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In this episode of GeoTech Wars, Kirti and Andrew discuss the future of U.S. manufacturing as the international economy enters a period of de-globalization and reorientation. They are joined by Mark Zandi, chief economist at Moody’s Analytics. Mark has been an influential source of economic analysis for decades. He is the author of several books on the 2008 financial crisis and hosts the Inside Economics podcast.
Presently, the consensus view among economists is that some degree of economic de-globalization is underway. This is quite apparent in specific industries such as semiconductors, where the United States and Europe are actively developing industrial policy initiatives to re-shore and friend-shore semiconductor manufacturing. However, semiconductors are just the tip of the iceberg. The same dynamic is playing out across many industries, such as chemicals, aviation, and medical devices. This shift is spurring a renewed focus on American manufacturing amongst policymakers, economists, and national security experts.
As Mark argues, the U.S. manufacturing base is well positioned to make this transition and lead in a new global economic order. At its core, the United States is a nation with abundant natural resources, an educated and innovative population, and the deep financial markets needed for world-leading capital investments. Investment into U.S. manufacturing is currently booming, reflecting the potential of the sector. For example, construction spending on manufacturing plants has doubled since 2021.
However, to capitalize on this shift, the United States must make sensible policy decisions that consider its strengths and needs as a nation. For instance, the critical effort to foster supply-chain resilience by re-shoring manufacturing should not attempt to reconstruct entire supply chains domestically, but instead should complement existing U.S. strengths. U.S. economic power largely emanates from its educated workforce and leadership in the global knowledge economy. The U.S. leads the world in research and development (R&D), the foundation for innovation and value-creation in the modern economy.
Industrial policy initiatives by the United States should reinforce its advantage in R&D. For instance, U.S. companies have historically been excellent at inventing valuable technologies, but foreign companies would capture much of the value of these inventions through advanced manufacturing and technology transfer. While U.S. policymakers should emphasize re-shoring manufacturing, this should be for high value-added and low-labor intensive steps in the manufacturing process to both increase resiliency and fully leverage the skills of the American workforce. Ultimately, this will help U.S. manufacturers to capture more of the value their knowledge workers create, by keeping advanced manufacturing technology and know-how in the United States.
Further, the U.S. must consider its shifting demographics to ensure it maintains its large and capable workforce. The American population is ageing. Baby boomers are retiring, shrinking the number of working Americans supporting a growing population of non-working Americans. This creates an ongoing labor shortage—which persists despite record-low unemployment—ultimately resulting in decreased economic growth.
Immigration, a truly exceptional attribute of the United States, offers a potential solution to this demographic challenge. Historically the United States has attracted and welcomed immigrants, resulting in increased productivity and dynamism in the economy. However, not only is the U.S. not maximizing the economic benefits of immigration, but it is undercutting its own economic growth by impeding high-skilled workers from remaining in the country. The world-leading U.S. university system attracts the best and brightest minds across the globe, but the U.S. then makes it prohibitively difficult for new graduates to stay in the country and work. Through an updated visa policy, the United States can retain more of the talented individuals that it educates so they can contribute to the American economy and society.
Looking ahead, structural changes to the international system will likely impede economic growth simply because economic growth is no longer the top priority for governments. Instead, governments are prioritizing national and economic security and tackling grand challenges such as the transition to green energy. Nevertheless, while businesses must adjust to this new reality, there remain opportunities for policymakers to strengthen the American economy.
This piece summarizes the discussion in GeoTech Wars, “The Future of U.S. Manufacturing with Mark Zandi.” It does not represent the opinions of the hosts.
