Governments around the world have recently intensified efforts to revive domestic manufacturing industries, driven by hopes of economic revitalization, job creation, and national security. However, this widespread focus on manufacturing, as highlighted in a recent report by The Economist, is largely based on misconceptions and may lead to adverse outcomes for economic development and innovation.
The illusion that boosting manufacturing can deliver widespread employment growth is especially problematic. Despite political enthusiasm, factory jobs have been shrinking globally due to automation and productivity gains. Since 2013, manufacturing employment has declined by around 6%, even as production value rose. In many advanced economies, including the United States, the majority of manufacturing jobs now require technical or university-level skills, leaving fewer opportunities for low-skilled workers. Estimates suggest that reshoring manufacturing jobs—for example, to close the US trade deficit—would create only a small fraction of new employment, insufficient to meaningfully offset broader economic shifts.
This trend is compounded by the fact that wages in manufacturing for workers without degrees no longer significantly surpass those in sectors like construction or services. Industrial productivity growth has also slowed compared to the service sector, further dampening wage prospects. Thus, the narrative that manufacturing offers superior, well-paying jobs for non-graduates is increasingly misleading.
Economically, the notion that expanding manufacturing is essential for growth is challenged by multiple examples. India, despite manufacturing constituting a relatively small share of its GDP, is experiencing rapid economic expansion. Similarly, China’s dominance in manufacturing sectors has not shielded it from slowing growth rates in recent years. Rather than manufacturing volume alone, economic dynamism relies on innovation, technological adoption, and effective integration into global markets.
The strategic impetus behind industrial revival is also shaped by geopolitical concerns, particularly heightened by the war in Ukraine and tensions with China. While ensuring supply chain resilience for critical defence and infrastructure sectors is sensible, broad subsidies or attempts to broadly reindustrialize are unlikely to achieve meaningful improvements in military readiness or economic security. Producing military equipment such as missiles is highly specialised, with little overlap with civilian manufacturing. Ukraine’s wartime surge in innovation and production capacity demonstrates that rapid industrial response is achievable when driven by necessity and clear focus, rather than general industrial policy.
China’s role in global manufacturing is complex. The belief that its dominance arises purely from state intervention and that other countries must imitate this approach misses key nuances. While China employed extensive state support to build capacity and technology leadership, its current manufacturing employment share and sectoral composition align closely with developed economies. Its global industrial value largely reflects the size of its economy and domestic market rather than exceptional strategic planning. Moreover, Chinese exports, relative to its GDP, have declined, reflecting a shift toward consumption-led growth.
Instead of pursuing protectionist and subsidy-driven industrial policies, the best pathway to counterbalance China’s manufacturing power involves cooperation among allied economies with large, open markets. Combined manufacturing value added in the US, Germany, Japan, and South Korea exceeds that of China. Diverse and integrated supply chains have proven more resilient during global shocks, such as the COVID-19 pandemic, than attempts to nationalize production.
In the United States, efforts to revitalise manufacturing have produced mixed results. Bipartisan initiatives under Presidents Trump and Biden included tariffs, subsidies, and tax incentives aimed at reshoring jobs and boosting sectors like chipmaking and clean energy. However, these policies have suffered from inconsistency, with Trump’s tariffs increasing costs and uncertainty for manufacturers and Biden’s subsidies unable to sustain momentum. Manufacturing output and employment have remained largely stagnant, with factory payrolls in 2025 near pre-pandemic levels. Experts warn the lack of a coherent, stable policy risks a prolonged industrial stagnation.
Europe and other regions are also embracing industrial policy more broadly, partly motivated by green transitions and competition with US and Chinese policies. The World Economic Forum discussions and International Monetary Fund (IMF) analysis caution that industrial subsidies and protection can be costly, distort markets, and have unintended negative spillovers internationally. The IMF recommends complementing industrial policy with substantial public investment in basic research and development, alongside policies to encourage widespread innovation. For emerging economies, adopting existing technologies and upgrading infrastructure remain critical growth drivers.
China’s industrial strategy, epitomised by the ‘Made in China 2025’ initiative, has concentrated on the rapid development of sectors like robotics, electric vehicles, and rail equipment through heavy state intervention, subsidies, joint ventures, and tech transfer mandates. While this approach has expanded China’s manufacturing footprint and spurred technological advances, it has also resulted in overcapacity, inefficiencies, and unresolved foreign dependencies in key areas such as semiconductors. Analysts note that although China’s industrial scale is formidable, its ability to sustain growth and innovation may be challenged by economic rebalancing needs and external trade tensions.
In summary, the current global mania for industrial revival risks proving self-destructive if it pursues outdated assumptions about manufacturing as a panacea for employment, growth, and national strength. Automation, global specialization, and the shifting nature of work mean that reviving traditional factory jobs will not restore economies or secure technological leadership. Instead, the focus should be on fostering innovation through openness, strategic cooperation among allies, investment in research, and policies that strengthen resilience without distorting economic incentives. This nuanced approach offers a more sustainable path to compete with China’s manufacturing dominance and to maintain economic vitality amid complex global challenges.
Source: Noah Wire Services
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