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April & May 2026

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The Mysterious Disappearance of Productivity Growth in US Manufacturing: Was It the China Shock?

Robert Gordon & Kenneth Ryu
American Economic Review Papers and Proceedings vol. 116

Manufacturing was the core of American innovation and growth throughout its history. But since 2010 the manufacturing productivity growth rate has literally been zero , compared to 3.3 percent per annum over the previous quarter-century. We trace the origins of zero productivity growth back to the year 2000 when output stopped growing – manufacturing output was the same in 2023 as in 2000 even though GDP grew between those years by 57%. The US was swamped by imports, disproportionately from China in the 2000-10 decade, and these forced domestic plants to close, destroyed 40% of manufacturing jobs, and squeezed profits. Productivity growth was undermined by falling capacity utilization, lower investment in fixed capital and R&D, and an erosion of innovation. Beyond the import invasion, the paper identifies a set of handicaps ranging from self-inflicted wounds to distortions of investment as firms struggled to respond to government regulations, and a persistent shortage of skilled labor.

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