Introduction
The economic and financial systems of the United States, as well as the country’s production sphere, got out of the crisis of 2008-2009 relatively easily and quickly, demonstrating the highest vitality among developed countries. This refers, first of all, to the manufacturing industry of the country. At the same time, in the last 10-15 years, the United States also had been experiencing a certain loss of world leader position in product manufacturing industry. It is especially significant in the segment of advanced, knowledge-intensive industries and high technologies. Several studies show that the industry is not facing cyclical downturns, rather, it has to deal yet with long-term structural problems. However, despite the existing issues, the United States remain the most highly productive and powerful industrial country in the world, as well as the largest market for high-tech goods and services. This paper analyzes the state and prospects for the development of the manufacturing industry of the U.S. in a global perspective.
Global Structure and Dynamics of the Industry
The modern U.S. manufacturing industry is a large diversified complex, which includes more than 350 thousand of enterprises producing various products in a wide range of industrial activities. The core of the national manufacturing industry always were the intersectional complexes of high-tech and science-intensive branches, which also define the country’s international competitiveness and innovative focus. Eriksson et al. (2021) demonstrate within their study that “the evolution of manufacturing in the United States follows a within-county product cycle pattern” (p. 43). The manufacturing industry in the U.S. includes 21 sectors, consisting of 86 sub-sectors with enterprises in them, which employ tens of thousands of people.
The main trend in manufacturing industry in the United States of the last 10-15 years remains such: an overall growth in volume of production amid a decrease in the share industries in GDP. Additionally, there was a reduction in the number of enterprises and employment with a growth in labor productivity, and a decrease in investment activity in some high-tech segments. These trends are long-term in nature and were the result of a number of factors. Primarily automation and robotization of production have been the most influencing, but there also was a relative decline in world industrial prices for goods and an outstripping growth demand for services.
Global Production
The international competitiveness of any country or company is characterized by the two most important indicators: the share in world commodity markets and its dynamics changes. For example, in 2008 and 2009, there was a resounding drop in production volumes in the U.S. manufacturing industry. This allowed China then to overtake the United States in that sector and advance from 4th place to the 1st in absolute values ​​and the world share of manufacturing industry. Eriksson et al. (2021) state that “when the China shock hit the United States from 1990-2007, the areas most exposed had less innovative capacity as measured by patents per capita, and higher unemployment rates prior to the shock” (p. 43). However, the cyclic nature of the industry had managed to reclaim the U.S.’s position on the market in the following years.
Brill et. Al (2018) add that “multifactor productivity in the manufacturing sector grew by an average of 2.0 percent per year from 1992 to 2004, as manufacturers increased their production with relatively fewer inputs.” (p. 1). The study analyzed thoroughly the factors that served well for the productivity of the manufacturing industry. However, in the period from 2004 to 2016, the same multifactor production rates dropped by a 0.3 percent per year (Brill et al. 2018). The research’s findings show that “semiconductors and other electronic component manufacturing and computer and peripheral equipment manufacturing contributed the most to the slowdown” (p. 1). Still, there were other factors adding up to the general decrease in rates.
Today, the manufacturing industry remains the main driver of future development of the U.S. economy. Its advanced and high-tech branches ensure the implementation of innovative potential, the creation and the introduction of new technologies, products, and production methods. Compared to other industries and areas, the manufacturing industry gives the maximum multiplier effect in the economy. Thus, it is safe to conclude that this sector of national economy will proceed to grow and develop further, however, not without its issues.
Global Trade
Globalization of the world economy during the last three decades has been accompanied by a significant intensification of international trade. It had even exceeded in pace both the GDP growth, and the production rates of the manufacturing industry. Moreover, an active transfer production from the U.S. and other developed countries to developing economies followed. As a result of these factors, there was not only a restructuration of the global manufacturing industry and a redistribution of products flow of the industry, but also a change of directions in foreign trade. Flaaen and Pierce (2019) state that “for manufacturing employment, a small boost from the import protection effect of tariffs is more than offset by larger drags from the effects of rising input costs and retaliatory tariffs” (p. 20). The results of their study can be considered quite important for future development of the U.S. trade policies.
There is also an issue of working capital management packages (WCMPs), and their impact on the companies’ financial performance in the industry. Lyndstadaas’s research (2020) suggests that “if there exist strong industry norms for suppliers who offer credit terms, then there is little competitive advantage to be gained as all firms compete on equal supplier terms” (p. 433). Financial performance remains one of the most important factors of success in both national and global trade, thus, it is important to assess it properly. Fort et al. (2017) also add that “understanding of how trade and technology affect US manufacturing must seek to be multifaceted as well” (p. 69).
In the foreign trade sphere, the United States face serious problems associated with the fact that many developing countries such as India, Singapore, and Malaysia have been actively establishing their own production and innovation base. This allows them to successfully compete with world leaders in a number of product niches of manufacturing industry, primarily, in the field of high-tech industries and advanced technology.
Global Investment
The manufacturing industry is steadily leading as the sphere of application of foreign capital – it takes about a third of the overall volume of accumulated foreign direct investment. At the same time, the importance of manufacturing industries in accumulated direct foreign investment in the United States is significantly higher than in the similar U.S. investments abroad. Gutiérrez and Philippon (2017) state that “industries most affected by Chinese competition saw a decline in the number of domestic firms, but at the same time, leaders in these industries increased investment the most” (p. 59). Direct foreign investment in the U.S. manufacturing is broadly diversified and includes, for example, the chemical industry, food production, transport mechanical engineering, and many more other sectors.
Cupertino et al.’s (2019) analysis shows that “while financialization is negatively correlated with corporate real investment, corporate social performance exhibits a positive correlation with corporate capital accumulation” (p. 11). The authors of the study imply that firms in the manufacturing industry would have better financial performance when focused on fostering real investment. Susilo’s (2018) research shows that “foreign direct investment in 10 sectors used simultaneously provides a significant impact on economic growth, as the real GDP growth is in 90,4% of cases explained by the FDI growth” (p. 60). Therefore, the importance of attracting foreign investors into the industry cannot be stressed enough.
The technology transfer that worries the experts the most is the supposed leakage between the U.S. innovations and Chinese firms. Menaldo and Wittstock (2021) suggest that “the U.S. government is justified in imposing sensible strictures against antihacking and targeting export bans to the most sensitive American technology, including around radar and quantum computing” (p. 42). However, the authors also add that it absolutely does not mean that Chinese investors should be banned from the American market. The current trends imply that China is growing to become a force to be reckoned with, and there is a strong need to foster a good investing relationship with the country.
Global Trade and Investment Governance in the Industry
The U.S. government is supporting private manufacturing enterprises directly with the federal budget through public procurement and various development programs, as well as through adoption of special laws aimed at promotion of individual industries. Many of these programs and laws are in place for decades. Good examples include The Small Business Innovation Research Program, The Small Business Technology Transfer Program, The Small Business Investment Company, and many others.
Flaaen and Pierce (2019) state that “U.S. manufacturing industries more exposed to tariff increases experience relative reductions in employment as a positive effect from import protection” (p. 2). However, their study has also shown that the positive changes are often compensated by even larger negative effects from rising input costs and retaliatory tariffs (Flaaen and Pierce 2019). The authors conclude that there are many factors influencing the effectivity of the manufacturing industry, and they have to be taken into account when designing the tariff policy for managing it.
Special activity in this direction has been observed in recent years in connection with the government’s desire to give new impulses for the development of the national manufacturing industry. Ezell (2020) introduces a variety of policies to help regulate the manufacturing industry in the U.S., such as the restructuration of the SBA Section 7(a) Loan Funding for Manufacturers. The author claims that “it would increase the maximum 7(a) loan guarantee rate for manufacturers to 90 percent to further reduce the guarantee fees that small manufacturers are required to pay on 7(a) loans” (p. 13). This policy would be quite helpful for smaller and veteran-run businesses, as it would make it more affordable to run a company in the industry.
Each state has departments whose activities aim to provide diversified support to investors. Ohrn (2019) states that “accelerated depreciation policies decrease the cost of new investments by allowing firms to deduct the new investments from their taxable income more quickly, stimulating business investment” (p. 1). Every program aims at establishing an infrastructure both within the state and in the neighboring regions. Flaaen and Pierce (2019) suggest that “internationally, the traditional use of trade policy as a tool for the protection and promotion of domestic manufacturing is complicated by the presence of globally interconnected supply chains” (p. 21). Along with financial incentives for investment activities, international authorities provide foreign investors with detailed information on local infrastructure, labor force, taxation system, energy, prices for buildings and structures, and other factors.
Conclusions and Recommendations
Thus, the challenges faced by the US manufacturing industry are not cyclical, but rather structural and long-term. The weakening of the position of American companies in the world high-tech product markets, budget constraints in stimulating research and development, and the political processes decreased the global competitiveness of the U.S. manufacturing industry. Subsequently, it led to the loss of leadership in global production and supply to foreign markets. In the modern world, the context of globalization and large-scale international cooperation dominates the field. Open markets and increased competition, as well as the general availability of information make it extremely difficult, if not impossible, to maintain a country’s leadership in each and every production branch. Nevertheless, it is important to react in time to the ongoing loss of positions held and to apply adequate measures to neutralize any negative consequences within the existing resource constraints.
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