The myth of the post-industrial economy

The cancellation of Donald Trump’s tariffs cannot stop what is a painful, but potentially gainful, reindustrialisation of America. Leadership across both parties – excluding the libertarian fringe on the right and the socialists on the far left – supports such a step, and the vast majority of Americans favour the large-scale reshoring of industry, primarily from China.

Yet wanting something and getting it are two different things. In the US, and much of the West, there is immense inertia favouring the continuation of offshoring, particularly to China and its satellites. Wall Street, based in a thoroughly deindustrialised New York, has traditionally embraced offshoring. Similarly, Silicon Valley, the other node of power in America, has followed suit, led by megafirms like Apple and Nvidia.

The idyll of a post-industrial economy – the idea that countries can thrive without producing tangible goods or even providing jobs – has proven disastrous. Between 2000 and 2007, the US haemorrhaged 3.4million manufacturing jobs, about 20 per cent of its total, and lost a further 1.5million manufacturing jobs between 2007 and 2016. From 2004 to 2017, the US share of world manufacturing shrank from 15 to 10 per cent, while reliance on Chinese imports doubled, even as Japan’s and Germany’s reliance on Chinese goods shrank.

The time for an industrial renaissance is now. As China ramps up its use of its own prodigious resources in pursuit of technological supremacy, the growing centralisation of power in the hands of the Chinese Communist Party is prompting some European and US firms to get out and return home. Including Asian and other foreign firms, UBS projected in 2020 that 20 to 30 per cent of all Chinese manufacturing capacity could move out of China this decade. Out of $2.5 trillion of Chinese exports, this would imply $500 billion to $750 billion moving elsewhere, particularly to the large market in North America.

All this predates Trump’s zany tariff Blitzkrieg. Over the past decade, some major companies – such as Black & Decker, Whirlpool, General Electric, Apple, Caterpillar, Goodyear, General Motors and Polaris – have already begun shifting their production footprints (with varying degrees of success). In 2019, for the first time in a decade, the percentage of US-manufactured goods that were imported fell, according to a 2020 Kearney study, with much of the shift coming from East Asia.

Perhaps the most promising sign is the recent movement among the so-called tech bros, who are increasingly keen on domestic production. In places like El Segundo, Long Beach and Austin, a ‘deep tech’ revolution is afoot, focussed on aerospace, quantum computing, biotechnology, advanced materials and autonomous systems. Instead of deepening the social-media sinkhole, they are building tangible products that could both protect the country and enrich its people.

These often small companies, notes historian Arthur Herman, constitute ‘America’s hidden champions’, capable of making manufacturing great again. He observes a new commitment to industrialism and self-sufficiency, particularly in energy, defence and space. ‘People are shifting to harder tech’, observes Varda Aerospace co-founder Delian Asparouhov. ‘There is an aerospace renaissance. This can’t be done with AI – you need people to build spaceships. It’s a paradigm shift.’

Reshoring industry is not inherently a partisan issue. Sparked by America’s inability during the pandemic to produce critical medical supplies, a broad-based bipartisan coalition emerged to encourage domestic production. For businesses and consumers, shifting out of China could cost as much as $1 trillion, but it would make supply chains more reliable and allow companies to exit the high-carbon supply chains in China, which has long been emitting far more greenhouse gases than the US and the EU combined.

Yet reshoring could become a key issue in 2028, particularly if California’s Gavin Newsom secures the Democratic Party’s nomination. Newsom has presided over massive deindustrialisation in the state, with companies like SpaceX, Chevron, Tesla, HP Enterprise and Oracle heading east of the Sierra.

The chilling result is that California now has relations with China that resemble a classic colonial tie. China buys roughly $15 billion annually but exports $122 billion. Essentially, California exchanges fruits, nuts and some intellectual property in exchange for increasingly sophisticated manufactured goods. California has become President Xi Jinping’s raj. Green politics have accelerated this path to vassalage.

Newsom, like much of the European establishment, is committed to a Net Zero emissions strategy. This effectively hands the economic future to China and other developing countries, which do not share the West’s obsession with climate change. It also leaves their economies dependent on critical energy supplies from Russia, the Middle East and – horror of horrors – the much-hated America.

Europe, where climate fanaticism has continued to undermine economic growth since 2008, has already lost 2.5million manufacturing jobs in that time, and nearly 100,000 in the European steel industry alone. Eurostat figures show that 4.3million more jobs are at risk. Germany’s green policies are accelerating the former industrial superpower’s ongoing deindustrialisation, including its natural gas-dependent, world-leading chemical industry.

Pushed by anti-growth greens and the left, the EU and the current Labour government in the UK have served as ‘useful idiots’, committing industrial suicide at a time when China desperately needs to expand its surplus industrial goods.

Electric-vehicle (EV) mandates have slowed in the US, although they have already cost Detroit an estimated $114 billion. The EU, however, has continued forcing manufacturers to transition to EVs, embracing an eventual ban on petrol-powered cars. This course means Europe has committed itself to dismantling one of its last areas of excellence in favour of technology almost entirely controlled by China and other East Asian countries. The proposed electric future seems likely to be a China-dominated one.

Britain – first under the Tories, and now even more so under Labour – is rapidly deindustrialising. The former ‘workshop of the world’ now has one of the lowest levels of industrial activity among developed nations. Over the past decade, it has lost over 200,000 factory jobs. Current plans to implement tough Net Zero policies have raised industrial electricity rates to among the highest in the world. This, along with the elimination of North Sea oil production, suggests that Britain’s industrial future is bleak indeed.

No matter which side of the Atlantic, the green agenda is aiding China in its existential struggle with the West. China already enjoys a growing market share in manufactured exports roughly equal to that of the US, Germany and Japan combined. Green policies further entrench China’s industrial supremacy, making energy more expensive and unreliable in the West, even as China continues to build more coal plants.

The stakes of deindustrialisation are enormous. Living standards in the deindustrialising West have already worsened, particularly for the middle class. Europe has endured a decade of stagnation, with the Net Zero regime squelching future growth. This process, as Deutsche Bank’s Eric Heymann has observed, will likely have such catastrophic effects on living standards that it will trigger ‘massive political resistance’. The decline of ‘welfare and jobs’ could be so severe that it would require ‘a certain degree of eco-dictatorship’ to press on with the policies.

Right now, the US is the only major Western power seriously fighting back. America has inherent advantages. It is a large country with vast energy resources, fertile land and, to a large extent, a decentralised economy that allows individual states to embrace an industrial future. This is gradually shifting economic growth to states like Indiana, Wisconsin, Michigan, Iowa and Ohio, which previously suffered most from deindustrialisation.

These states experienced some of the most robust industrial growth from 2010 onwards accounting for many new industrial jobs, while coastal states such as California, New York and Massachusetts have experienced little growth or contraction. The biggest winners from reshoring, however, are the more recently industrialised Southern states, led by Texas and South Carolina. This has long-term implications for future US politics. As one progressive urbanist complained recently, data centres and energy mean that ‘the countryside retains its power over us’.

Many of these states, including Texas and Ohio, benefit from abundant, cheap energy from the shale revolution. Cheaper energy, noted the late Ariel Corporation president, Karen Wright, based in Mount Vernon, Ohio, has made operating in places like Ohio much easier and created an enormous market for the gas compressors. ‘Reshoring industry is a big win for us’, she said, ‘since we’re 100 per cent American-made’.

Counterintuitively, the rise of artificial intelligence could hasten a return to industrial values. A growing cadre of entrepreneurs see the future not in apps, video games and social media, but in using tactile skills to perform tasks that are not easily replaced by AI. The new technology is displacing the former lords of the tech world – the software writers – who are proving vulnerable to what economists refer to as ‘skills-based technological change’.

Even many ‘creative jobs’ – actors, writers, journalists – could be threatened by AI-generated scripts. AI programmes can already outperform most college graduates in analytical abilities and basic writing or computation, as well as generate pictures, music or poetry. We may be on the brink of a period that, as one study suggests, could bring ‘an unprecedented wave of displacement of mental labourers’.

It turns out that the future may be less about analytical skills than about fixing and building things. The big opportunities now lie in building data centres, which require skilled tradespeople. ‘It’s the end of white-collar knowledge work’, virtual-reality pioneer Rony Abovitz, now founder of AI startup Sun and Thunder, tells me. Instead, he predicts that the future will be shaped more by ‘the rise of this sophisticated, technically capable blue-collar worker’. Most critical is a change in attitude among the next generation of workers.

This includes an embrace of industrial culture, reflected by the rising popularity of honky-tonk bars and interest in traditional labouring clothes. Although many women are joining the new industrial culture, a visit to space, semiconductor, and defence-tech firms reveals a predominant ‘bro culture’ that is distinctly patriotic, as evidenced by large American flags on factory floors and a disdain for Silicon Valley’s culture warriors. This is part of what commentator Glenn Reynolds has described as a return to ‘healthy masculinity’, in contrast to the ‘toxic masculinity’ that’s so lamented in media and academia.

More critical still, there are signs that the education system is shifting away from consciousness-raising towards developing productive skills. Many are already ditching traditional academia. From 2010 to 2021, US undergraduate enrollment dropped from 18.1million to about 15.4million. Over the past decade, more than 500 US private colleges have closed – three times the rate of the previous decade.

In contrast, the proportion of young people attending vocational schools grew by 16 per cent in 2023 to the highest level since 2018. This marks a major shift in attitudes. A recent Gates Foundation study suggested decreasing interest among those under 30 in four-year college degrees and greater interest in trade schools, particularly at a time when many skilled jobs remain unfilled – a sentiment shared by most parents. Americans have more faith in two-year colleges, where over 40 per cent of undergraduates are enrolled, than in four-year schools.

This shift towards tactile skills is well advised, particularly in the American South. Even among those who manage to finish university, more than 40 per cent of recent graduates aged 22 to 27 are underemployed, meaning they are working in jobs that do not require their degree, according to the Federal Reserve Bank of New York. These young people – industrial workers and entrepreneurs – are on the front lines of creating what could evolve into an American ‘industrial commons’.

Politics is also changing. The fixation on climate change has weakened, even among some Democrats, and there is strong bipartisan support for reindustrialisation. Critically, despite the much-ballyhooed consumer benefits of low-cost imports, the vast majority of Americans seem willing to pay higher prices resulting from moving production out of China – a fact that has encouraged retailers such as Walmart to seek out more domestic suppliers.

This is not to suggest that all the old jobs will return to their former numbers. Although manufacturing employment has only begun to expand again, the new industrial commons will be based largely on AI, automation and other productivity improvements. Even as employment has remained relatively flat, manufacturing output has risen significantly in the past year and may now be more competitive. In the long run, the key to attracting scarce skilled labour will be to keep wages higher than in the service sector. It is impossible to get people into the business of building ships, notes the US Navy secretary John Phelan, if they are only paid as much as they would earn at a convenience store.

Revitalising our ‘industrial commons’ in both America and the West requires bold new initiatives, as well as measures that take a page from our economic past – perhaps duplicating the experience that created the ‘arsenal of democracy’ that ultimately defeated both fascism and Soviet Communism.

Reshoring will require not just sticks – like tariffs and bans – but also carrots, such as tax policies that encourage industrial investment, loans and loan guarantees, grants and public-private partnerships to support both educational and physical infrastructure. This includes a national strategy aimed at developing critical rare metals and bringing chip production back home.

Industrialisation stood at the heart of the West’s emergence. Deindustrialisation, if not reversed, could also prove the instrument of its final demise.

Joel Kotkin is a spiked columnist, a presidential fellow in Urban Studies at Chapman University in Orange, California, and a senior research fellow at the University of Texas’ Civitas Institute. Find him on Substack here.