The chart above shows manufacturing output as a share of GDP, for both the “world less the USA” and the USA alone, using new United Nations data for GDP and its components at current prices in U.S. dollars from 1970 to 2011. We frequently hear about the “decline of U.S. manufacturing,” about how nothing is made in the U.S. anymore, and how everything that used to be manufactured here is now produced in China and other low wage countries. An underlying assumption of most of those claims that the manufacturing base is shrinking in the U.S. (the “hollowing out of U.S. manufacturing”), while at the same time there is an offsetting gain in factory output being captured elsewhere in the world, as manufacturing production and jobs supposedly shift from the U.S. to other countries.
In reality, the chart above shows that the decline in U.S. manufacturing as a share of GDP between 1970 and 2011 is really a global phenomenon. The manufacturing/GDP ratio in the U.S. fell from 24.3% to 12.7% between 1970 and 2011, while the world ratio fell at almost the same rate, from 26.7% to 17% over the last forty years.
As a share of GDP, manufacturing has declined in most countries since the 1970s. A few examples: Italy’s manufacturing/GDP ratio fell from 24.3% in 1970 to 14.3% in 2011, Brazil’s ratio went from 24.6% to 12.4%, Germany’s share fell from 30% to 20%, Canada’s from 19 to 10.25%, and Japan’s from 35% to 20%.
Bottom Line: When we hear claims that “nothing is made here anymore,” it’s not really the case that somebody else is making the stuff Americans used to make as it is the case that we (and most countries around the world) just don’t manufacture as much “stuff” any more in relation to the growing levels of national and global output, which the graph above clearly shows.
The main reason that the manufacturing/GDP ratio has declined in the U.S. and around the world is that productivity gains for durable goods have significantly lowered the price of those goods relative to: a) the prices of services, and b) national incomes. In other words, the declining manufacturing/GDP ratio reflects declining prices for manufactured goods globally, which is a sign of economic progress, not regress. The standard of living around the world today, along with global wealth, income and prosperity, are all much, much higher today with manufacturing representing 16% of total world output (including the U.S.) compared to 1970, when it was almost twice as high at 26%. And for that progress, we should celebrate, not complain about the “decline of manufacturing.”