Introduction
The common belief is that the United States has experienced significant industrial decline over the past few decades, with its manufacturing sector supposedly weakening as it loses ground to China. This narrative has fueled discussions on industrial policy, economic nationalism, and the reshoring of manufacturing production. However, what if this view is only partially true? What if the US industry didn’t disappear but merely shifted direction?
The Shifting Manufacturing Landscape
A more detailed examination of the data suggests that what the US lost in domestic manufacturing, it may have gained through global productive presence. Instead of collapsing, the US industry internationalized.
Decline in Manufacturing as a Percentage of GDP
It’s true that the manufacturing sector, as a percentage of the US GDP, has decreased. In 1970, it represented around 24% of the US economy; by 2023, it was less than 11%. Industrial employment also dropped dramatically, by nearly seven million jobs since its peak in the 1970s.
Technological Advancements and Globalization
However, two additional points are worth noting. Firstly, as technology has evolved, manufacturing employment per unit of production has declined in many countries. Despite Germany’s continued success in manufacturing, it has also experienced a decrease in employment.
Secondly, the real added value of US manufacturing (adjusted for inflation) has increased over the past four decades, even with the decrease in factory jobs. The sector’s composition has been marked by a growing proportion of high-value goods, such as advanced technologies and aerospace products, produced with fewer workers and higher levels of automation.
China’s Rise as a Manufacturing Powerhouse
China has become a manufacturing powerhouse, being the world’s largest industrial producer in 2023 with an added value estimated at $4.6 trillion, nearly double that of the US ($2.8 trillion). However, concluding that this indicates the decline of US industrial leadership overlooks a crucial fact: the data used here, such as industrial added value, are calculated based on national territory, measuring only what is physically produced within a country’s borders.
The Internationalization of Production
This method ignores a fundamental aspect of the 21st-century economy: the internationalization of production chains. Large US companies maintain extensive production networks abroad through subsidiaries, joint ventures, or contracts with local suppliers. This production is often designed, supervised, and controlled by US engineers, designers, and executives, even when carried out physically in other parts of the world.
The True Measure of US Manufacturing
Thus, the US manufacturing sector did not disappear but relocated. American factories operating in Europe, Asia, Latin America, and other regions supply local and global markets and integrate global value chains.
According to the Bureau of Economic Analysis (BEA), US direct investment in foreign manufacturing was approximately $1.1 trillion in 2024, while the figure for China was estimated at $200 billion. These foreign manufacturing operations do not appear in national accounts, underestimating the true scale of US-controlled manufacturing. In fact, BEA statistics suggest that, if we include foreign production controlled by US companies, the “global manufacturing value” of the US could reach $3.9 trillion, much closer to China’s total.
Moreover, not all Chinese exports are “Made in China.” According to OECD data, part of the value of Chinese exports comes from imported third-party inputs, meaning less than 65% of the value of Chinese manufacturing exports is generated in China. For the US, this proportion is around 80%, indicating that the US captures more value added in controlled stages.
Rethinking Industrial Metrics
Part of the confusion about “American desindustrialization” also stems from how we measure GDP by sector. A significant portion of industrial production’s added value, especially high-value activities, is classified as “services.” Activities like logistics, R&D, engineering, software, patents, brand development, distribution, design, and supply chain management are fully integrated into manufacturing but counted in a different economic category.
When a company like Boeing coordinates production with global suppliers, most of the added value in the US isn’t registered as manufacturing, despite its close link to this sector. The combination of manufacturing capabilities with directly linked service functions implies a more robust US industrial presence than China.
Implications for Policy and Debate
The real question, then, isn’t just about production quantity and location (a fixation of former President Donald Trump). It’s about who controls and captures value in industrial supply chains. From this perspective, the US remains highly industrialized, albeit through a sophisticated and globalized business model.
These realities have significant implications for reindustrialization debates, trade, tariffs, and industrial policy. The issue isn’t just about regaining factories but understanding who controls value creation and how to organize production networks more resiliently, efficiently, and sustainably.
Efforts to relocate labor-intensive parts of the supply chain through repatriation policies and tariffs have had minimal impact on US manufacturing. Resurgence in the sector would come at the expense of higher-value activities, as US companies would need to reallocate their limited labor resources.
Low-income households currently benefiting from low-cost imported goods would face higher prices, with or without the establishment of national supply chains. Attempting to recreate the old manufacturing sector will not only fail but also impoverish Americans.
About the Authors
Jorge Arbache: Professor of Economics at the University of Brasilia, former Vice Minister and Chief Economist of the Ministry of Planning in Brazil, Vice President for the Private Sector at the Development Bank of Latin America and the Caribbean, Board Member of BNDES, and Senior Economist at the World Bank.
Otaviano Canuto: Former Vice President and CEO of the World Bank, CEO of the International Monetary Fund, Vice President of the Inter-American Development Bank, and Brazil’s Undersecretary of Finance, is a Non-Resident Senior Fellow at Brookings Institution and a Principal Researcher at the Policy Center for the New South.
Copyright: Project Syndicate, 1995 – 2025
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