globalEDGE Blog: Manufacturing Comeback in the United States

Manufacturing Comeback in the United States

For decades, free trade has received major support in the increasingly globalized market. of today. To account for the economic effects of free trade, Foreign Direct Investment (FDI) has caught the attention of economists and has become one of the most important components of measuring the economy. Since the Great Recession in 2008, most countries, especially the United States, have been experiencing a huge decline in FDI. However, in certain parts of America, we may see a much needed comeback of foreign investments in the next two years.

Michigan, with a 60% increase in FDI, has led the FDI comeback in America. Michigan, Alabama, Pennsylvania, New York, and Massachusetts collectively counted for 91% of FDI growth in 2011. Is this major increase indicating a manufacturing rebound in America? In the 1950s when the technology revolution began, FDI inflows involving manufacturers increased tremendously and continued to rise in the 1970s as foreign companies sought advanced manufacturing technology in America. However, when labor became more expensive in the new century, companies began to outsource to developing countries and therefore FDI dramatically dropped during that period of time. Shortly thereafter, the economic downturn of Detroit occurred as the American automotive industry began to stall and move jobs overseas. To the surprise of many, Michigan now possesses a 60% increase in FDI. Does this mean that automotive manufacturers are moving operations back to the States? Actually, some executives predict that as much as 30% of manufacturing industries will return to the U.S. from Asia by the end of the decade, due to rising labor wages and complicated logistics in developing countries, and lower total costs in the United States.

The manufacturing turnaround would definitely bring benefits to the United States. Currently, manufacturing contributes $1.47 trillion per year to U.S. GDP. If more manufacturers relocate their facilities back to the States, they would play an extremely important role in boosting U.S. GDP. It is crucial for America to attract industries back to the States as the economy remains in trouble. The manufacturing rebound could create millions of jobs and stimulate the economy. It very well might also help the United States fully recover from a decade of economic woes.

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