President-elect Donald Trump has promised to “make America great again,” in part by pursuing policies to boost both our manufacturing and energy sectors.
Fortunately, both of these industries are already on the mend.
It’s true that current manufacturing employment in the U.S. — at 12.3 million — remains below its pre-recession level.
What’s more, since 1980 manufacturing has dropped from 20 percent of total employment to around 9 percent today.
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But the news isn’t all grim.
The number of open manufacturing jobs is at a 15-year high, industrial output is up 20 percent since 2010 and manufacturing’s share of gross domestic product is only slightly below pre-recession levels.
Several factors help explain this rebound.
Labor costs have been rising rapidly in Mexico, China and other export-oriented economies, thereby making U.S. products more competitive.
American companies have also recorded stronger productivity gains than their competitors abroad.
But the most important contributor to America’s industrial renaissance has been cheap and abundant energy, thanks to the “fracking boom” that started nearly a decade ago and has boosted domestic oil and natural gas output by more than 70 percent.
Consequently, the average cost to manufacture goods in the United States is only marginally higher than in China and 10 percent lower than in most European economies.
The revival of our automobile industry is perhaps the most visible beneficiary of cheap diesel and gasoline prices.
Light vehicle sales hit records in 2014 and 2015, and 2016 will be only slightly lower.
Detroit alone has added 90,000 manufacturing jobs since 2009, more than a 30 percent gain.
Energy-intensive manufacturing industries have also benefited from cheap shale gas that is used both for power generation and as a feedstock.
For example, a recent study by the London School of Economics found that overall manufacturing costs for chemicals and primary metals in the U.S. have dropped dramatically thanks to cheap energy inputs, giving both of these industries a significant cost advantage over their international competitors.
They further concluded that average manufacturing exports have expanded by roughly 10 percent due to the shale gas boom.
Cheap oil and gas is attracting both domestic and foreign investment into the refining and petrochemical industries, as evidenced by more than $30 billion of new and ongoing projects along the Houston ship channel.
At the same time, increased use of clean natural gas for power generation is largely responsible for lowering greenhouse gas emissions to the lowest level in 20 years.
The fracking boom has also helped revive many areas of the Rust Belt that had been losing jobs for decades.
Pittsburgh is the administrative and logistical center for the Marcellus and Utica shale plays that now produce more natural gas than the Permian Basin and Eagle Ford in Texas.
Steel mills in West Virginia and Ohio have come back to life manufacturing drill pipe and other fracking hardware.
But despite these success stories, America’s overall factory capacity utilization rate is only 75 percent, suggesting there’s room for more workers if demand increases.
For the past eight years we’ve had an administration focused on redistribution rather than growth.
The best way to assure that America’s manufacturing and energy rebound continues will be for President-elect Trump to pursue pro-growth policies that will induce new investment and boost aggregate demand.
This also means recognizing that increasing exports of manufactured goods and energy commodities is a critical component of a pro-growth agenda.
Bernard L. Weinstein is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University.