By Hema Senanayake –

Hema Senanayake

Chinese President Xi recently said that China does not want to involve in a “cold or hot” war with the United States of America. That’s his vision for a more peaceful world. No country does want the United States’ economy to decline because it is the main trading partner of many economies and the services it provides/exports are central to the livelihood of the modern-day life of everybody in the world.

But the U.S. has a problem in the present global manufacturing architecture. The U.S. share of global output and the number of manufacturing employment are declining. Both phenomena can be shown in the following two graphs. By the year 1960, the U.S. share of global economy was 40% but in 2019 it has shrunk to just 24% (see Chart 1). So was the number of industrial employments within the U.S. Beginning from the 1970s, the number of employments in the manufacturing sector has a steady decline. Prior to that the number of manufacturing employment was increasing.(see Chart 2).

Chart 1: The U.S. Share of The World Economy from 1960 to 2019Chart 2. Employment in Manufacturing, January 1939 – January 2019

Both major political parties Republicans and Democrats want to change the course. Both parties want to revitalize American industrial heartland through Reindustrialization but envisioning of it is different. Reindustrialization is the process of revitalizing and growing a country’s manufacturing sector after a period of deindustrialization which refers to the reduction of manufacturing capacity due to offshoring industrial production.

Republicans believe in tariff in pushing reindustrialization. They believe that imposing tariffs would discourage offshoring and would relocate industries within the U.S. that would contribute to increasing the number of manufacturing employment and  the share of industrial output. Recent investment made by Hyundai corporation of South Korea, for a manufacturing plant in the U.S. is considered that the republican tariff policy is winning. Many economists argue that it is shear protectionism that leads to protecting inefficient productions and reducing global competitiveness.

Democratic party’s strategies are different. It focusses on increasing global competitiveness through increasing productivity. Efficiency is the key word in their policy. They focus on smart factories and the use of technologies like Artificial Intelligence, Internet of Things (IoT), robotic technology, and big data. These technologies will automate production, increase efficiency, and enable mass customization.

It is true reindustrialization represents a critical opportunity for the United States to rebuild its manufacturing base, reduce dependence on foreign supply chains, and create a more resilient economy. A successful reindustrialization strategy must be multifaceted and forward-looking, integrating advanced technology, encouraging research, workforce development, infrastructure investment, supply chain resilience, and supportive government policies. By focusing on these key components, a country or an economic union can rebuild its manufacturing base, create new jobs, and ensure long-term economic growth and security. In the year 2023, bipartisan Act called “Science and Chips Act” was enacted mainly to achieve the said goal.

Alternatively, imposing tariffs, defunding major research universities, promising to acquire Panama Chanal, Greenland, Tik-Tok and mineral resources of Ukraine by coercion or by force is not appropriate for the U.S. which country has been the shining light of democratic free world.

However, no country can afford to maintain subsidies indefinitely even in the form of tariff. And given the lack of consumer demand without subsidies artificially lowering costs, these investments will likely collapse in a second wave of deindustrialization in a more peaceful world if technologists do not look at alternative advanced technologies that can increase productivity lowering the cost of production.