Manufacturing growth—in the Heartland and for America

By Robert Maxim, Mark Muro

The state of U.S. manufacturing is back in the news after GM’s decision last week to close five plants and cut some 14,000 jobs. Also back is debate about whether the moves were a routine “trimming of the sails” at GM or something deeper.

Either way, the onset of a new Congress next month underscores that both parties have every reason to promote an advanced manufacturing agenda, both because of manufacturing’s outsized role in America’s politically critical Heartland region, and because it’s actually slumping.

Data points from our recent State of the Heartland factbook note that high-value, export-oriented advanced manufacturing comprises nearly 10 percent of the economic output and 5.4 percent of employment in the 19 “Heartland” states—a much larger share than elsewhere in the country. Advanced manufacturing has also been growing faster in the Heartland than in the rest of the country, and contribute to the region’s strong export activity.

And yet, productivity growth in both the regional and national sectors remains sluggish through this decade (Figure 1).

Advanced manufacturing productivity

Furthermore, U.S. manufacturing, like other sectors in the economy, has seen a growing industry concentration: Large “superstar” firms are flourishing, but small and medium-sized firms are struggling given weak innovation, slow digital uptake, and increased competition from abroad.

In view of these trends, it would behoove the parties to begin working on a serious advanced manufacturing agenda for the nation, and especially the Heartland. Unfortunately, as of yet, that work has not seriously begun.

While Democrats continue to debate whether they should pursue white working class Heartland voters, they have yet to propose a viable advanced manufacturing agenda that would help workers both in the region and elsewhere throughout the economy.

For his part, President Trump has consistently driven a narrative around reviving American manufacturing, with the administration releasing a plausible Strategy for American Leadership in Advanced Manufacturing in October. However, most of the trade and budget policies that the Trump Administration has pursued over the past two years run directly counter to the administration’s professed goals, and move the country in precisely the wrong direction.

So what would a meaningful advanced manufacturing agenda look like?

First and foremost, Congress must reorient the federal government’s trade policy strategy to restore stability for American manufacturers. This begins by removing shortsighted global tariffs, particularly against U.S. allies in Europe, Asia, and North America. From there, Congress should mandate that the Trump Administration leverage American allies to coordinate a unified response to rogue economic actors like China. This would more directly address China’s ongoing unfair economic practices without further undercutting America’s competitive position. This weekend’s agreement to halt protectionist escalation and move more directly to solving the underlying issues was a promising first step, but has no guarantee of success, particularly without engagement from American economic allies.

Next, rather than cut essential programs, Congress must work to reinvest in advanced manufacturing and facilitate the conditions for robust growth in the sector. As we have detailed in our America’s Advanced Industries and Digitalization and the American Workforce reports, such an agenda will need to address:

  • The nation’s sluggish advanced-sector innovation and productivity growth
  • Its increasing need for a more digitally skilled manufacturing workforce
  • Strong investments in supply-chain density and local manufacturing ecosystems

Against this backdrop, the new Congress should pursue three priorities.

First, the next Congress should prioritize American innovation. This starts with continuing to expand the federal government’s investment in basic R&D—historically a bipartisan goal. While last year’s omnibus bill provided the largest increase in federal basic research spending in a decade, federal development spending still lags historic levels as a percentage of GDP. In particular, Congress should increase funding for technology transfer and commercialization, and explore new methods of encouraging technology transfer. For example, Congress could provide funding to seed advanced industry accelerators in states, such as Colorado’s successful model. Congress should also fully embrace collaborative formats for delivering R&D, such as by continuing to expand the successful Manufacturing USA program.

At the same time, Congress should invest much more concertedly in America’s manufacturing workforce, with a focus on preparing workers for today’s and tomorrow’s digital factory. As our research in the wake of GM’s new layoffs shows, labor demand in U.S. advanced manufacturing industries such as the auto sector continues to shift toward workers with strong digital skills. Given that, Congress should expand funding for STEM and digital education on both the P-12 and post-secondary levels. In particular, Congress should reward states and localities that are pioneering best practices in increasing real world context of computer science and related fields.

To support the adult workforce, Congress should help scale up the most successful models of accelerated learning. Priority should be given to those that leverage a no-cost “apprenticeship” model for students, or that work directly with employers to upskill incumbent workers, such as the non-profit LaunchCode program in St. Louis. More broadly, both the administration and Congress need to get serious about scaling up apprenticeships by significantly expanding funding and focusing on digital skills, which have gone largely unaddressed by efforts to date.

In addition, the U.S. must enhance employment security by equipping workers to adjust to new jobs, rather than merely jawboning companies into retaining old ones (which has been one of President Trump’s main strategies to date). To do so, Congress should establish a universal displaced worker program that would provide robust support to all workers laid off through no fault of their own.

Finally, Congress should support advanced manufacturing ecosystems throughout the country. One of the most effective ways to do so is to leverage federal assets to support local ecosystems. For example, Congress should allow local firms greater access to federal labs by establishing an innovation voucher program. They should also ensure that extension efforts such as the Manufacturing Extension Partnership, which support the SMEs that play a key role in the advanced manufacturing supply chain, receive robust funding. Likewise, Congress must do more to invest in rural areas, including increasing internet connectivity, improving physical infrastructure, and supporting rural workforce development.

To be sure, the coming divided Congress is unlikely to deliver a large swath of the needed policy agenda right away. Rather, gridlock is the likely forecast. However, given time, advanced manufacturing has the potential to become an area of common ground—one that links the interests of blue-state high-tech regions, Midwestern mid-sized cities, and smaller Heartland towns.

And that would be welcome. Advanced manufacturing is an important source of economic output throughout the country, and the Heartland states where it is most prevalent will play an outsized role in deciding the country’s political future.

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