"And on top of all that, the U.S. has de-industrialized to a significant degree. Our domestic auto production has been declining in terms of absolute number of vehicles for decades, . . ."
You should do a deep dive into U.S. ship building capacity next. I wonder if the same causes has led to that decline as well.
I love these US-centric economy posts. I'd love more articles on what the US actually makes, our strengths/weaknesses as an economy. Clearly the US creates a lot of value, but what exactly?
50/50 I think there are huge benefits to US style financialization, it's much easier to run a startup and more importantly scale companies in the US. I think it's really difficult to claim European financial markets are more stable than in the US at the moment, which is the main comparison class. The other half is increasingly opaque ways to get poor people into payday loan style debt traps
My first offer out of grad school 40+ years ago was as a research metallurgist at Republic Steel. I figured the industry was in trouble and went into microelectronics. Good call. I think the thesis is right here. Not enough industrial production. Some of that can be attributed to labor costs, but with increasing automation that is less significant. More can probably be attributed to pollution and environmental controls and associated regulatory oversight which make production in the US more expensive and slower to scale.
I didn’t see any mention of carbon emissions and the fact that the basic-oxygen process uses and emits less carbon than open hearth production , so he surprisingly didn’t go into climate impacts of steel production at all.
Actually, they did, although it wasn't the focus it is today. The acknowledgement of global warming derailed Reagan's plans to vastly increase coal production, and addressing global warming was one of the planks in George W. Bush's campaign.
Unfortunately, after he was elected, he turned it over to Sununu, who backed out of the international agreement, and the oil companies saw their opportunity to launch the multi-decade denial/conspiracy to dead-end any action.
Noting that the decline in US steel production began in the 1970's - '80's, correlated with the decline of large infrastructure projects as well, brings me to wonder if the rise of neo-liberal politics played a part in curtailing federal investments in said projects; what with the neo-liberal penchant to choke government spending.
This was a point I wanted to make to Noah, who seems to have a NIMBY hobbyhorse. Yes, NIMBYism is a factor, and he's documented it in numerous ways, but when government spending is curtailed, infrastructure is the first to get cut- it's diffuse, expensive, and the consequences of ignoring it are sometime in the future. And if you want to pay for it, you have to raise taxes. There's a reason that in spite of Trump's campaign and constant presidential announcements, Republicans never even tried to generate an infrastructure bill.
"Neo-liberalism" is actually a conservative doctrine which became mainstream with Reagan, and has been influential since under the administrations of both parties. driving deregulation of financial industries and globalization in manufacturing. It exaggerates market power, minimizes corporate social responsibility, and - to over-oversimplify - assumes American workers will be willing to trade American jobs for cheaper imported goods (of course, they didn't ask the workers).
*Neo*liberals are not the same as liberals. Two different beasts with the former using the shell of the latter much like as a hermit crab uses the shells of the previous *dead* occupants.
A minor addition. In the early 90s, GM, Ford and Chrysler increased production in Mexico and Canada. Haven't looked up the data, but NAFTA makes sense here.
The big 3 work yearly bid contracts for commodities like steel and those would also cover the export of steel to make vehicles. Which are reimported as high value add to the steel.
Also, US OEM vehicle share decreased. Steel body panels got lighter. Only heavy duty pickups (I think) use the strong steel heavy I-beam chassis. Most all vehicles are monocoque shells. CAE go vastly more sophisticated and pervasive in the 90s. Crash worthiness Science advanced and multifaceted safety systems allowed weight reduction.
It’s also interesting that 90% of our steel exports are to Canada and Mexico and the US is the world’s largest steel importer, mostly from Canada but also from Mexico. It seems the exports and imports are mostly driven by logistics and not price, but tariffs and quotas distort the market, as is their wont.
Also, we and they make slightly different steel parts...This is the Krugman model of trade, where the need for variety means that rich countries export similar things back and forth to each other! :-)
One personal history story on Volcker, automotive sales and interest rates. In 1982, my wife and I saw that Cozumel was cloudy and diving was off. So, typically me. We drove to the Cozumel airport with a few days clothes and booked right then to Merida. No hotel reservation. We went to the nice onenin the Square but we're told no room. My lovely bride asks in semi decent Spanish, sir, can you please recommend a hotel as nice as this one? Moments later... we had a room!
We arranged a smal VW bus trip from Merida to Chichen Itza. The other couple was delightful. As we got to know each other, I asked the gentleman when and how he thought Car sales (really in the dumps in1982) would recover. He said, when consumers see low borrowing rates. Apparently this occurred to GM and Ford. So they implemented low interest car loans. Far far below bank rates for car loans. Safe asset security. Rates got super low. Car sales climbed and boomed. The gentleman had a PhD in econometrics from Columbia.
Another interesting factor in declining industries is the perception issue - where the perception that the action is in other 'new and upcoming' industries causes the 'best and brightest' to move into those areas as students, researchers, and developers. To some degree, this becomes a self-fulfilling prophesy. I saw this issue considered decades ago, as the researcher looked at the switch of dynamism from coal to oil.
Nice article..... grew up in Pittsburgh....it is hard to imagine Pittsburgh without USS. Of course, the economy is now dominated by medical and high-tech.
I wish I had asked my late uncle about life in the steel mills.
After he emigrated from Hungary, he ended up in Canada and by the time he became a citizen settled in Hamilton. It's about an hour's drive down the lake from Toronto, with Buffalo and Niagara Falls being about an hour to the east. Hamilton is the Pittsburgh of Canada, and their death and rebirth follows a similar arc.
My uncle got to see the long decline of steel; at one point, nearly 1 in 3 adult jobs were in steel or their subcontractors. He was able to survive the job cuts until he retired in the mid-1990s. The steel industry contracted and consolidated, but like Pittsburgh, higher education saved it. McMaster University in regarded as a "Canadian Ivy" -- though it's got a rather large student body. It's highly regarded in medicine and STEM. It's also grown its footprint beyond the campus, like the innovation hub on the edge of downtown.
Well Andrew Carnegie left his biggest legacy as all the libraries and museums he built, as well as CMU which now benefits Pittsburgh more than US Steel.
Minor nitpick: car production in the US hasn't been declining, it's been closer to steady/trending slightly up long term (with lots of ups and downs on a shorter term basis). Not sure where that BEA data is from but per its numbers the US produces less than 2 million cars per year, which is obviously wrong (it may only be tracking a subset or something - maybe it doesn't include SUVs, or doesn't include foreign models assembled here). See here https://tradingeconomics.com/united-states/car-production and here https://afdc.energy.gov/data/10314
Regarding the list of industries we should be expanding, it strikes me as perhaps too long. If everything is a priority, nothing is a priority. What should we really focus on? Construction, infrastructure, and energy seem like obvious winners - we can't really import that stuff anyway. I'm less sure about sectors like machine tools. Is it important for us to have a big machine tools industry, and why, compared to all the other things we could be focusing on, like defense, ship building, auto, etc.?
Your point of prioritization is valid, but I wonder about machine tools. This covers everything from earthmovers to robotics, and I think at least some of those categories are significant to national security, as well as being a critical basis for future manufacturing.
One more thing we should do is close the US fiscal deficit. It slows growth but it also skews growth to services and away from traded goods by overvaluing the dollar.
Noah, your overall point here is well-taken and useful. I see a big problem with the consumption vs. domestic production thing though.
You say "the U.S. has switched from a modest steelmaking surplus to a modest deficit, but even if we had retained the surplus we had in the 1960s, our total steel production would likely be flat."
I suppose that's true for some values of "modest" but it sort of just waves away the entire difference...after all, production *hasn't* been flat, it's been falling. Your chart shows today's consumption almost exactly the same as it was in 1962, at around 80M tons. But production in 1962 was around 110M, vs only 70M in 2019. So production fell over 35% during that period while consumption did not change at all.
You say production decreasing is explained by consumption decreasing. But consumption didn't decrease. The change from a "modest surplus to a modest deficit" is in fact the *entirety* of the change in production.
If you go to NYC you'll be walking under scaffolding on every sidewalk from uptown to downtown. Looking from above, the cranes are working feverishly, and you wonder what is being built. Well, nothing is being built, all of these scaffolds are there to protect your head from falling bricks and mortar, and the cranes moving across skyscrapers are there for repairs. So, I wondered why U.S. Steel was being allowed to sell since I thought it was a national security issue. But, reading Noah's opinion, seems to hold true. The U.S. is de-industrializing and it is a struggle to find products made in America. The sale of U.S. Steel may not be as significant in the scheme of things, but it is concerning that one of our oldest and (I thought) well established companies will now be owned by another country. In 2024 the 10 biggest trends in manufacturing are related to AI, 5G and edge computing, predictive maintenance, and other digital models according to Forbes. Me, I'll miss buying products that say "Made in the USA".
1. Nothing is being built in NYC. Yeah ok, not like there are stats available for that or anything. Here in the real world, plenty of new construction is happening in NYC, including new skyscrapers.
2. US Steel selling to Japan is not realistically a national security issue in any way, and everybody knows that. It's why politicians like Fetterman are making populist kabuki instead of demanding Biden actually shut the sale down on natsec grounds, which he could totally do if that was a real issue.
3. The US is not de-industrializing in absolute terms. Industrial production is shrinking *as a share of the economy* because other sectors are growing faster. But actual manufacturing output is at all-time historical highs.
4. The sale of US Steel is not concerning, nor is it one of our oldest companies, nor will it now "be owned by another country" inasmuch as Nippon Steel is not a state enterprise.
5. Maybe you missed the chart above that shows 75% of steel used in the US is domestically produced.
6. Feel free to miss "made in the USA" products, but the smart play is to accept the massive raise in real income we get from inexpensive imports while we get rich exporting tradable services with huge margins. Equating physical-goods exports with national wealth and/or prestige is a huge mistake. The fact China is poor is the *reason* they export so much stuff.
Dunno if they still do, but iPhones used to say "Designed in California, Assembled in China" ...which of those two activities would you rather have in your country?
**Love** this post, send this kind of post generally! I wonder, have any other countries successfully reindustrialized, even if only in limited niches? With current US level of functionality I don't feel optimistic, but maybe that's tecnica bias. Or maybe deindustrialization in general is too new a phenomenon?
"I am not going to screenshot this report because its charts are really badly formatted." Jeez, enough with the euro bashing, Noah. The Excel graph from USGS doesn't look much better.
"And on top of all that, the U.S. has de-industrialized to a significant degree. Our domestic auto production has been declining in terms of absolute number of vehicles for decades, . . ."
You should do a deep dive into U.S. ship building capacity next. I wonder if the same causes has led to that decline as well.
See https://www.businessinsider.com/us-navy-chinas-shipbuilding-capacity-200-times-greater-than-us-2023-9
Hehe. You have anticipated the next post in this series.
And the shipbuilding post may in fact be a joint post with another blogger who loves doing these deep dives... ;-)
A Noah Smith and Matt Yglesias post? I’m looking forward to it! 😊
Not Matt...
Zvi.
Not Zvi...
Potter?
:D :D :D
Yglesias is an accomplished snorkeler, Noah seems better at deep dives. Glad I subscribed.
With a focus on the Jones Act, OddLots has had some great episodes on that
I love these US-centric economy posts. I'd love more articles on what the US actually makes, our strengths/weaknesses as an economy. Clearly the US creates a lot of value, but what exactly?
Services. Also, financial engineering has been up sharply the last few decades.
To what extent though is "financial engineering" just a euphemism for gambling and swindling?
50/50 I think there are huge benefits to US style financialization, it's much easier to run a startup and more importantly scale companies in the US. I think it's really difficult to claim European financial markets are more stable than in the US at the moment, which is the main comparison class. The other half is increasingly opaque ways to get poor people into payday loan style debt traps
And software, the flagships of US industry really are google, apple, and amazon
Yup. Financial services top, other services second. https://www.statista.com/statistics/247991/value-added-to-the-us-gdp-by-industry/
My first offer out of grad school 40+ years ago was as a research metallurgist at Republic Steel. I figured the industry was in trouble and went into microelectronics. Good call. I think the thesis is right here. Not enough industrial production. Some of that can be attributed to labor costs, but with increasing automation that is less significant. More can probably be attributed to pollution and environmental controls and associated regulatory oversight which make production in the US more expensive and slower to scale.
I think if your last sentence were true, Noah would've brought it up in his post.
I didn’t see any mention of carbon emissions and the fact that the basic-oxygen process uses and emits less carbon than open hearth production , so he surprisingly didn’t go into climate impacts of steel production at all.
Well that's true, but I don't think people cared about emissions in the 80s.
Actually, they did, although it wasn't the focus it is today. The acknowledgement of global warming derailed Reagan's plans to vastly increase coal production, and addressing global warming was one of the planks in George W. Bush's campaign.
Unfortunately, after he was elected, he turned it over to Sununu, who backed out of the international agreement, and the oil companies saw their opportunity to launch the multi-decade denial/conspiracy to dead-end any action.
Noting that the decline in US steel production began in the 1970's - '80's, correlated with the decline of large infrastructure projects as well, brings me to wonder if the rise of neo-liberal politics played a part in curtailing federal investments in said projects; what with the neo-liberal penchant to choke government spending.
This was a point I wanted to make to Noah, who seems to have a NIMBY hobbyhorse. Yes, NIMBYism is a factor, and he's documented it in numerous ways, but when government spending is curtailed, infrastructure is the first to get cut- it's diffuse, expensive, and the consequences of ignoring it are sometime in the future. And if you want to pay for it, you have to raise taxes. There's a reason that in spite of Trump's campaign and constant presidential announcements, Republicans never even tried to generate an infrastructure bill.
Ah yes, those liberals, famously averse to government spending. Wait, what?
"Neo-liberalism" is actually a conservative doctrine which became mainstream with Reagan, and has been influential since under the administrations of both parties. driving deregulation of financial industries and globalization in manufacturing. It exaggerates market power, minimizes corporate social responsibility, and - to over-oversimplify - assumes American workers will be willing to trade American jobs for cheaper imported goods (of course, they didn't ask the workers).
*Neo*liberals are not the same as liberals. Two different beasts with the former using the shell of the latter much like as a hermit crab uses the shells of the previous *dead* occupants.
Great observations Noah.
A minor addition. In the early 90s, GM, Ford and Chrysler increased production in Mexico and Canada. Haven't looked up the data, but NAFTA makes sense here.
The big 3 work yearly bid contracts for commodities like steel and those would also cover the export of steel to make vehicles. Which are reimported as high value add to the steel.
Also, US OEM vehicle share decreased. Steel body panels got lighter. Only heavy duty pickups (I think) use the strong steel heavy I-beam chassis. Most all vehicles are monocoque shells. CAE go vastly more sophisticated and pervasive in the 90s. Crash worthiness Science advanced and multifaceted safety systems allowed weight reduction.
There's still about two dozen large SUV models that use body on frame instead of unibody.
https://carbuzz.com/cars/body-on-frame-suvs
It’s also interesting that 90% of our steel exports are to Canada and Mexico and the US is the world’s largest steel importer, mostly from Canada but also from Mexico. It seems the exports and imports are mostly driven by logistics and not price, but tariffs and quotas distort the market, as is their wont.
Also, we and they make slightly different steel parts...This is the Krugman model of trade, where the need for variety means that rich countries export similar things back and forth to each other! :-)
https://en.wikipedia.org/wiki/New_trade_theory
Thanks!
One personal history story on Volcker, automotive sales and interest rates. In 1982, my wife and I saw that Cozumel was cloudy and diving was off. So, typically me. We drove to the Cozumel airport with a few days clothes and booked right then to Merida. No hotel reservation. We went to the nice onenin the Square but we're told no room. My lovely bride asks in semi decent Spanish, sir, can you please recommend a hotel as nice as this one? Moments later... we had a room!
We arranged a smal VW bus trip from Merida to Chichen Itza. The other couple was delightful. As we got to know each other, I asked the gentleman when and how he thought Car sales (really in the dumps in1982) would recover. He said, when consumers see low borrowing rates. Apparently this occurred to GM and Ford. So they implemented low interest car loans. Far far below bank rates for car loans. Safe asset security. Rates got super low. Car sales climbed and boomed. The gentleman had a PhD in econometrics from Columbia.
https://acrobat.adobe.com/id/urn:aaid:sc:VA6C2:03d7defd-20e7-43a3-b504-204f4ae25bfd
Garry Schinasi. Was on Volkers staff.
Life's little intersections. Says... travel and meet interesting people!
Similar to crude oil, where refiners need heavier oil than Texas produces.
I agree
Another interesting factor in declining industries is the perception issue - where the perception that the action is in other 'new and upcoming' industries causes the 'best and brightest' to move into those areas as students, researchers, and developers. To some degree, this becomes a self-fulfilling prophesy. I saw this issue considered decades ago, as the researcher looked at the switch of dynamism from coal to oil.
Nice article..... grew up in Pittsburgh....it is hard to imagine Pittsburgh without USS. Of course, the economy is now dominated by medical and high-tech.
I wish I had asked my late uncle about life in the steel mills.
After he emigrated from Hungary, he ended up in Canada and by the time he became a citizen settled in Hamilton. It's about an hour's drive down the lake from Toronto, with Buffalo and Niagara Falls being about an hour to the east. Hamilton is the Pittsburgh of Canada, and their death and rebirth follows a similar arc.
My uncle got to see the long decline of steel; at one point, nearly 1 in 3 adult jobs were in steel or their subcontractors. He was able to survive the job cuts until he retired in the mid-1990s. The steel industry contracted and consolidated, but like Pittsburgh, higher education saved it. McMaster University in regarded as a "Canadian Ivy" -- though it's got a rather large student body. It's highly regarded in medicine and STEM. It's also grown its footprint beyond the campus, like the innovation hub on the edge of downtown.
Well Andrew Carnegie left his biggest legacy as all the libraries and museums he built, as well as CMU which now benefits Pittsburgh more than US Steel.
Interesting read. Now please write an article about the downfall of Swedish Steel Aktiebolag in 1750.
Minor nitpick: car production in the US hasn't been declining, it's been closer to steady/trending slightly up long term (with lots of ups and downs on a shorter term basis). Not sure where that BEA data is from but per its numbers the US produces less than 2 million cars per year, which is obviously wrong (it may only be tracking a subset or something - maybe it doesn't include SUVs, or doesn't include foreign models assembled here). See here https://tradingeconomics.com/united-states/car-production and here https://afdc.energy.gov/data/10314
Excellent analysis!
Regarding the list of industries we should be expanding, it strikes me as perhaps too long. If everything is a priority, nothing is a priority. What should we really focus on? Construction, infrastructure, and energy seem like obvious winners - we can't really import that stuff anyway. I'm less sure about sectors like machine tools. Is it important for us to have a big machine tools industry, and why, compared to all the other things we could be focusing on, like defense, ship building, auto, etc.?
Your point of prioritization is valid, but I wonder about machine tools. This covers everything from earthmovers to robotics, and I think at least some of those categories are significant to national security, as well as being a critical basis for future manufacturing.
One more thing we should do is close the US fiscal deficit. It slows growth but it also skews growth to services and away from traded goods by overvaluing the dollar.
Does the US fiscal deficit really drive the trade deficit, or (as Michael Pettis would suggest) is the causation the other way around?
Noah, your overall point here is well-taken and useful. I see a big problem with the consumption vs. domestic production thing though.
You say "the U.S. has switched from a modest steelmaking surplus to a modest deficit, but even if we had retained the surplus we had in the 1960s, our total steel production would likely be flat."
I suppose that's true for some values of "modest" but it sort of just waves away the entire difference...after all, production *hasn't* been flat, it's been falling. Your chart shows today's consumption almost exactly the same as it was in 1962, at around 80M tons. But production in 1962 was around 110M, vs only 70M in 2019. So production fell over 35% during that period while consumption did not change at all.
You say production decreasing is explained by consumption decreasing. But consumption didn't decrease. The change from a "modest surplus to a modest deficit" is in fact the *entirety* of the change in production.
If you go to NYC you'll be walking under scaffolding on every sidewalk from uptown to downtown. Looking from above, the cranes are working feverishly, and you wonder what is being built. Well, nothing is being built, all of these scaffolds are there to protect your head from falling bricks and mortar, and the cranes moving across skyscrapers are there for repairs. So, I wondered why U.S. Steel was being allowed to sell since I thought it was a national security issue. But, reading Noah's opinion, seems to hold true. The U.S. is de-industrializing and it is a struggle to find products made in America. The sale of U.S. Steel may not be as significant in the scheme of things, but it is concerning that one of our oldest and (I thought) well established companies will now be owned by another country. In 2024 the 10 biggest trends in manufacturing are related to AI, 5G and edge computing, predictive maintenance, and other digital models according to Forbes. Me, I'll miss buying products that say "Made in the USA".
Just about everything you said is wrong:
1. Nothing is being built in NYC. Yeah ok, not like there are stats available for that or anything. Here in the real world, plenty of new construction is happening in NYC, including new skyscrapers.
2. US Steel selling to Japan is not realistically a national security issue in any way, and everybody knows that. It's why politicians like Fetterman are making populist kabuki instead of demanding Biden actually shut the sale down on natsec grounds, which he could totally do if that was a real issue.
3. The US is not de-industrializing in absolute terms. Industrial production is shrinking *as a share of the economy* because other sectors are growing faster. But actual manufacturing output is at all-time historical highs.
4. The sale of US Steel is not concerning, nor is it one of our oldest companies, nor will it now "be owned by another country" inasmuch as Nippon Steel is not a state enterprise.
5. Maybe you missed the chart above that shows 75% of steel used in the US is domestically produced.
6. Feel free to miss "made in the USA" products, but the smart play is to accept the massive raise in real income we get from inexpensive imports while we get rich exporting tradable services with huge margins. Equating physical-goods exports with national wealth and/or prestige is a huge mistake. The fact China is poor is the *reason* they export so much stuff.
Dunno if they still do, but iPhones used to say "Designed in California, Assembled in China" ...which of those two activities would you rather have in your country?
This is interesting to read back to back with your note on the Solow model, instead of investing in K its investing in A?
**Love** this post, send this kind of post generally! I wonder, have any other countries successfully reindustrialized, even if only in limited niches? With current US level of functionality I don't feel optimistic, but maybe that's tecnica bias. Or maybe deindustrialization in general is too new a phenomenon?
Recency bias
"I am not going to screenshot this report because its charts are really badly formatted." Jeez, enough with the euro bashing, Noah. The Excel graph from USGS doesn't look much better.