Meanwhile, the U.S. to this day runs a trade surplus in agriculture even as it runs a huge deficit in manufactured products. America pays for computers and cars and phones with soybeans and corn and beef.
So U.S. manufacturing is hurting in ways that U.S. agriculture never did. The common refrain that the modern shift to services parallels the earlier shift to industry might turn out to be true, but the parallels are not encouraging.
Faced with this evidence, many skeptics will question why the sector is important at all. Why should a country specialize in making things, when it can instead specialize in designing, marketing and financing the making of things?
This is a legitimate question, but there are reasons to think a successful developed nation still needs a healthy manufacturing sector. Harvard University's Kennedy School of Government economist Ricardo Hausmann believes that a country’s economic development depends crucially on where it lies in the so-called product space. If a country makes complex products that are linked to many other industries -- such as computers, cars and chemicals -- it will be rich. But if it makes simple products that don’t have much of a supply chain -- soybeans or oil -- it will stay poor. In the past, the U.S. was very successful at positioning itself at the top of the global value chain. But with manufacturing’s decline, the rise of finance, real estate and other orphaned service industries may not be enough to keep the country rich in the long run.
More top economists are starting to come around to the view that manufacturing is important. Massachusetts Institute of Technology economist David Autor, in a recent phone conversation, told me he now believes that the U.S. should focus more on industrial policy designed to keep cutting-edge manufacturing industries in the country. He cites Sematech, a government-led consortium that tried to help the U.S. retain its lead in semiconductor manufacturing in the 1980s and 1990s, as a successful example of high-tech industrial policy. The stellar performance of semiconductor manufacturing in the 1990s and 2000s relative to other industries in the sector, as reported by Houseman et al., seems like something the U.S. should aim to emulate with next-generation industries.
So U.S. leaders should listen to manufacturing skeptics a little bit less, and pay more attention to those who say the sector is crucial. It's worth noting that President Donald Trump, who was elected on a promise to restore American manufacturing, has shown more interest in cutting government programs designed to give industry a helping hand. If there’s going to be a U.S. industrial policy renaissance, it might not be his administration that leads it.
Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
This column was provided by Bloomberg News.