ITIF Update — Robert Atkinson: 2-2-18) Perhaps it’s the natural human aversion to bad news — sometimes known as the “ostrich effect” — but few opinion leaders on U.S. economic policy appear willing to take a cold, hard look at the state of U.S. manufacturing. If they did, they wouldn’t be happy. First, U.S. manufacturing suffered catastrophic losses in employment and output in the 2000s; then its recovery in the 2010s was only modest; and now it faces existential challenges from a resurgent China that is well practiced in the dark arts of “innovation mercantilism.”
Washington’s leading lights on trade policy have long engaged in denial on this issue, claiming that all has been well with U.S. manufacturing, even as the 2000s saw more than one-third of the country’s manufacturing jobs disappear and over 60,000 manufacturing plants shutter. Any claim of a problem was either dismissed or derided. And any suggestion that we need to fight back against foreign mercantilism, as President Trump is now doing with his announcement of tariffs on solar panels, is met with derision and tarred with the epithet “protectionism.”
So it shouldn’t come as a surprise that we are now hearing lots of happy talk about the state of U.S. manufacturing. Bloomberg News speaks of a “manufacturing resurgence.” Ball State economist Michael Hicks reassures doubters that American manufacturing is booming. And Vice President Mike Pence claims that it is “roaring back.” Administration officials can be excused for such exuberance; they want voters to have confidence things are moving in the right direction on their watch. But allegedly objective economists and journalists deserve no such pass.
It is time for the experts and pundits to open themselves up to a painful reality: The U.S. manufacturing sector has been hurt by inadequate policies at home and intense competition abroad — much of it intolerably mercantilist in nature. And China, far from cooling down, as some have claimed, is actually in the midst of a massive government-backed campaign to dominate in the most important industries in which the United States still clings to a competitive advantage — the innovative advanced-technology industries that drive U.S. global competitiveness. Anyone who thinks otherwise will likely be in for a rude awakening, for the United States has never before faced competition of such scale or scope.