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I was living in Pittsburgh in my teens and twenties during the collapse of the steel industry and remember how profoundly it impacted Pittsburgh. Some say that due to the large percentage of the population of Allegheny County that were employed in steel manufacturing, the impacts were greater than The Great Depression. I was in my thirties when NAFTA/GATT was passed and from my understanding this also caused the loss of additional US manufacturing jobs.

Many politicians told Americans that they needed to retrain for higher-paying, technology jobs since manufacturing was going where labor prices were cheaper and I remember when Ronald Reagan came to Pittsburgh in 1983 to promote this agenda as well.

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While I'm not an economist, I think the term for this is comparitive advantage, but as an IT professional, I am now seeing tech jobs being off-shored and ironically recently US Steel laid off 100 IT employees in one of their Pittsburgh locations.

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Why is it important for a country to have a strong manufacturing base?

I have read that labor is the store of all value (Labor Theory of Value), and I think it might have something to do with this.

Thanks in advance.

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    $\begingroup$ Here is an old econ thought experiment: if you had a magic wand that could make steel - as much as you want - just by waving it, would you use it? The answer of course is yes, since you get stuff for free. But it would also eliminate the steel industry, so those workers would have to find new jobs. Something similar happened in the 1980s; but instead of a magic wand it was cheap imports from Japan, Korea, Brazil, etc. $\endgroup$
    – Daniel
    Nov 20, 2023 at 0:40
  • $\begingroup$ @Daniel Of course, the alternative would be to carry on paying those steel workers (in aggregate) the amount they are used to since profits from selling the magic steel are still real. In practice, this wouldn't be done directly. Gov transfer payments could be one option while those workers find other work. If those payments could be inflationary, a windfall tax on the steel capital owners could suppress demand to compensate. $\endgroup$ Nov 22, 2023 at 10:37

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I don't think there is one answer to this.

Anything that helps you win a war needs to be produced domestically, because trade will stop during conflict.

  • Hi-tech industries and vehicles are things that can be quickly switched to military uses, so you might include those.

Covid stopped trade flows, so now there is more focus on producing PPE and important medical devices domestically.

Some argue that being close to manufacturing actually helps spur innovation. The ease of experimenting using easy to access parts near the tech manufacturing hub of Shenzhen is an example.

Some argue that it is important to have a well-rounded economy that produces a bit of everything and that helps soften any blows that might come from disrupted trade, trade wars, and shipping problems.

And of course, some argue that you should just focus on comparative advantage and don't worry about anything else.

I think if you believe that globalization will continue and trade flows will become ever more integrated in a peaceful world of cooperation, than their really is no need to have a "strong manufacturing base".

But if you forsee disruptions in trade, strategic competition and turmoil on the horizon, it may be best to diversify domestic economies.

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  • $\begingroup$ Perfect explanation. Thanks and Happy Thanksgiving. $\endgroup$
    – Tikhon
    Nov 21, 2023 at 18:27

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