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The State of American High-Tech Manufacturing

Stronger dollar has meant fewer shipments of export cargo and more shipments of import cargo in international trade.

The State of American High-Tech Manufacturing

The U.S. presidential election season, which unfortunately has become a two year sideshow every four years, has long been a stage for discussions of US jobs. And no discussion of US jobs is complete without serious conversation about the nature of various jobs, and the desire to create more jobs in the manufacturing sector. But rarely if ever does a candidate, or incumbent, really put much forward in terms of policy other than the perfunctory Republican plan to lower corporate tax rates.

Whatever the policies have been over the past 35 years, it’s clear they have done little to slow the decline of U.S. manufacturing. The number of US manufacturing jobs have contracted significantly and consistently over the last three and half decades. The last time the U.S. had approximately the 12.3 million manufacturing jobs it does today was in the months immediately preceding the attack on Pearl Harbor.

What is even more concerning, is the relative proportion of jobs in the United States today that are actually in manufacturing. Today, about one American in every 13 works in manufacturing versus one in five Americans 35 years ago.

Consistent with the decline in manufacturing employment in the U.S. has been the country’s long term slide in its trade balance of high tech manufactured goods. Less than 20 years ago the US was a significant net exporter of high tech goods. Today the U.S. imports about $100 billion more in high-tech goods per year than we export, and this trend shows no sign of stopping. With the U.S. raising interest rates, this trend is likely to accelerate in the short term as the U.S. dollar continues to strengthen against the currencies of our major trading partners.

The loss of high tech manufacturing jobs means a long-term loss of skills in manufacturing—especially in the engineering and material science disciplines needed to support high tech manufacturing and the associated manufacturing process innovation. Besides now being a laggard in general manufacturing and especially high tech manufacturing, the U.S. is beginning to take a back seat to many industrialized countries in research and development as well.

Although the U.S. still leads many countries, including most developing countries, many of the economic benefits of R&D accrues to other countries in the form of high-tech manufacturing jobs. The U.S. is still the world’s innovation leader, although today much of our innovation goes into products manufactured offshore. The loss of US manufacturing jobs—especially to China—has not merely been in the production of low-cost consumer goods utilizing unskilled labor as is often espoused by economic pundits. Over the past six years, the portion of China’s manufacturing exports categorized as high tech goods has risen to more than 27 percent, while the U.S. has seen its share of high-tech production drop to below 18 percent.

Although the specific causes, and potential remedies are far from being clear, the story and statistics are crystal clear. More and more of the United States research and innovation is leading to products that are produce offshore and exported back to the U.S.

In part two of this series I’ll address some of the reasons behind America’s long slide as a manufacturing power and offer a few suggestions for industry and policy makers to reverse this trend.

Ron Keith is founder and senior consultant of Riverwood Solutions.