You Decide: If Inflation Subsides, Will Everything Be OK?

By Mike Walden

I came to Raleigh and joined the North Carolina State University faculty in 1978. Then, manufacturing dominated the North Carolina economy. Manufacturing production accounted for almost a third of total economic output in the state, and 30% of the workforce had jobs in manufacturing. No other sector of the state economy came close to these numbers.

Today, the situation is dramatically different. Manufacturing accounts for about 16% of North Carolina’s economy, and 10% of workers are in manufacturing. 

Much of the demise of manufacturing was due to increased international trade. Two international trade agreements – the WTO (World Trade Organization) and NAFTA (North American Free Trade Agreement) – moved a large part of North Carolina’s manufacturing of textiles, apparel and furniture to countries with lower labor costs. Many communities in the state had their entire economies almost wiped out.

Fortunately, the North Carolina economy expanded in other industries, such as finance, pharmaceuticals, and technology and information. But many of the jobs in these industries require four-year college degrees or more. Unfortunately, a large share of the workers who lost their jobs in North Carolina’s traditional manufacturing don’t have this level of education. Hence, there’s been a mismatch between the skills of former manufacturing workers and the skills of the expanding jobs with better pay.

Yet, there may be hope. Economic conditions never remain constant. There is some optimism that economic factors are now changing to create a regeneration of manufacturing both in the country and in North Carolina.

The big game-changer to worldwide manufacturing in the 21^st century has been China. China has dominated manufacturing in this century due to its competitive – meaning low – costs, particularly for labor. Once China joined the WTO, firms worldwide set up manufacturing operations in the United States. Thousands of products now say “Made in China” rather than “Made in the USA.”

However, the attractiveness of China for international manufacturing is being re-evaluated for several reasons. First and foremost, China’s labor costs are no longer the lowest in the world. Second, many international companies have become suspicious of China over concerns about protecting company technology and secrets from being copied by China. Last, China has become very blunt about its plans to challenge the existing geo-political order. Translated, China wants to supplant the US and its allies as the dominant power in Asia. China is now a major military competitor to the United States.

Like many things, the pandemic also impacted manufacturing. So-called “supply-chain” disruptions around the world continue to impair our ability to purchase many manufactured products. Or, if the products are available, their prices are much higher. More importantly, during the pandemic, we saw how our country’s reliance on foreign producers’ supplies of medical products could be disastrous. 

Lastly, I think we have realized we need a robust number of middle-income jobs that don’t require a four-year college degree to have a thriving economy, and manufacturing is a core part of those jobs.

The culmination of these factors is that manufacturing appears to be enjoying a rebound. There are now renewed efforts to “re-shore” manufacturing from foreign countries to the U.S.

There are indications that these efforts are having an impact, particularly here in North Carolina. In the last decade, manufacturing jobs have increased. Also, a recent study focusing on re-shoring ranked North Carolina second among all states in 2022 in generating almost 46,000 manufacturing jobs that typically would be located in foreign countries. Recent announcements of a computer chip, battery and auto assembly factories are good examples.

The excitement about revived manufacturing and re-shoring does have challenges. International competition for manufacturing goes beyond China. Vietnam, Thailand, the Philippines and others have significant manufacturing operations. However, they have limited capacity. The big question is whether India – soon to be the most populous country in the world – could take the place of China. Also, even if China is losing favor as an international manufacturing hub, it takes considerable time and money for companies to re-route their supply chains. 

Finally, it is imperative to realize today’s manufacturing is very different from the manufacturing of even twenty years ago. Like most of the economy, manufacturing is more high-tech and automated. Machines have replaced human muscle. Hence, workers in today’s factories need different training than their counterparts of the past.

Fortunately, North Carolina has world-class community colleges that can provide rapid and specialized training needed by modern factories. Short-term apprenticeship programs are another way of securing qualified labor.

Manufacturing’s revival and re-shoring could go a long way to rebuilding the state’s middle class and giving improved economic opportunities to thousands of North Carolinians, many of them living in rural regions. Will this lead to a new age of manufacturing? You decide.

Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.