade risks. The lower-end (15%) scenario could net $1.5T in annual GDP. On the high end (20%), as much as $5T! Shots are on us!! (No, not gunshots you monsters!)
detailed calculation on net impact of reshoringTable: Quantified Impacts of Increasing U.S. Manufacturing Share
| Impact Variable | Description | Low-End Scenario (15% Manufacturing) | High-End Scenario (20% Manufacturing) |
| Direct GDP Boost | Increase in GDP from higher manufacturing share | $1,040 | $2,340 |
| Halo Effects (Multiplier) | Additional GDP from related industries and spending (multiplier of 2.0) | $1,040 | $2,340 |
| Talent Cannibalism | Reduction in GDP from other sectors due to resource reallocation | -$520 | -$1,170 |
| Transition Costs | Short-term inefficiencies and adjustment costs (10-20% of total boost) | -$104 to -$208 | -$234 to -$468 |
| Import Displacement | Additional GDP from replacing imports with domestic production (20-40%) | $208 | $936 |
| Productivity Gains | Annual GDP increase from efficiency improvements (0.5-1% of GDP) | $130 | $260 |
| Global Trade Risks | Potential GDP reduction from retaliatory tariffs or reduced exports (0.5-1%) | -$130 | -$260 |
| Net GDP Impact | Sum of all impacts | $1,664 to $1,456 | $5,212 to $4,978 |
Sneak PeEk At Episode 5.5
What about jobs? Will Jeff from Ohio, who’s been waiting for his factory to re-open since 1993, have a job? In the next episode, I’ll break down that answer using this scribble I made back in 2016:
