Friday 23 August 2019

Trump was wrong: US manufacturing is declining but not dead

Ellie Donnelly

Ellie Donnelly

Donald Trump emerged as US president riding a wave of anger at the destruction of America's manufacturing base.

While it's true that the US manufacturing sector is declining in importance, it still managed to generate $2.2 trillion (€1.85 trillion) in nominal value in 2015.

Put into context, that is larger than the entire gross domestic product (GDP) of Italy, Brazil, Canada, South Korea or Russia, according to global consulting firm McKinsey & Company. Even so, the erosion of manufacturing in the United States is happening, but has played out unevenly across sectors.

Over the past 20 years, output growth in US manufacturing has been concentrated in only a few industries, including pharmaceuticals, electronics, and aerospace.

Larger manufacturers have managed to thrive despite growing headwinds, but small and mid-size firms have been far harder hit by the changes in the market.

Reports maintain that little can be done to stop the ongoing decline of US manufacturing at the hands of globalisation and technology.

However, in their 'Making it in America: Revitalising US manufacturing', McKinsey argue that continued losses in the industry are by no means a foregone conclusion.

By carrying out demand projections with an analysis of specific trends in the manufacturing industry, as well as taking into consideration the historical performance of the industry, McKinsey found that the US has the potential to boost its annual manufacturing value added by up to $530bn, or 20pc, over current trends by 2025.

The three ways in which this will occur are through the increase in foreign demand, improved technologies, and value adding.

While domestic demand in the US for heavy machinery, equipment, and building materials may be at a 50-year low in terms of public investment, the report cites the growing demand in emerging economies such as Africa, Brazil, and India as offering an "enormous prize" for manufacturing companies that can successfully navigate the differences in these economies.

In addition, while in decline, the US market continues to remain one of the most profitable markets for the manufacturing of heavy machinery, equipment, and building materials in the world.

The report also argues that enhanced technology, including the use of machine learning and the internet of things, will lead to productivity gains.

Examples of ways in which technology developments can positively impact on the manufacturing industry cited in the report include the use of 3D printing.

However, in order to take advantage of the technology advances, companies will have to improve their technology offering or face missing out on new opportunities.

The third way in which the US manufacturing sector can stop its decline is through the capture of value beyond the traditional production activities, be this in the form of upstream in design and product development or downstream in services.

An example of value adding cited by McKinsey, include the sensors that John Deere has added to the farm machinery it sells.

Data captured by the sensors enable the company to offer farmers new types of user-sourced, real-time information on a number of things on the farm including planting and the health of their soil.

Irish Independent

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