What's Happening to U. S. Manufacturing?

After dominating the globe for over 60 years as the world's largest, most productive, and technologically advanced in the world, America's manufacturing sector is in a decline in nearly all industries. America's lead in a number of industries vanished years ago, and nearly all industries are facing potentially dangerous erosion.

No single indicator represents manufacturing capabilities or trends. But several key indicators, when taken together, provide strong evidence that America's manufacturing has greatly weakened in the last decade. These are: ndustrial output (as measured by share of Gross Domestic Product), industrial capacity, employment, number of manufacturers, balance of trade in goods, and import penetration rate.

The trend in employment and number of manufacturers is dramatic -- 5.5 million manufacturing jobs and over 50,000 manufacturing companies gone since 2000. The balance of trade in goods has grown steadily since 1979, growing from a deficit of $25.5 billion in 1980 to $645.8 billion in 2010, which was down from a high of $835.7 billion in 2006 (Balance of Payment basis.) Manufacturing's share of the Gross Domestic Products had taken a serious downward trend -- dropping from a high of 28% in 1965 to 11% in 2010.

What about capacity and important penetration? They are tied together because the capacity of American companies to manufacture products is impacted by the import penetration of the products of other countries in the U. S. market. There has been an across-the-board increase in the import penetration rate for 114 high-tech and capital-intensive manufacturing sectors -- from 21.4% of domestic consumption to 34.3 percent between 1997 and 2007.

Let's take a look at a few industries. For example, if you were to go to a store to buy a set of glasses, you would have trouble finding a set made in the U. S. That's because America's oldest industry, glassware, is down to two companies that manufacture in the United States: Libbey Glass Inc. of Toledo, Ohio, and Anchor Hocking of Lancaster, Ohio. In 2009, nearly every major domestic competitor was either out of business, in Chapter 11, or up for sale. Corning Consumer Products and Oneida had already changed to outsourcing offshore instead of manufacturing their own product lines. Beginning in late 2003, Oneida closed five factories in the U. S., Mexico, Italy and China.

Libbey Glass CEO John Meier blames "unfair trade" and the fact that the U.S. government is allowing foreign governments "to get away with subsidizing their producers and not enforcing their laws...." The U.S. glass industry has been swamped by imports. In 1996, imports from China and Turkey accounted for 12 percent of the U.S. market, but by 2006, imports were up to 53 percent of the U. S. market.

According to the U.S. International Trade Commission (ITC), another U.S. industry has virtually disappeared -- the industry that makes travel goods out of textiles. In 2006, the total U.S. market for travel goods with an outer surface of textile materials was estimated at approximately $3 billion wholesale. The nine remaining U. S. firms identified by the ITC in this industry reported totaled revenues of $37 million in 2006. Thus, U.S. producers commanded only a one percent share of the U.S. market. This primarily reflected a decline in shipments to commercial markets. These nine companies said that at least 70 percent of their business goes to the U.S. military and government, but this market represents less than five percent of domestic production of such goods. China has become the preferred source for offshore production, since the removal of U.S. import quotas on textile travel goods in 2002, because of its low-cost labor, fabric, and accessories. In 2006, China accounted for 80 to 90 percent of imports of textile travel goods to the United States.

This same International Trade Commission report stated that the United States has completely lost the capability to make high-tech warm and water-resistant clothing for the commercial market often called performance outerwear. Skiers, hikers, mountain climbers, bikers, firemen, policemen, military personnel, and those in hazardous environments use performance outerwear. The ITC identified 13 companies making high-tech jackets and pants, but six said they produce strictly for the U.S. government and military. Only two said they produce solely for the commercial market. Conflicting estimates for the U. S industry share of the commercial market range from less than five percent to 1.3 percent of the U.S. commercial market for performance outerwear. The report noted that most companies in this industry had moved production offshore primarily to Asia, namely China and Vietnam, where the technology used to produce such garments, such as seam sealing and laser cutting, is prevalent.

The air conditioning industry is facing the same challenges from China that the machine tool industry is facing. The September 28, 2008 issue of Manufacturing & Technology News reported that "the last U.S. manufacturer of air-conditioning window units is moving its production to Mexico. Frederich Air Conditioning Company has announced its intention to close its San Antonio manufacturing plant and move the work to Monterrey, Mexico... The company says that low-priced air conditioners from China are forcing it to move out of the United States."

This was only two months after Lennox International announced that it would shift production of Lennox air conditioners from two U.S. Plants (Marshalltown, Iowa and Grenada, Mississippi) to a new plant in Saltillo, Mexico. Lennox CEO Todd Bluedorn said, "We must produce quality products at lower costs to compete and grow our business."

The trend is even more serious for the manufacturing industries that supply products, components, and technologies that the Pentagon considers import to defense. University of Texas at Austin engineering professor Michael Webber evaluated the economic health of sixteen industrial sectors within the defense industrial system. Of the sixteen industries he examined, thirteen showed significant signs of erosion, especially since 2001.

The American machine tool industry is facing intense competition from foreign competitors, especially China. Machine tools are used to cut and form metal, used in nearly all manufacturing involving metals, from autos to airplanes. Foreign penetration of the U. S. market rose steadily from about 30% in 1982 to 72% in 2008. The U. S. fell from the world's third largest machine tool producer in 2000 to seventh in 2008 (behind Japan, Germany, China, Italy, Taiwan, and Korea.

The U. S. loss of competitiveness in the manufacturing of five-axis machine tools exemplifies the serious erosion of this industry. Five-axis machine tools are among the most technologically advanced machine tools used in the production components in the aerospace, gas & diesel engines, automobile parts, medical, and heavy industrial equipment industries. Only six U. S. companies capable of making fix-axis machines remain, compares to at least 20 in China and 22 in Taiwan.

The importance of semiconductor to today's military is well understood. Preserving a world-class domestic semiconductor industry is vital to our national security. However, the industry lost nearly 1,200 plants of all sizes between 1998 to2000, a 17% drop. The U. S. share of global semiconductor capacity fell to 17% in 2007 and down to 14% in 2009. Of the sixteen semiconductor fabs under construction around the world in 2009, only one was being built in the United States. The U. S. led the world in closure of fab plants between 2008 to 2009 - 19 out of 42. These losses have been driven by the migration of microelectronic manufacturing to low-cost foreign locations, such as Taiwan, Singapore, China, and Korea.

These are just a few examples of the erosion of U. S. industries that could be included in this article. There is hardly a day that goes by without news of some company either closing a plant, having a mass layoff, or going completely out of business.

General Electric chairman and CEO, Jeffrey Immelt, commented, "Over the last five years, we have really positioned ourselves as a global company . . . the world has never been more independent from the U.S. economy . . . The U.S. economy is still important, but not like it was five, 10 or 20 years ago." Immelt said that globalization is "profound. It's irrefutable and it's irreversible." He later added that the fate of the U.S. economy "is going to be decided in the next three to five years."

The future looks dim for U.S. manufacturing if we continue on the same path. The trends discussed above show that we need to elevate revitalizing American manufacturing to a very high priority among policy makers. The fate of the U.S. economy will be decided in the next four to five years. The question is: Do we continue on the course to becoming a third-world country, importing finished goods and exporting raw materials, or will we rebuild our manufacturing base and once again become the premier industrial leader? If we descend into being a third-world country, then we will lose our position as the world's super power and our ability to defend our nation.