U.S. manufacturing is in crisis, with almost 6 million jobs lost and 42,000 factories closed over the last decade. Even worse, we are losing know-how and ultimately control over our future. While the U.S. retains important strengths, U.S. manufacturing competitiveness is slipping rapidly. There is no reason to resign ourselves to defeat or to sugarcoat the challenges we face. We possess the tools, talent, and resources to revive manufacturing. But to do so we need a national strategy for manufacturing renewal. This report explains the five key reasons why we need to act quickly and boldly to revitalize our manufacturing sector.

1. April 26, 2011
The Case for a National Manufacturing
Strategy
Presenters:
Dr. Robert D. Atkinson, President, ITIF
Stephen J. Ezell, Senior Analyst, ITIF
Respondents:
Mark Rice, President, Maritime Applied Physics Corporation
Ro Khanna, Deputy Assistant Secretary, International Trade Admin.
Aric Newhouse, Senior Vice President, National Association of
Manufacturers

2. Today’s Presentation
1  The State of U.S. Manufacturing
2  Why Manufacturing is Important
3  Why We Need a National Manufacturing Strategy
4  Outlines of a Strategy
2

3. U.S. Manufacturing: The Agriculture Story?

4. U.S. Manufacturing: Or the Rust Belt Story?
Flickr: Aphex Twin

5. Overall Manufacturing Grew Slower than GDP
500% Percentage Change in Real Value Added, 2000-2009
400%
300%
200%
100%
+15%
+5%
0%
Total manufacturing GDP
-100%
-200%
-300%
-400% Source: Bureau of Economic Analysis

6. And Most Manufacturing Sectors Shrank
500% Percentage Change in Real Value Added, 2000-2009
Food, beverage and tobacco products
400% Electrical equipment and appliances
Chemical products
Machinery
Printing
300% 15 of 19 Wood products
Motor vehicles
manufacturing Fabricated metal products
sectors shrank Paper Products
200% Primary Metals
Nonmetallic mineral products
Plastics and rubber products
Apparel and leather
100% Textiles
Furniture
0%
Total manufacturing
-100%
-200%
-300%
-400% Source: Bureau of Economic Analysis

7. Only Four Sectors Grew
500% Percentage Change in Real Value Added, 2000-2009
400%
300%
Computer and
electronic products:
200% +260.5%
Average share of
Petroleum and coal
manufacturing output
100% products: +73.0%
in 2000: 79%
0%
Total manufacturing
-100% Average share of
manufacturing output
in 2000: 21%
-200%
-300%
-400% Source: Bureau of Economic Analysis

8. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0%
Manuf
6.0%
4.0%
2.0%
0.0%
1987 88 89 1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 2009
Source: Bureau of Economic Analysis
8

9. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0%
Manuf
6.0% Nondurables
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
9

10. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0%
Manuf
Durables
6.0%
Nondurables
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
10

11. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0%
Manuf
Durables
6.0% Nondurables
Computers
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
11

12. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0% Manuf
Durables
Durables - computers
6.0% Nondurables
Computers
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
12

13. Real Manufacturing Value-Added As Share of GDP
14.0%
12.0%
10.0%
8.0% Manuf
Manuf - computers
Durables
6.0% Durables - computers
Nondurables
Computers
4.0%
2.0%
0.0%
Source: Bureau of Economic Analysis
13

14. Capital Stock For Many Manufacturing Sectors Has Fallen
Year of Peak Capital Stock and Percentage Decline Since
Food,
Primary Wood Apparel and Paper Electrical Plastics and beverage and
metals Textiles products leather products equipment rubber tobacco Motor vehicles
1981 1997 2000 2001 2002 2002 2002 2002 2003
-2%
-3%
-6% -5%
-7%
-14%
-21%
-27%
-29% Source: Bureau of Economic Analysis

15. Overall Growth in Manufacturing Assets Has Stalled
Percentage Change in Fixed Asset Investment, by Decade
400%
350%
300% Manufacturing
250%
Total private fixed assets
200%
150%
Performing arts and
spectator sports
100%
50% Funds, trusts, and other
financial vehicles
0%
-50%
1959-1969 1969-1979 1979-1989 1989-1999 1999-2009 Source: Bureau of Economic Analysis

16. Falling Behind Growth in Total Private Fixed Assets
Percentage Change in Fixed Asset Investment, by Decade
400%
350%
300% Manufacturing
250%
Total private fixed assets
200%
150%
Performing arts and
spectator sports
100%
50% Funds, trusts, and other
financial vehicles
0%
-50%
1959-1969 1969-1979 1979-1989 1989-1999 1999-2009 Source: Bureau of Economic Analysis

17. As U.S. Moved from a Manufacturing to a Financial Engineering Economy
Percentage Change in Fixed Asset Investment, by Decade
400%
350%
300% Manufacturing
250%
Total private fixed assets
200%
150%
Performing arts and
spectator sports
100%
50% Funds, trusts, and other
financial vehicles
0%
-50%
1959-1969 1969-1979 1979-1989 1989-1999 1999-2009 Source: Bureau of Economic Analysis

18. Today’s Presentation
1  The State of U.S. Manufacturing
2  Why Manufacturing is Important
3  Why We Need a National Manufacturing Strategy
4  Outlines of a Strategy
18

19. Why is Manufacturing Important?
1. Robust manufacturing sector needed to close the trade deficit.
Export Growth Required to Close Trade Deficit
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Services Exports Non-manufactured Goods Manufacturing Exports
Exports
Compound Annual Growth Rate, 2000-2010
Compound Annual Growth Rate to Close Trade Deficit, 2010-2019


20. Why is Manufacturing Important?
2. Manufacturing is a key source of employment and good jobs.
Employment Multipliers by Industry
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0


21. Why is Manufacturing Important?
3. Manufacturing is a key source of R&D and innovation activity.
Percent of Companies Reporting Innovation by Industry
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Product Innovation Process Innovation


22. Why is Manufacturing Important?
4. Manufacturing and services are inseparable and complementary.


23. Why is Manufacturing Important?
5. Manufacturing is vital to U.S. national security.


24. Today’s Presentation
1  The State of U.S. Manufacturing
2  Why Manufacturing is Important
3  Why We Need a National Manufacturing Strategy
4  Outlines of a Strategy
24

25. Why We Need a Manufacturing Strategy
1. Other countries have manufacturing strategies.


26. Why We Need a Manufacturing Strategy
2. Systemic market failures affect manufacturing activity.


27. Why We Need a Manufacturing Strategy
3. Unlikely to get back key mfg. sectors once their lost.


28. Today’s Presentation
1  The State of U.S. Manufacturing
2  Why Manufacturing is Important
3  Why We Need a National Manufacturing Strategy
4  Outlines of a Strategy
28

29. What Should Washington Do?


30. Start Looking out for Number 6


31. Getting the 4 T’s Right
Tech Talent
Flickr: marzzelo
Trade Tax
Flickr: Nedral
Flickr: Alan Miles NYC

32. Getting the 4 T’s Right
Supported by a
National Innovation
and Competitiveness
Strategy

33. Thank You
Robert Atkinson Stephen Ezell
ratkinson@itif.org sezell@itif.org
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Blog: www.innovationpolicy.org
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Website: www.itif.org
Twitter: @robatkinsonitif