On November 3rd, 2015, Donald Trump defended his labeling of China as an ‘enemy’ with the following statement:

“Because it’s an economic enemy, because they have taken advantage of us like nobody in history. They have; it’s the greatest theft in the history of the world what they’ve done to the United States. They’ve taken our jobs.” (Stracqualursi, 2017)

Trump is referring to the long-held myth that China is single-handedly responsible for the demise of American manufacturing. His rhetoric has some basis in fact - the US lost about 2 million manufacturing jobs between 1999 and 2011 due to a surge in Chinese imports - but that only accounts for one third of the nearly 6 million manufacturing job decrease the US experienced in that timeframe (Daron Acemoglu, 2016) (Bureau of Labor Statistics, n.d.).

The real story behind the deindustrialization of American employment is more complicated than the popular, oversimplified narrative of “they took our jobs”, though this narrative is still widely embraced by the public. In America, the manufacturing industry has an emotional element that others lack. In states like Michigan, especially, our very culture is rooted in our history of making things. Our state was fundamentally shaped by the rise and fall of manufacturing employment. On a wider scale, yesterday’s factory jobs have been chosen by America’s collective consciousness as a symbol of “the good old days”, when you could comfortably earn a living working on an assembly line - no degree required. Manufacturing employment in the US peaked in June 1979, at just short of 20 million employees (Bureau of Labor Statistics, n.d.). The average manufacturing worker made $6.56 an hour at that time (Bureau of Labor Statistics, n.d.). $6.56 may not sound like much, but in today’s dollars, that’s an hourly wage of $22.38 (Bureau of Labor Statistics, n.d.).

Since the summer of 1979, manufacturing employment has decreased by 40%, having shed some 7 million jobs over the past few decades. Communities across the US have been rocked by this shift away from manufacturing, but the truth is that this drop in industrial employment is something we should have expected and better prepared for. Economists have been aware of the deindustrialization of developed economies since at least the 1930s, and while factors like automation and foreign competition may have sped the process along,

The Three Sector Theory is an economic theory that divides economies into the following functions: the extraction and processing of raw materials, manufacturing, and services (Fisher, 1939). Developed by Allan Fisher, Colin Clark, and Jean Fourastie, the hypothesis argued that as a country develops, its economy shifts from the sourcing and production of goods to instead providing services. Both employment and real output in the US economy reflect this shift from goods to services:

Figures 1, 2, and 3: US labor force distribution by industry sector (1804-2010), US output distribution by economic sector (1840-2010), and US GDP distribution by economic sector (1947-2016). (Johnston, 2012)

Services has been the main sector of the US economy in both output and employment since the early 1900s. However, the service sector only overtook industry as a % of GDP in the early 1980s. By any measure, the US economy is a service-based economy and has been for 40 years, at the very least. Nevertheless, many of us remain fixated on “bringing back” manufacturing jobs to “make America great again”.

Americans are largely unaware of the forces that shape our national economy. As the US continues to experience deindustrialization, and as our remaining factory work becomes further automated, Americans may continue to rely on blaming Chinese manufacturers for the economic ills their communities face. It’s easier than reflecting on how our own business practices and technology applications have undermined factory workers, and our long history of anti-Chinese sentiment sets the perfect backdrop for continued sinophobia. However, our dedication to making the Chinese a scapegoat for our economic troubles will only set us up for further manufacturing troubles in the long run. If we truly want to make American manufacturing great again, we must: endeavor to understand our manufacturing history instead of romanticizing it; carefully study the relative impact of automation and foreign competition on the manufacturing economy’s health; establish effective programs for supporting displaced manufacturing employees; and collaborate with China to develop manufacturing technology and processes that will help the sector thrive.

Made in America

Figure 4: A timeline of the four eras of industrial revolution (Carr, 2017)

In the 1770s, three major spinning breakthroughs came in rapid succession: the water frame, which mechanized the stretching of raw fibers; the spinning jenny, which mechanized the twisting of fibers; and the spinning mule, which combined the previous two inventions and resulted in a roll of finished yarn. This cotton processing technology made its was into the United States through Sam Slater, a cotton mill employee that moved from England to the United States in 1789. He established the first cotton mill in America on Rhode Island in 1790. Hence, Slater is known here as the father of the American industrial revolution, but known in the UK as Slater the Traitor. Since the US was at war with Britain from 1793 to 1815, Americans quickly began to make their own cloth instead of relying on cheap imports from Britain, and US textile factories took off (Roser, 2016).

One of the most important innovations in the history of manufacturing was the development of interchangeable parts, an idea first popularized in America by firearm maker Eli Whitney (Eli Whitney Museum and Workshop, n.d.). Gunmaking was a skilled craft throughout the 18th century. Each gun was individually crafted, so they were expensive and time-consuming to make and repair (Staff, 2010). In the late 1700s, as the US prepared to go to war with France, Whitney obtained a government contract to make 10,000 guns in less than two years. Whitney failed to produce a single one of the weapons he promised in the time he was given (Staff, 2010). Instead, he put on a display of interchangeable-parts musket assembly for John Adams and Thomas Jefferson. While it was later proven that the performance was faked - each gun part had been carefully adjusted by hand, and parts that fit together were marked - this demonstration but the idea of interchangeability at the forefront of American manufacturing (Roser, 230 Years of Interchangeable Parts - A Brief History, 2015). True interchangeability reportedly first took place at the federal government’s arsenal in 1827. The adoption of interchangeable parts helped transform many skilled crafts into processes that were faster and required less-skilled labor (Eli Whitney Museum and Workshop, n.d.).

Another key development in the industrial revolution - likely more important than any other - was the invention and widespread deployment of the steam engine. The Ancient Greeks were the first to mention the use of steam power, but Thomas Savery developed the first steam engine in 1698. This engine was not useful for manufacturing purposes, however, as all it could do was pump water. In 1712, Thomas Newcomen built a steam engine that actually converted steam into mechanical movement, and in 1775, instrument maker James Watt improved on Newcomen’s design, making the engine 75% more fuel efficient. The widespread adoption of steam engines in an industrial setting was slow, at first, due to the high initial costs of the engines. Most manufacturing remained powered by water until around 1870 (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

The incorporation of the steam engine into transportation - namely trains and boats - provided a more efficient, less expensive way for physical products to be transported across great distances as well. The use and construction of railways drove a cycle of demand for coal and iron, building a self-accelerating system that sparked innovations in everything from sewing machines to bicycles.

Factories in the late 1800s and early 1900s also began to use high division of labor, which sped up the manufacturing process and simultaneously improved product quality, and several improvements in the manufacturing processes of iron and steel made metals cheaper and easier to shape. Concurrent advances in the chemical manufacturing industry allowed for the mass production of soap and glass, advanced metal processing, and the effective lubrication of mechanical equipment. Advances in chemistry also brought about the creation of “plastics and rubbers, photography, explosives, insecticides [and] pesticides”, all of which had major implications for agriculture and industry. All these discoveries in the first Industrial Revolution fundamentally reshaped the manufacturing landscape (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

The Second Industrial Revolution harnessed the power of electricity to bring “mass manufacturing to almost all products of everyday life”. While electricity was already used some in electroplating - a type of metal processing - its widespread use in factories did not occur until the late 1800s. The introduction of electric lighting in factories reduced the risk of fires and also enabled factory operators to extend working hours. Transferring electricity into mechanical movement was first achieved in 1837 with an electrical printing press, but the high cost of battery power quickly forced the inventor into bankruptcy. The use of electricity for mechanical operations became widespread as electrical motors became more manufacturable - they were all custom-made until 1905. There were only about 250 electric motors in the United States in 1880; by 1909, there were 250,000 (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

Electricity completely changed manufacturing. Productivity and product quality increased, barriers to size were removed (steam-powered factories could only be built closely around the steam engine), and the entrance costs of setting up a factory were lowered for small entrepreneurs. Electricity also enabled the mass production of aluminum, arc welding, resistance welding, and electroerosion. Electric cranes also made moving materials within factories an easier and safer process (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

The materials science discoveries from the first Industrial Revolution paved the way for the creation of new materials, and the refinement of existing ones, in the second Industrial Revolution. The first thermoplastic, celluloid, was invented around the 1860s, and the first injection molding machine was made in 1872. Today, injection molding is the most common manufacturing technique used for plastic parts. It’s hard to overstate this process’ importance in today’s industry. New casting and metalworking techniques were also developed during this time, like extrusion, die casting, and centrifugal casting. Subtractive woodworking and metalworking tools also became more advanced, with planers, lathes, and milling machines experienced a boost in power, speed and accuracy (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

During the Second Industrial Revolution, advances in management techniques and the division of labor also drove increased productivity in manufacturing. After the invention of the internal combustion engine in the 1870s, decades of labor structure experiments resulted in the movable assembly line, which was used to mass produce automobiles. In the late 1800s, automobiles were largely handmade, but due to the large number of skilled manufacturing workers in the US, the industry was quickly shifted toward interchangeable parts and mass production. One of the first US companies to shift to mass production was Olds Motor Works, a company that used an assembly line but did not use interchangeable parts. The first motors with interchangeable parts were made at the Cadillac plant in Detroit in 1906. The motors’ true interchangeability was tested on a racetrack in 1907, where three Cadillac Model Ks were tested, disassembled, mixed together, reassembled, then driven 500 miles. All three cars passed the test, and one went on went on to win a 2000-mile reliability competition (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

After two failed attempts at automobile companies - the Detroit Automobile Company and the Henry Ford Company - Henry Ford founded the Ford Motor Company in 1903. Ford experimented with many different production and assembly techniques at the start of the company, from one worker assembling a complete car to creating distinct roles for fetching and fitting parts. One of Ford’s main machinists, Walter E. Flanders, reorganized manufacturing machines from a department-focused layout to one where the machines were lined up in the order of operations that each part needed. Flanders also installed single-purpose machines that were less flexible, but much quicker, than multipurpose ones (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

One key to the success of Ford’s Model T was its design, which focused on minimizing the number of moving parts in what we know today as “Design for Manufacturability”. The whole car had less than 100 different types of parts, which made it easy to build a repair. At this point, Ford’s assembly process was assigning specific tasks to workers and having them walk from car to car to complete their tasks. Materials were delivered at the top of the building and moved through gravity slides, and finished cars were rolled out on the ground floor. A type of skids-based assembly line was used at this first plant in 1908, but it wasn’t until around 1912 that Ford implemented a full assembly line at the new Highland Park plant. The productivity improvements were striking - total labor time for the spark plug generator dropped from 20 to 5 minutes; time for the front axle dropped from 150 to 16.5 minutes; transmission assembly dropped from 18 to 9 minutes, and engine assembly from 594 to 226 minutes. Total car assembly dropped from 12.5 to 6 hours, to 3 hours, to 93 minutes (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

Many people romanticize Ford’s treatment of workers, but the changes he made were for the success of the company, not for the workers themselves. The annual turnover rate at Ford in 1913 was 370%, and the amount of time and money needed to constantly register new workers was becoming a burden. The poor working conditions, repetitive labor, and long hours were driving workers away. In 1914, Ford doubled wages to $5 a day and cut the workday from 9 to 8 hours, and despite 14% fewer workers, productivity increased another 15%. Ford’s increases in productivity enabled him to drop the price of the Model T from $850 in 1908, to $590 in 1912, to $345 in 1916, and finally $260 in 1925. Ford sales jumped from 17,000 vehicles in 1909 to 1.7 million vehicles in 1924 (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

American manufacturing was greatly impacted by both WWI and WWII, during which time existing manufacturers changed their production to fill wartime needs, like ammunition, and manufacturers of the newly-invented airplanes, tanks, and radios sprang up. In WWI, the United States established the War Industries Board to “influence prices, wages, and labor relations to improve military output”. Shifting what factories produce is a time and cost-intensive process, however, and many factories did not successfully pivot to producing military goods in time. The first product made at the new Ford River Rouge plants were eagle boats made for chasing German submarines. Only seven boats were made in the last year of the war, and another 53 the year after the war had ended. The manufacturers that had successfully pivoted to the production of wartime goods saw their businesses stumble as soon as the war ended and the demand for military goods dropped. The Great Depression also hit manufacturers hard, heavy manufacturers even more so than light manufacturers (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

In 1942, the US established the War Production Board to guide resource allocation as the US entered WWII. Shipbuilding and aircraft production ramped up, with one notable example being Ford’s Willow Run manufacturing plant down by Ypsilanti, which could turn out up to 650 B-24 bombers a month. Willow Run alone represented half of the equivalent German aircraft production capacity (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

After WWII, manufacturing started to move toward automation and computerization. The first electric computer, the Z3, was built in Germany during the war, which meant the invention was neither shared with other countries or improved upon with outside research. Britain developed their Colossus computer in 1943, and the US invented the Atanasoff-Berry Computer in 1942, the Mark 1 in 1944, and the Eniac in 1946. “Computer Numerical Control” began to be used for controlling mills and lathes in the 1950s, leading to the process of “CNC machining” that we use today. Computers were also used to control machines in the chemical and petroleum manufacturing industries, and increased overall productivity by 250% between 1947 and 1966. Due to their high level of automation and low number of required employees, these two industries have the largest revenue per employee than any other industry in the US (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

The 1950s also saw the birth of industrial robots, which are incredibly important in both today’s manufacturing landscape and the future of manufacturing. This first robot can be found in a patent for “programmed article transfer” through a computer-controlled hydraulic arm invented in 1954 by George Devol. This arm looked very different from the modern robotic arm we’re familiar with today: it had no joints, but a single fixed arm that could move in and out or up and down. It was basically a glorified crane. The first robot was put to work at a General Motors plant in New Jersey, where it “removed hot castings, quenched them, and passed them on to the next machine”. More human-like robotic arms were developed at a hospital, MIT, and Stanford in 1963, 1968, and 1969, and German toolmaker KUKA introduced the first six-axis robotic arm in 1973 (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

The importance of the automation technology developed and implemented in the following decades cannot be overstated, and therefore merits its own section later in the paper. I’ll instead focus on the overall deindustrialization of the American economy during this time period, and will focus on the impact of automation technologies in section 5.

The United States’ path towards deindustrialization has been a long one. Industry’s share of GDP, employment, and total output peaked around 1950. Manufacturing’s employment peaked at just short of 20 million people in 1979. However, despite manufacturing’s decreasing share of the US GDP, its absolute GDP is at an all-time high.

Figure 5: US manufacturing employment (1947-2016) (BEA, n.d.)

Figure 6: US manufacturing GDP (1947-2016) (BEA, n.d.)

Figure 7: US manufacturing GDP per employee (1947-2016)

Recessions in 1980 and 2008 caused sudden drops in manufacturing employment, but overall, the downward trend has been a smooth one. This is because the United States’ economy is shifting from being an industry-based one to a services-based one, and has been for some time. Deindustrialization is a naturally occurring phenomenon for developed countries. Robert Rowthorn and Ramana Ramaswamy explain the process particularly well in their 1997 IMF publication: A country’s shift from an agricultural economy to an industrial one (industrialization) is driven by Engel’s law - that as a country industrializes, people spend proportionally less on food and proportionally more on manufactured goods and services - and increasing productivity in the agricultural sector, which enables more food to be produced with fewer people (Robert Rowthorn, 1997). Figure 1 shows the United States’ shift from an agriculture-based labor force to a more industry-based one in the early 1900s. Later in its development, a country’s shift from an industry-based economy to a services-based on is driven by industrial productivity gains that outpace services productivity gains.

Rowthorn and Ramaswamy used a regression analysis to determine what factors were responsible for the decline in manufacturing employment from 1970 to 1994. They believed that, because the share of domestic expenditure on manufactured goods had remained relatively constant over the period they were studying, that deindustrialization was primarily the result of larger gains in productivity in the manufacturing industry than in services. Their analysis supported their hypothesis - about two thirds of the decline in manufacturing’s share of US employment could be explained purely by productivity effects. The authors predicted that “if these patterns of productivity growth continue, the share of manufacturing employment will probably fall to as little as 12% in the industrial world within the next 20 years. In the United States, it could fall to as low as 10%” (Robert Rowthorn, 1997). In 2007, 20 years after their analysis was published, manufacturing made up 9.7% of private sector employment in the US. In 2016, it dropped to 8.3% (BEA, n.d.).

Perhaps the most important takeaway from the IMF’s analysis of deindustrialization is that this shift from manufacturing to services is not “a symptom of the failure of a country’s manufacturing sector or, for that matter, the economy as a whole. On the contrary, deindustrialization is simply the natural outcome of successful economic development” (Robert Rowthorn, 1997). Americans don’t seem to see it that way, though. Donald Trump won the US presidency last year on a platform largely based on promises to “bring back” manufacturing jobs that have long been lost to our own productivity innovations. Most Americans, however, are not aware of those productivity innovations: while 81% of Americans are aware that the total number of manufacturing jobs in the US has decreased in recent years, only 35% know that our manufacturing output has been on the rise in the same time frame (DeSilver, 2017).

Today, manufacturing makes up around 8% of the US workforce, 11.7% of our GDP, and 18.5% of our total output (National Association of Manufacturers, 2016). All of these measures are predicted to decrease in the coming years, with employment dropping to 6.9% in 2026 and manufacturing’s share of output shrinking slightly to 18% (Bureau of Labor Statistics, 2017) (Bureau of Labor Statistics, 2017). While the current administration gained popularity by making promises to the manufacturing sector, their hostility toward foreign nations may irreparably damage the industry: in 2015, nearly half of all manufactured goods exports went to nations the US has free trade agreements with, and nearly one sixth of total manufacturing employment is through foreign multinational enterprises (National Association of Manufacturers, 2016). Cultivating a policy environment hostile to foreign trade and foreign businesses would be devastating for the future of US manufacturing.

Another important factor for the future of US manufacturing is our ability to fill the jobs that are not automated. Over the next ten years, approximately 2 million of the 3.5 million manufacturing jobs that will be on the market will go unfilled due to a lack of qualified applicants (National Association of Manufacturers, 2016). Policy and investment that focuses on manufacturing education is necessary to build our manufacturing workforce, but it’s unlikely the current administration will provide either.

Made in China

This history of Chinese manufacturing has been difficult to piece together. China’s manufacturing history is much more extensive than the United States’, but the sands of time have eroded much of China’s earliest manufacturing accomplishments. We know that the earliest ceramics in the world were made in China around 15,000 years ago (Miksic, 2017). We know that ancient China was the home of the “four great inventions”: paper making, gunpowder, printing, and the compass, and that Chinese craftsmen were already using the “five labor-saving jewels: wedges, inclined planes, screws, levers, and pulleys (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016). The Chinese invented water-powered spinning and weaving machines hundreds of years before their Western counterparts, and were ahead of the West on creating iron and steel by 1,500 years (in the 5th century BCE and 3rd century CE, respectively) (Emilio Bautista Paz, 2010) (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016). In 30 CE, government official Du Shi was credited with the invention of the water-powered bellow, which enabled higher temperatures in the forging of iron, and by 1078 CE, the Chinese Empire was producing 114,000 tons of iron per year - twice as much as pre-Industrial Revolution England in 1788. Imperial China’s production of metal, textiles, and porcelain was a force to be reckoned with.

The Terracotta Army gives interesting insight into manufacturing techniques in ancient China as well. Although the statues themselves are highly individualized, making them was a feat of highly organized mass production. The clay was locally sourced, processed to remove impurities, and strengthened and softened with quartz and feldspar. At least eight different mold types were used to create the statues’ faces, and the statues’ legs were made in a similar manner as clay pipes. An estimated 700,000 people were involved over the course of the 39-year project, mostly unskilled forced laborers, but the names of 87 different master craftsmen have been found on the statues as well (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

Imperial China was a huge manufacturer of metal, porcelain, and textiles, all of which were key in establishing economic relationships with the West during the Qing dynasty. In 1830, China’s share of world trade was estimated to be around 30% (Think Business, 2015). Silk and porcelain were in exceptionally high demand in Great Britain, but there was not a high demand in China for British goods (The University of Illinois, 2006). As a result, the British began shipping opium to China, setting off the first Opium War (The British Museum, n.d.). Chinese superior manufacturing methods set the stage for the West to completely undermine the nation for the next hundred years - China’ century of humiliation. China soon lost the 1,500-year lead it once had on manufacturing technology.

After China’s defeat at the hands of the British in the Second Opium War, the Qing dynasty attempted to modernize its agrarian economy by establishing a true industrial system, starting in 1861 (Wen, 2016). The effort turned out to be a gigantic failure, especially after China’s defeat in the First Sino-Japanese War in 1895 (Wen, The Visible Hand: The Role of Government in China's Long-Awaited Industrial Revolution, 2016). China’s second attempt at modern industrialization was in 1911, after the Xinhai Revolution, in which they tried to industrialize China through the emulation of US institutions. A popular slogan at the time was that “Only science and democracy can save China”, and people believed that it was the very nature of the Qing monarchy that had prevented successful industrialization (Wen, China's Rapid Rise: From Backward Agrarian Society to Industrial Powerhouse in Just 35 Years, 2016). However, decades passed and China had still not industrialized. Neigher the Qing dynasty or the Republican government had the resources they needed to create a modern industrial society in China. In 1949, the Communist peasant army ousted the Republican government, and Chairman Mao embarked on China’s third attempt to create a modern industrial society, this time by trying to emulate Soviet institutions.

Chairman Mao was a fan of small, localized production. The idea behind Mao’s backyard furnaces was that they could produce steel, but due to a lack of education and training, most backyard furnaces just converted usable metal objects into scrap iron. Tens of thousands of people were ordered off the fields to contribute to the steelmaking process, but they did not have the tools they needed to effectively do so. In one case, workers filled a ravine with coal and iron ore and set it on fire in an attempt to make steel. All they got were hot rocks. The large-scale redistribution of labor for this and other projects led to the Great Famine, which killed somewhere between 15 and 45 million people. Although China had modeled its manufacturing institutions off of Soviet ones, Chinese technological progress in manufacturing was impeded by the Sino-Soviet split in the 50s and 60s (Roser, "Faster, Better, Cheaper" in the History of Manufacturing, 2016).

In 1978, Deng Xiaoping became president of China and began to institute the economic reforms that made China the manufacturing powerhouse it is today, but before that, something major happened: Terry Gou founded the Hon Hai Precision Industry Company Ltd. You may know the business better as Foxconn, the world’s largest contract electronics manufacturer and China’s largest private employer (Manufacturing Market Insider, 2016). Deng Xiaoping took a “humble, gradualist, experimental approach” to industrializing China, which was very in line with his belief that one should “cross the river by feeling for the stones” (Wen, China's Rapid Rise: From Backward Agrarian Society to Industrial Powerhouse in Just 35 Years, 2016). Yi Wen, the Assistant Vice President of the St. Louis Federal Reserve aptly compares Deng Xiaoping’s approach to China’s industrialization with the historical sequences of the British Industrial Revolution:

Deng Xiaoping’s Industrialization Approach

maintain political stability at all costs;
focus on the grassroots, bottom-up reforms (starting in agriculture instead of in the financial sector);
promote rural industries despite their primitive technologies;
use manufactured goods (instead of only natural resources) to exchange for machinery;
provide enormous government support for infrastructure buildup;
follow a dual-track system of government/private ownership instead of wholesale privatization; and
move up the industrial ladder, from light to heavy industries, from labor- to capital-intensive production, from manufacturing to financial capitalism, and from a high-saving state to a consumeristic welfare state.

Stages of the Industrial Revolution

the proto-industrialization stage, which developed rural industries for long-distance trade;
the first industrial revolution, which featured labor-intensive mass production for the mass market;
the industrial trinity boom, which involved the mass supply of energy, locomotive power and infrastructure to facilitate mass distribution;5
the second industrial revolution, featuring the mass production of the means of mass production, such as steel and machine tools (including agricultural machinery), as well as the creation of a large credit system; and
the welfare state stage, which incorporates economic welfare and political welfare.

Deng Xiaoping’s manufacturing reform, combined with his reestablishment of official relations between the US and China, set China up for manufacturing business success in years to come. Through the late 70s until the late 80s, China established millions of small, rural enterprises that acted as “the engine of economic growth” for the first decade of economic reform - their “proto-industrialization” phase. In 1988, China shifted its focus to the mass production of labor-intensive light consumer goods. China became “the world’s largest producer and exporter of textiles, the largest producer and importer of cotton, and the largest producer and exporter of furniture and toys” during their “first industrial revolution”. Today, China is in its “second industrial revolution”, having surpassed all other countries in manufacturing output and started the practice of mass producing the means of mass production (Wen, China's Rapid Rise: From Backward Agrarian Society to Industrial Powerhouse in Just 35 Years, 2016). Their manufacturing output has shifted from low-skill, low value-added products like clothing to high-value items like computers and electronic components. In 2013, China manufactured more than 90% of the world’s computers and 70% of the world’s cell phones (Think Business, 2015). As of 2014, China accounts for 22% of the world’s manufacturing (compared to the US’s 17.4%) and manufacturing value added makes up 27.7% of China’s GDP (compared to our 12.4%) (Think Business, 2015) (Morrison, 2017).

Going forward, Chinese manufacturing will likely remain strong for many years to come. China has a huge labor pool, exceedingly well-established supply chain networks, and an export tax rebate policy that makes Chinese products especially competitive (Think Business, 2015). China is also focused on its “Made in China 2025” plan, an initiative to comprehensively upgrade the Chinese manufacturing industry by focusing on improving the following sectors (Kennedy, 2015) (Orr, 2015):

Information technology: Currently much of the technology China manufactures is based on foreign innovation.
Robotics: Labor costs are rising in China even though they are still low there relative to most of the world. Becoming a leader in robotics will help keep manufacturing costs down.
Aerospace equipment
Ocean engineering equipment
Railway equipment
Power equipment
Energy-saving vehicles
New materials
Medicine and medical devices
Agricultural machinery

The first two focus points of Made in China 2025 are particularly telling. Creating more of the intellectual property behind the products they produce will help Chinese businesses move up the value-added chain in manufacturing. Investing the robotics sector will help address most of the challenges that China is facing on the future factory floor, too: rising labor costs, an aging population, a shrinking labor pool, and the rising cost of raw materials could all be offset by decreasing manufacturing costs through automation. Recent research that shows China’s manufacturing output could drop by 12% annually just because of decreased productivity due to global warming wouldn’t matter if their factories were filled with robots (Kyle Meng, 2018). Finding a way to increase factory productivity in China is important because “[a]s the labor force shrinks, Chinese wages could begin to rise faster than productivity and profits growth, which could make Chinese firms less competitive and result in a shift of labor-intensive manufacturing overseas” (Morrison, 2017).

Between friends: production and consumption in the US and China

Today, the US and China enjoy a robust financial relationship. In 2016, our two-way goods trade totaled $578.6 billion, with $115.8 billion in exports and $462.8 billion in imports (USTR, 2016). China is the United States’ largest supplier of goods and 3rd largest importer of US-made goods. As of October 2017, China is the United States’ largest trade partner overall, accounting for 16.1% of total US trade, and our already-strong relationship is still growing: exports to China have increased 13.2% since October 2016, and imports from China have increased 8.5% (USCB, 2017) (ITA, 2017). China and the US exchange large quantities of electrical machinery and machinery, and the US provides China with aircraft and vehicles while importing large amounts of furniture, toys, and footwear.

The US and China are the two largest goods exporters in the world, accounting for 23% of the world’s exports themselves. China surpassed the US as the world’s largest exporter of goods in 2008, and their upward trajectory remains strong. There is some concern about the impact the “Made in China 2025” plan will have on the trade relationship between the US and China. Some policymakers are concerned that China’s increased use of industrial policies to advance its goals of boosting innovation and advancing advanced manufacturing may negatively impact US high technology firms if such policies restrict market access for US firms (Morrison, 2017).

Figure 8: US and China % share of world goods exports (1945-2015) source source2

US FDI in China totaled $75.6 billion in 2015, and Chinese FDI in the US totaled $14.8 billion. China’s FDI in the US has been trending steadily upward in recent years, tripling to $45.6 billion last year (2016) from its 2015 levels (Financial Times, 2016). As Chinese investment in the US gradually catches up with US investment in China, the trade-balance deficit that has so many politicians up in arms could decrease, further mitigating the impact China has on the US manufacturing sector (Wen, Why aren't the Chinese buying more American goods?, 2010).

So, if the financial relationship between the US and China is so strong, why has there been so much turmoil in the US about Chinese manufacturers, even as we consume China-manufactured goods en masse? In short, the United States public has collectively decided to blame the Chinese as the major driving force behind our deindustrialization. Never mind the fact that every advanced economy moves from a dependence on industry to services, or the staggering role that productivity advances have played in this process - it’s obviously entirely China’s fault.

China’s newfound prominence in the manufacturing industry is partially responsible for the decline in American manufacturing, but only to about half the extent of productivity increases at any given point in time. You wouldn’t know it from the rhetoric most Americans adopt about manufacturing jobs, though. It’s easier to blame someone else than to think critically about the way national economies transform over time. A recent study from Oxford found that, in 2017, the US-China trade relationship actually supports roughly 2.6 million jobs in the United States (Oxford Economics, 2017). We’ll examine the relative impact of trade and automation in the following section.

The robotic elephant in the room

The true culprit behind the “demise” of the US manufacturing industry is the hardware and software we’ve invented to do our work for us. The IMF paper mentioned earlier in the paper found that two-thirds of the decline in the share of US jobs in manufacturing was due to increases in productivity.

A March, 2017 study visualized the painful truth that many Michiganders already knew - that our state was among the hardest hit by the impact of automation in the US.

Figure 9: A map of the US showing the increase in industrial robots per thousand workers (1990-2007) (Mira Rojanasakul, 2017)

The study, run by MIT’s Daron Acemoglu and Boston University’s Pascual Restrepo, examined trends in employment and wages as industrial robots became more common in the late 20th and early 21st century (Daron Acemoglu P. R., 2017). The researchers found that, for every one robot increase per thousand workers, the employment to population ratio decreased by 0.18 to 0.34 percentage points, and wages decreased by 0.25 to 0.5 percent. While these changes may seem negligible, for an area like Detroit, with 8.5 robots per 1,000 workers, employment would be decreased by 1.53 to 2.89 percent and wages would drop by 2.13 to 4.25 percent (Muro, 2017).

The effects of automation across the Midwest have been devastating, and they will continue to be in the years to come if we don’t find a better approach to handling the United States’ journey through deindustrialization. Industrial robots have high initial installation costs, but once they’re up and running, those costs plummet. It costs barely $8 an hour to operate a spot welding robot in the auto industry, compared to $25 an hour for a human welder (Harold L. Sirkin, 2015). As the fixed costs of industrial automation technology continue to fall, more professions, and more jobs in each profession, will become susceptible to automation. This somewhat complicates the argument for raising the minimum wage, as a recent paper from the National Bureau of Economic Research found that minimum wage hikes tend could result in businesses more readily replacing human labor with automation technology (Grace Lordan, 2017).

Another 2017 study, this one from Ball State University, tracked manufacturing employment from 2000 to 2010 to better understand the relative job loss impact that trade and productivity. They found that, overall, 87% of job losses could be accounted for by increases in productivity, while only 13% were lost to trade with other countries (Michael J. Hicks, 2017).

Figure 10: The relative responsibility of trade and productivity in manufacturing job losses

The two manufacturing sectors where trade played the largest role in explaining job losses - 44.6% in apparel production and 40.2% in furniture production - are the two manufacturing sectors where China has global dominance.

On the other side of the aisle, the Information Technology & Innovation Foundation argues that “trade pressure and faltering US competitiveness were responsible for more than two thirds of the 5.7 million manufacturing jobs lost between 2000 and 2010”, saying that government statistics overstate manufacturing productivity growth, and that the rapid growth of imports from China “reduced output in 12 of 19 manufacturing sectors” (Nager, 2017). The report complains that productivity growth rates slower than those in the past make an uncompetitive manufacturing sector. However, as the GDP and output of the manufacturing sector are continuing to grow, and as Deloitte ranked the United States as the most competitive manufacturing environment in the world this year, this report’s assertions seem to be unfounded (Deloitte, 2016).

If automation and other productivity gains are at the root of the US economy’s shift away from manufacturing, and if automation technologies will only become more widespread as they become cheaper and more advanced, employers and governments alike must shift focus away from “bringing back” manufacturing jobs and instead try to train now-defunct workforces for new tasks.

Making it together

The US manufacturing industry may not hold center stage in our economy anymore, but we can still make it if we choose to make things with China. I believe that the US needs to form strategic partnerships with China in order to develop and adopt the manufacturing automation technology that will drive the industry in decades to come. Right now, the United States’ focus on China as the sole reason for our deindustrialization is rooted in a history of anti-Chinese sentiment and a psychological inability to look past blaming ‘The Other’ for our problems. If the US truly wants to bolster its manufacturing sector, it needs to embrace automation technology, and that means embracing China, too.

China’s role in the production and consumption of industrial robots will help further contribute to its manufacturing supremacy. By 2020, an estimated 520,900 new industrial robots will be entering the workforce each year, 210,000 of which will be installed in China (International Federation of Robotics, 2017).

Figure 11: Estimated annual shipments of industrial robots to the US, China, and the World (2015-2020) (International Federation of Robotics, 2017)

Figure 12: Estimated US and China shares of industrial robot shipments, 2020 (International Federation of Robotics, 2017)

As it stands, by 2020 the US is only set to consume 11% of industrial robot shipments worldwide, compared to China 49%. To remain economically competitive, we must follow China’s example and invest more in industrial automation that we currently are.

China is not only slated to consume the majority of industrial robots in the coming years, but they are likely to be the main country manufacturing them as well. China is currently home to about 800 robot-making companies, and the Made in China 2025 Plan is aimed to bring them to scale (Bloomberg News, 2017). As of 2015, China is already the world’s leading supplier of industrial robots, having produced 68,600 of the 250,000 units produced that year (International Federation of Robotics, 2017). Chinese industrial robot producers are also capturing a growing share of China’s industrial robot consumers, as shown in Figure 13 (International Federation of Robotics, 2016):

Figure 13: Bar chart of the annual supply of industrial robots to China, broken down by Chinese and non-Chinese manufacturers

The US and China both have long, rich histories of manufacturing, and we remain the two largest manufacturers in the world. Our economies bolster one another, and future collaborations on manufacturing technology could bolster one another, too. To truly make American manufacturing great again, we must a) accept deindustrialization as a natural process for a developed economy to be undergoing, b) check our (rather hypocritical) biases against the Chinese manufacturers who work hard to make most of the goods we consume, c) embrace industrial automation as the new manufacturing paradigm, and d) collaborate with China on the future of industrial automation instead of forcing ourselves into obsolescence by chasing outdated dreams of decades long past. We can only make it if we make it together.

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