Who is climbing the ladder of global manufacturing?

Productivity growth in American manufacturing stalled after the global financial crisis. Remarkably, output per worker in 2022 was lower than it was in 2010. Meanwhile, unit labor costs have risen by almost sixty percent. In 1988-2010, output per worker grew at 3.64 per cent per annum (%pa), while unit labor costs grew at just 0.13%pa. In 2011-2025 by contrast, output per worker grew at -0.26%pa, but unit labor costs grew at an astounding 3.07%pa.¹ In short, US manufacturing firms are becoming globally uncompetitive. The great sucking sound of the compute boom isn’t helping. By bidding up factors of production across the board, the AI boom is driving up costs in tradables, in a process I have described as the generalized Dutch disease.

At the center of world trade sits global manufacturing. The global competition over these high-value trades is the principal driver of innovation and productivity growth in the world economy. Not unreasonably, everyone and their mother wants a bigger piece of the global manufacturing trade. And everyone wants to climb the value ladder. Countries that are able to outcompete others for a larger share of the global manufacturing trade, and especially the high-skill component, win; others lose. This is a zero-sum game. And a brutal one at that. How could it be any other way?

In what follows, we will document some empirical patterns related to who is winning and losing the global manufacturing trade. The data is from the OECD’s TiVa dataset.