From Offshoring to Onshoring: American Manufacturing

American manufacturing has been slowly dwindling for the past 80 years driven by the globalization of the economy.1 Economists and investors have assumed this trend would continue as America keeps shifting to a services-based economy and manufacturing offshores to countries with low costs of labor. However, Covid-19 highlighted critical supply chain vulnerabilities amid rising global tensions that put the risks of national security due to offshored jobs and sectors in the spotlight. Now, politicians across the aisle have been willing to accept the costs of de-globalization and centralized planning to promote high-value domestic industries that are critical to national security. While American manufacturing is unlikely to get back to its peak, a domestic industrialization resurgence will continue taking place behind political motivation among high-value, national security critical sectors.

American manufacturing accounted for 35% of private sector jobs in the US in the 1950’s. Today, that number is down to 9.4%.1 The rise and fall of American manufacturing took place over 3 stages.

First, American manufacturing skyrocketed during the first half of the 1900’s when the US pioneered the use of interchangeable parts and organizing factors.1 World War II drove a massive increase in American manufacturing capacity that crushed competitors. After the war, the middle class was booming and spending on durable goods such as cars and appliances spiked, further driving the rise of American manufacturing.

Second, Americans became more affluent after the 1950’s, and their consumption began to shift to services such as restaurants, travel, and medical care.1 Jobs followed consumption into the services sectors, and domestic manufacturing began shifting to the South, where labor costs were lower. Around this time, less affluent countries with dramatically lower costs of labor in Latin America and Asia began ramping up their manufacturing capacity.

Source: Wall Street Journal. April 2025. “How the U.S. Lost Its Place as the World’s Manufacturing Powerhouse”

Third, in the 1980’s, countries with extremely low costs of labor stole market share from American manufacturers at a rapid pace that intensified in the 1990’s with the North American Free Trade Agreement.1 This trend accelerated even faster once China joined the World Trade Organization in 2001. The China shock was the first time American manufacturing faced competition from a low-cost labor country that dwarfed its population, and China’s rapid gain in market share has been astonishing.

Source: Wall Street Journal. April 2025. “How the U.S. Lost Its Place as the World’s Manufacturing Powerhouse”

Free market forces have led to the offshoring of American manufacturing to countries with extremely low costs of labor. Politicians across the aisle witnessed the pitfalls of offshoring that were highlighted by supply chains collapsing during Covid-19 and have begun taking matters out of the free markets and into their own hands. The Biden administration devoted hundreds of billions of dollars into expanding industries they viewed as national security concerns such as electric vehicles and semiconductors. The Trump administration has used sweeping tariffs to restore American manufacturing.2 While methods vary, politicians across the spectrum have been promoting American manufacturing through both carrots and sticks, and key industries have been coming back.

Construction spending on American manufacturing hit an all-time high in 2022 at $108 billion.2 However, that money is not going towards the industries from the 1950’s. Rather, that investment is going into high-value, national security critical sectors such as semiconductors and pharmaceuticals which are both at the center of American competition with China.

Source: Wall Street Journal. April 2023. “America Is Back in the Factory Business”

Semiconductors have been leading the way as Micron recently announced a $200 billion investment in American manufacturing in partnership with the Trump administration. The investment is estimated to create roughly 90,000 direct and indirect domestic jobs and aims to position the US as the dominant player in artificial intelligence, two priorities of the Trump administration.3 Foreign entities have also been investing in American manufacturing. Taiwan Semiconductor Manufacturing Company announced a $100 billion investment in US-based chip manufacturing, while Japan-based SoftBank announced a $500 billion private investment in U.S. artificial intelligence infrastructure in partnership with OpenAI and Oracle.4 In pharmaceuticals, Eli Lilly announced a $27 billion investment into four new American manufacturing plants in the US. Eli Lilly’s investment is expected to create roughly 13,000 jobs and bring certain pharmaceutical production back to the US, again serving two priorities of the Trump administration. All in all, the White House claims roughly $2 trillion in American manufacturing investment due to administration policies.

Source: Wall Street Journal. July 2025. “Trump Is Taking Credit for New U.S. Factories. Does He Deserve It?”

It’s important to understand both what is coming back, as well as what is not coming back. With fundamental cost disadvantages such as labor differentials, low-value manufacturing will not and should not be returning in force. "Do we want to start producing our own T-shirts again? How important is that," noted economist Susan Houseman.1 Centralized planning has its downsides, and bringing back American manufacturing for low-value goods such as textiles would take a considerable amount of economic coercion to overcome the fundamental disadvantages such as wage differentials. Instead, politicians would be wise focus American manufacturing onshoring efforts in high-value, national security critical sectors.

The case for centralized governmental promotion of American manufacturing goes beyond basic economics. While manufacturing creates innovative ecosystems that compound upon themselves, having secure supply chains and being at the cutting edge of technological development is a matter of national security. The case against centralized governmental promotion of American manufacturing is a more traditional economic case that focuses on economic inefficiency. Americans benefit from the lower costs of goods and services that come with globalization from factors such as lower wages abroad. As America retreats from globalization, American consumers will cease to benefit from those lower cost inputs, will end up paying more for goods and services, and will have less to spend elsewhere. Rather than focusing on broad American manufacturing reshoring, politicians should focus on promoting high-value, national security critical manufacturing while allowing Americans to largely benefit from the efficiencies of globalization.

American manufacturing has dramatically decreased as a percentage of private sector jobs since the 1950’s. That decrease was largely due to the transition into a services economy and the efficiencies that came along with globalization. While consumers have benefitted from the lower costs and efficiencies that came with globalization, the offshoring of American manufacturing has shipped away jobs and brought critical concerns of national security supply chains. Politicians on both sides of the aisle have been trying to address these concerns and promote American manufacturing through both carrot and stick policies. However, due to fundamental economic realities such as wage differentials across borders, most manufacturing is not going to come back to America. Politicians should narrowly promote American manufacturing in areas of high-value production that are critical to national security while allowing consumers to benefit from the efficiencies of globalization. While methods may vary, American manufacturing in areas critical to national security will continue to see a domestic resurgence behind political motivation across the aisle.

Sources:

1. Wall Street Journal. April 2025. “How the U.S. Lost Its Place as the World’s Manufacturing Powerhouse”
2. Wall Street Journal. April 2023. “America Is Back in the Factory Business”
3. Wall Street Journal. June 2025. “Micron Technology to Invest $200 Billion in U.S. Semiconductor Manufacturing”
4. White House. July 2025. “TRUMP EFFECT: A Running List of New U.S. Investment in President Trump’s Second Term”
5. Wall Street Journal. July 2025. “Trump Is Taking Credit for New U.S. Factories. Does He Deserve It?”