4. A Future reader on the manufacturing implosion
Lots of readers responded to last issue's post on how not automation, but the rise of developing nations, particularly China, may be most responsible for the implosion of U.S. manufacturing employment.
Among them was McKinsey's Sree Ramaswamy, who added more nuance to the discussion. Small- and medium-size manufacturers suffered the most as a whole, but the impact varied by industry, Ramaswamy said. Here's more (I edited for space):
The China effect is especially strong in retail-driven industries such as apparel and appliances. In electronics, too, Chinese manufacturers have capitalized on low labor costs and, more importantly, their proximity to East Asian component manufacturers (from integrated chips to displays) to become an assembly hub.
But China plays a very small role in the U.S. automobile industry, which saw a 50% job loss over the 2000s decade. Here, the job losses resulted from a combination of:
- Competition from Europe, Japan and South Korea (boosted by a relatively strong dollar)
- Customer preferences for small cars and hybrids (boosted by high oil prices that dampened demand for US-made pickups and SUVs), and
- The response of U.S. car makers, shifting some of their sourcing to Mexico to remain cost-competitive in this challenging environment.
There have been productivity improvements and automation in the newer assembly plants (the auto industry is the largest buyer of industrial robots). But those upgrades haven’t made it into most of the domestic supply chain, where assets are aging rapidly as firms have deferred investments.