As major new tariffs risk sparking a trade war between the U.S. and its closest partners, current policy shifts mark a crucial moment for American manufacturers. It is also an opportune time to revisit our Kenan Insight on manufacturing in America first published in August 2023, now with updated data that point to the sector’s progress over the past year and a half.   

We agree with the consensus among economists that, for domestic manufacturing, tariffs are counterproductive because of modern supply chains’ interdependence. An American-made automobile, for instance, may come off the assembly line in Detroit, yet its components may have crossed the US border more than half a dozen times along the way. So, if we tax those goods at every border crossing, the result will be higher prices and a weaker competitive edge for domestic firms. Tariffs will not change the manufacturing sector’s structural realities, which we lay out and discuss below, meaning that our updated examination of US manufacturing remains as important in 2025 as it was in 2023. Much like the sector itself, our analysis endures.  

Manufacturing Still Matters 

Part of our American Growth Project, this insight examines the United States manufacturing sector as a driver of regional economic health. The US is generally considered a major net importer – a nation that tends to procure many of its goods from abroad – and an economy that runs primarily on high-skilled services. These points are largely true, yet manufacturing remains a fundamental source of agency and income for a substantial share of the nation’s households and microeconomies. 

National and international dynamics have led to structural shifts in the domestic manufacturing sector over the past 80 years, characterized by changes in the types of goods the US produces and the places where they are produced. Before we investigate these trends, we should examine why manufacturing is essential for economic growth, both in economic theory and in practice for the US. 

Why Does Manufacturing Matter? 

Manufacturing has historically been a cornerstone of economic growth and the development of modern civilization. Born at the dawn of the industrial revolution, the U.S. developed from a primarily agrarian economy to manufacturing reliant, as domestic infrastructure, military and consumer demand, and also global trade all rapidly grew through the 20^th century. American manufacturers made lasting contributions to the global sector’s operations (e.g., Henry Ford and his development of the Fordist production model), and the manufacturing sector was integral to building the US middle class. Through the 1960s, industrialization powered the development of entire regions, laid the bedrock for future innovation and fueled economic growth that raised living standards nationwide. 

Manufacturing was a key component that built the modern US economy, yet today the sector accounts for a smaller slice of the nation’s economy than one might think. Even in its heyday in the 1950s, manufacturing was responsible for less than 30% of total US output and a bit more than 30% of employment (see graph below). The sector’s domestic employment share has since declined considerably. Yet, while a smaller share of Americans were working manufacturing jobs, the sector’s output continued to grow and the US remains today the world’s third-largest manufacturing entity (behind only China and the European Union). The economic gains from the US manufacturing sector, however, have lessened dramatically in recent years.¹ After growing at roughly a 4% annual pace in the 50 years ending in 2000, US manufacturing output slowed and has been stagnant over the last 12 years. In fact, US factories are producing 5% less today than they did in 2007, the peak year of output.   

Declining Manufacturing Share

The COVID-19 pandemic highlighted the importance of national manufacturing capacity. The shock that rippled through global supply chains caused mass shortages of critical goods, many of which, including masks and other PPE equipment, were essential to navigate the new biological hazard. Some U.S. manufacturers rapidly switched from normal operations to producing items critical to the pandemic response, such as face shields and test tube racks.² These events demonstrated often overlooked benefits that robust manufacturing infrastructure provides: In the event of a large-scale crisis, manufacturing plants offer flexibility and can help forge the tools needed to deal with new and urgent challenges. 

The pandemic’s supply chain lessons were not lost on American policymakers and business leaders. In 2022, the Biden administration announced its intention to spur domestic manufacturing through a multifaceted initiative that drastically extended the funding and resources available to American manufacturers.³ A year later, the administration announced a workforce initiative that would foster pathways to manufacturing employment and help meet the demand for clean energy technologies and semiconductor chips.⁴ 

Today’s globalized economy has key differences from that of the 20^th century, when, in the postwar era, the United States enjoyed a hegemonic power among Western nations and growing advantages in human and mechanized capital, which allowed it to promote free trade and open capital markets. Since opening trade with China in the 1970s, the US and other countries have become manufacturing powerhouses. Complicated geopolitical factors make international trade a far more complex issue today than in earlier times. While exposure to geopolitical risks may incentivize firms to bring production closer to home⁵, some policies may impose barriers to trade and threaten US manufacturers’ ability to access international markets. Meanwhile, new technologies, including applications of artificial intelligence, promise to reshape manufacturing processes. These changes will likely have mixed effects for the labor market, as jobs traditionally performed by humans are transformed or become fully automated.

A Regional Breakdown of US Manufacturing 

Some regions in the US are far more dependent on the manufacturing sector than others. Manufacturing is the primary source of jobs in more than 500 US counties, according to a 2022 McKinsey report.⁶ Other areas of the country devote only a small fraction of their economies to the production of goods, specializing instead in sectors like hospitality, finance, technology and professional services. This variance holds true as we look at larger geographic regions. While the Rust Belt was the heart of industrial manufacturing for most of the 20th century, the southern United States has increasingly gained share. Beginning in the 1980s and 1990s, manufacturing centers moved to southern states such as Tennessee and South Carolina, where labor was cheaper and subsidies were higher.⁷  

Building upon the Extended Metropolitan Area (EMA) framework we developed for the American Growth Project, we have created a unique database of manufacturing activity in the 150 most populous EMAs in the country. Our dataset covers 2001 through 2023, as that is the most recent year for which we can collect all the data components.⁸ In total, these EMAs represent roughly 85% of all the manufacturing activity in the United States and 79% of manufacturing employment, which indicates that manufacturing accounts for a larger share of the rural economy.⁹ The largest microeconomies’ manufacturing dependence range from Amarillo, TX, and Evansville, IN, where around 40% of the economy is engaged in manufacturing activities, to Anchorage, AK (not shown on the map below), which has less than 1%.¹⁰ Of the 50 largest EMAs, Grand Rapids, MI, is first with 23%, followed by Indianapolis with 20%. Meanwhile, only 3% of Las Vegas’ fortunes rely on factories. 

EMA Manufacturing Share in 2013 and 2023

The dark blue areas in the map above, which indicate heavy concentrations of manufacturing, illustrate not only the regional shifts but also the stickiness of manufacturing activity – or at least how areas of concentration continued between 2013 and 2023. The Upper Midwest remains a manufacturing powerhouse. Detroit’s manufacturing economy is actually 22% larger than it was 20 years ago, though it has had a tumultuous 20 years – it shrank by almost 50% during the Great Recession of 2007-08 and has had slower growth than other EMAs in the years since. The recovery of Detroit’s manufacturing sector can be attributed, at least in part, to a pivot: While the EMA is still dependent on the auto sector, Detroit’s economy has made gains in other areas, such as clean energy. 

‘Auto Alley’ and Other Notable Growth Areas 

The fate of Detroit debunked the adage that what is good for General Motors is good for America. The automotive industry, however, remains an essential economic engine for many communities. Many of the areas in dark blue from the Upper Midwest to western parts of the southeastern US are colloquially known as “Auto Alley,” a name that reflects the preponderance of parts and vehicle manufacturers in this region. The BMW plant in Spartanburg, SC (part of the Greenville, SC, EMA), for instance, is the largest BMW plant in the world and America’s largest automotive exporter by value, exporting BMW SUVs to more than 100 countries, including Germany.¹¹ In this example we see that the globalized auto industry, and not merely companies headquartered in the US, form the economic bedrock for many American communities. 

Looking at which manufacturing microeconomies grew fastest in 2023, we see regional trends, with manufacturing’s GDP share increasing in some swaths of the country and decreasing in others. Many areas that show big manufacturing gains in 2023 are home to petrochemical manufacturers as well as industries that support the US military and aerospace. Yet one-year growth in manufacturing share does not always align with 10-year trends, an indication of manufacturing’s cyclical nature. 

Near- and Long-Term EMA Manufacturing Growth

Recent migration to America’s South and West has both driven and followed new manufacturing centers in these regions. Toggling to the 10-year growth rate in the map above shows the manufacturing gains in these areas. On a 10-year outlook, all of Florida’s EMAs are significant outperformers, though in most cases their manufacturing footprint is quite small. The exception is the Palm Bay EMA (also known as the Space Coast), which has 17% of its economy engaged in manufacturing. Tucson, AZ, stands out for its nearly 8% annualized growth in manufacturing over the last 10 years, ranking it second to Palm Bay in this metric. Home to growing aerospace and defense equipment manufacturers, Tucson’s manufacturing share has grown from less than 10% of its economy to almost 15%, rocketing it up the rankings from 100^th in 2013 to 44^th in 2023. Meanwhile, Beaumont, TX, has had among the toughest stretches, experiencing a drop of more than 5 percentage points in manufacturing share over the 10 years ending in 2023. Subject to the vicissitudes of oil refining, Beaumont’s one-year manufacturing growth rate is greater than 10%, ranking it in the top 10 in our sample of 150 EMAs. These erratic fluctuations stem from an overreliance on a single industry – and energy is especially erratic – making it difficult for an EMA and its residents to sustain long-term growth. 

Manufacturing’s Place in the US Economy 

Manufacturing holds a special place in the American narrative, reinforcing the image of a rugged and self-reliant nation. Our data show that the reality is more complex and varied than this simple story. Even at its peak, manufacturing was only one driver – albeit an important one – of American expansion, constituting roughly one-third of economic activity. Manufacturing is especially important in some parts of the country, such as Auto Alley, but other areas have prospered with small portions of their economies devoted to manufacturing. Our data collection and analysis allows us to monitor how reshoring efforts resulting from COVID-19, protectionist policies, and other policy pushes are all affecting manufacturing in America’s microeconomies.  

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