Just how much of the goods consumed in the U.S. is actually made in the U.S.? Are we making anything for sale inside of a Target or Home Depot these days? Is the U.S. manufacturer seeing an increase in domestic market share over time, or is it whittling away to imports?
We all know that most of the goods sold in a big box store of any kind come from Asia and Central America. This has been a trend for at least 20 years. People will be hard-pressed to find an American-made watch at Macy’s, let alone clothing. While not impossible, good luck finding an American-made washing machine at Home Depot. This was not always the case.
U.S. manufacturers are losing market share in their home market. As a result of this trend, supply chains suffer. And blue-collar labor opportunities diminish, leading to socio-economic inequality.
For the U.S. manufacturer, the biggest market is often right here at home. China is big, but it is mostly low-income outside of a few mega cities. We often hear that big multinationals like General Motors and Boeing are increasing their sales in China. North America, led by the U.S., accounts for 62% of Boeing’s overall revenue. China has surpassed the U.S. for General Motors for sales, with GM selling 2.2 million cars in the U.S. market in 2021 and 2.9 million in China. Most of GM cars sold in China are made there. Caterpillar is another big manufacturer. Some 42% of everything they make is sold here. Around 8% is sold to China.
Despite the attractiveness of the U.S. market, U.S. producers’ market share is in decline. What’s their market share like these days? The answer: 66.4%, based on the new Domestic Market Share Index (DMSI) created by CPA in July. That means that nearly two-thirds of the manufactured goods made here are sold here currently. But it used to be 77.3% in 2002. The number is going in the wrong direction. Imports continue to replace domestic production no matter who is in the White House.
Note that 2002 is the first year China became a member of the World Trade Organization and a recipient of the U.S.’ Most Favored Nation tariffs, the lowest in the world at around 3%. NAFTA was also seven years old, and Mexico was building itself up to be a state-of-the-art nearshore, low-cost, low regulation, manufacturing hub to the U.S. This is especially true for automotive and electronics, and home goods like refrigerators, air conditioners, and washing machines sold at Home Depot.
Everyone wants to sell goods to the U.S. That includes the local manufacturer, who is increasingly being cut out of the market through offshoring.
Market Size & U.S. Participation
U.S. consumption of manufactured goods was worth around $7 trillion last year, which includes imports. It is far and away the world’s largest market for manufactured goods. This is the place to be.
Since 2002, when the government’s Bureau of Economic Analysis’ data series became available, U.S. producers have lost 10% of market share to imports, worth around $700 billion at today’s prices. To put that into perspective, $700 billion is the equivalent of the GDP of Saudi Arabia gone to offshoring.
According to data published by the United Nations Statistics Division, China accounted for 28.7% of global manufacturing output in 2019. That’s 10 percentage points ahead of the U.S., which once had the world’s largest manufacturing sector until China surpassed it in less than a decade after its WTO membership.
China’s manufacturing sector was equal to around $4 trillion in 2019. Manufacturing output was responsible for around a third of the country’s GDP. The U.S. manufacturing sector accounted for just around 11% of GDP.
The decline in U.S. manufacturing production means the loss of millions of jobs, factory closures, economic deserts outside of the large tech, finance, and professional service centers in big cities. It also leads to a massive loss of know-how in the labor force.
The success of the U.S. manufacturing sector depends on its ability to win share in the U.S. market.
A New Gauge on Market Share
The DMSI is the first index that measures this performance directly, on a quarterly and annual basis. It is calculated from BEA data.
“The DMSI helps us benchmark how much of the goods market we manufacture ourselves. We need to know this because we need to make sure we have the means to produce enough goods ourselves for our own economic security,” said Amanda Mayoral, an economist at CPA.
Overall, there is no need for the DMSI to be at 100. That will never happen. But for some sectors of the economy, such as those related to energy security, critical medicines, or products needed for manufacturing equipment for the U.S. military, the less reliant the U.S. is on imports, especially from sole-source suppliers like China, the more resilient supply chains will be from geopolitical risks. If the trend continues as is, with domestic manufacturers losing more market share, all of the risks we are currently facing now with pandemic-era supply chain woes, and geopolitical tensions, will weaken America’s economic security.
It is clear that the domestic market share of U.S. manufacturers is in decline. This is a headwind for both blue-collar labor, and the supply chain resiliency issues Washington keeps talking about in hearing after hearing since the Biden administration took office.
CPA calculated a DMSI for each of the 19 manufacturing sub-sectors labeled by the BEA. Some sectors are in dismal shape.
In the BEA’s Computer and Electronics sub-sector, U.S. producer share is actually below 30%. In clothing, as is apparent when checking the label inside any article of clothing sold in a shopping mall, it is just 7%.
Additionally, CPA’s new DMSI shows import penetration in U.S. consumption of manufactured goods by source nation. The good news is that the numbers are relatively steady over the last 24 months ending 2021, though this could be because of the pandemic. China accounted for 8.3% of the U.S. manufactured goods market as of the fourth quarter of 2021, up from 8% in the same period a year prior. Rich European Union was the second biggest, thanks to cars and pharmaceuticals, accounting for 6.9% of total manufactured goods sold here, up from 6.5%. Mexico was in third at 5.7%, up from 5.3%.
“For two centuries, U.S. economic growth has been based on supplying the U.S. market,” said CPA chief economist Jeff Ferry. “To return to the superior rates of economic growth and more balanced income distribution that the U.S. enjoyed between 1945 and 1975, the U.S. needs more manufacturing industries that lead and dominate in the home market. The DSMI measures that success.”