Competitiveness Strategy

Annual Report on the U.S. Manufacturing Economy

Back to Manufacturing Competitiveness Dashboard

Lead Researcher: Douglas S. Thomas

Strategies for Advancing U.S. Manufacturing Competitiveness

Credit: Pixabay (Photo)

From the data presented in previous sections along with observations in other publications, there are a number of potential means for advancing U.S. competitiveness in NIST AMS 100-86. Note that strategic and/or supportive tax policies, subsidies, and monetary policies are important and are widely debated in other venues; however, the specifics of these issues are beyond the scope of this discussion. The focus of the discussion below is in regard to facilitating competitive cost, quality, and other characteristics of manufactured products combined with communicating those characteristics to potential users or customers. These strategies are identified as those that are likely to facilitate creating increasingly greater advancements in U.S. manufacturing competitiveness per unit of investment.

Manufacturing competitiveness is the result of an ecosystem that includes the cost, quality, and quantity of labor and capital; supply chains; infrastructure; resilience; research and development; and product differentiation and performance. The characteristics of these factors, and their interactions, can create either opportunities to improve competitiveness or constraints that limit it. The previous chapters describe many of these factors. This chapter considers methods for determining which opportunities warrant attention and how the effects of such efforts can be evaluated. The strategy can be conceptualized as the following:

• Target where intervention can have high returns
  • Industries 
  • Costs 
  • Supply-Chain Risks
  • Ecosystem Constraints 
  • Information Gaps on Products 
• Accelerate the realization of benefits
  • Adoption and Diffusion 
• Learn to make progressively better investment decisions
  • System of continuous improvement 
• Protect competitive advantages and value signals
  • Maintain existing advantages and indicators of value 

TARGET Competitiveness Investments

Strategically Target Industries: Resources such as labor, capital, and research capacity for advancing U.S. manufacturing competitiveness are limited. Advancing competitiveness for a selection of industries rather than all industries can avoid overextension or dispersing of resources across many initiatives and losing the focus needed for competitiveness. Sectors that are either critical to the nation or result in higher incomes/profits provide an opportunity for magnifying returns for competitiveness investments. These industries might include those that are the following: products critical to national and/or economic security; products where there is great value resulting from differentiation (e.g., product quality); and critical supply chain items for the previous two categories. These industries might include those where the U.S. already has strategic advantage, such as in pharmaceuticals, computers, chemicals and chemical products, and motor vehicles, as the U.S. is already a major global producer (see Figure 2.8). These industries are complemented with the U.S. having high levels of knowledge and technology outputs (see Table 5.1), scientific infrastructure, and technology infrastructure (see Figure 5.8) along with high levels of R&D (Figure 5.2) and it ranks reasonably in terms of researchers (see Figure 5.5). These industries also produce products where quality is important, making the U.S. ranking as a brand important (see Table 5.2).

Strategically Target Manufacturing Costs, Losses, and Quality: Manufacturing competitiveness investments can potentially generate greater returns when they are directed toward the costs, losses, or quality aspects that matter most across the manufacturing system, as discussed in the framework presented in NIST AMS 100-80 (Thomas 2026). NIST research finds that manufacturing costs are highly concentrated. For instance, in assembly-centric manufacturing, the distribution of value added has a Gini coefficient of 0.75, while compensation has a Gini coefficient of 0.86, indicating that a relatively small number of activities account for a disproportionate share of resource consumption (Thomas and Kandaswamy 2019). This concentration is also evident in investment returns. Analysis of Department of Energy Industry Assessment Center data finds that 20 percent of investment categories account for 82 percent of net present value, while 20 percent of cumulative investment costs account for 74 percent of net present value (Thomas 2022). These findings suggest that change agents can use manufacturer data to identify persistent, high-value cost areas and then target research, standards, technologies, and diffusion toward those areas to achieve higher levels of impact per research dollar. Likewise quality frequently translates into reducing costs or losses for customers. For instance, a car that lasts longer means a customer does not have to buy as many cars in their lifetime. These cost savings also likely are distributed such that 20 % of the improvements account for approximately 80 % of the savings. Focusing on the high return investments can increase quality improvement per dollar of research and development.

Strategically Strengthen Supply Chain Resilience: Supply chain disruption can result in substantial costs and make otherwise competitive industries vulnerable. The appropriate response is to identify supply-chain exposures for which the expected cost of disruption justifies mitigation. Such mitigation may include supplier diversification, substitution, inventory, domestic capacity, or other measures that reduce the likelihood or consequences from disruption.

The degree of exposure varies substantially across industries. Industries that rely more heavily on imported intermediate goods and services may face greater exposure to international disruptions (see Table 3.5). For example, the motor vehicle industry imports 17.9% of its intermediate inputs. However, import dependence alone does not establish supply-chain risk; the number and geographic distribution of suppliers, substitutability of inputs, inventories, transportation requirements, and other characteristics also affect vulnerability. Consequently, there is a need to improve the measurement and understanding of industry-level supply-chain risk so that mitigation resources can be directed toward the exposures where they are likely to generate the greatest return.

Strengthen the Manufacturing Ecosystem: Competitiveness is not determined solely by the machinery and staff within the four walls of a manufacturing facility. Establishments compete with their supply chains, their country’s transportation infrastructure, the education of their employees, and their country’s R&D infrastructure among other things. Indicators suggest that the U.S. lags behind in some of these items, such as education (see Table 5.1 and Figure 5.8) and infrastructure (see Table 5.1) while having elevated levels of uncertainty (Figure 5.12), which affects competitiveness. Additionally, previous versions of this report have identified a shortage of labor as a challenge for many manufacturers. The types of indicators provided in this report can identify those areas that should be investigated for further development. Ensuring a high performing ecosystem can enable a more competitive industry.

Develop Standards that Reward Quality and Performance: The Anholt-Ipsos National Brands Index ranking (see Table 5.2) ranks the U.S. as 14th down from 7th in regards to the U.S. as a brand. The historically high ranking of the U.S. supports the idea that manufacturers in the U.S. tend to compete based on differentiation rather than cost competition. This is further illustrated in a survey of U.S. contract manufacturers on reshoring where 61 % of respondents indicated that customers order from them instead of offshoring due to quality/rework/warranty (Moser and Anemogiannis 2025). One challenge for differentiators is that customers can struggle to see the difference in quality/performance between two products. One product may appear nearly identical to another but have vastly inferior performance.

There is a need for standards, technologies, methods, tools, and/or guides that both advance the quality/performance of products and those that facilitate differentiating products. Standards that improve products and allow customers (e.g., consumers or firms that purchase finished or intermediate goods) to differentiate products by their characteristics (e.g., product longevity, repairability, or energy consumption) are likely to advance U.S. competitiveness over those that are cost competitors. This might include standards that differentiate products for consumers or those for manufacturers selecting suppliers of intermediate products. These types of standards will aid customers in making their own forecasts and to select the cost/quality combination that fits their purpose. Without standards that convey quality/performance, costumers are likely to more frequently default to choosing lower cost items due to the uncertainty in the returns for investing in higher quality/performance products. Some successful examples of this include UL safety markings, Energy Star, and third-party reviews.
 

ACCELERATE Adoption and Diffusion of High-Return Technologies and Practices

Impact is only realized after innovations are adopted. When adoption is slow, impact is delayed or may never be realized. Explicit attention to adoption and diffusion can accelerate both the impact and the next generation of innovations. Adoption can be diminished even when a technology or innovation has been shown to be highly impactful and cost effective. Manufacturers may lack the information about the innovation, the expected returns, or may lack the conditions for adopting it. These barriers can apply particularly to small- and medium-sized manufacturers who often support larger manufacturing operations (i.e., the supply chain). Adoption and diffusion can be accelerated by sharing information, demonstrating cost effectiveness, and providing information that enables adoption. As adoption expands, information about actual costs, benefits, and implementation challenges can also become available to inform subsequent adopters and improve the development of future innovations.

LEARN Through a System of Continuous Improvement for Investments in Competitiveness

Credit: Pexels and Pixabay

Every investment includes a forecast, as a decision to invest assumes that benefits will exceed costs. These forecasts have some level of accuracy and that accuracy can be increased. Suboptimal forecasts lead to suboptimal investments and suboptimal competitiveness. Currently, there is limited research in advancing forecast accuracy of change agent predictions in U.S. manufacturing competitiveness, suggesting there is a substantial opportunity to increase competitiveness via project selection and design. Change agents (e.g., public R&D organizations, trade organizations, or universities) can potentially increase the return on their investments by moving from intuition-based project selection/design toward systematic measurement and continuous learning.

If a prediction cannot subsequently be tested, policymakers have little ability to learn whether their decision process works. NIST AMS 100-80 proposes treating each R&D investment as an experiment: identify an opportunity, establish an ex-ante hypothesis about its expected economic impact, measure the realized impact, and use the difference between predicted and actual results to improve subsequent investment decisions. This is similar to that of the Organizational Intelligence category of the Baldrige Excellence Framework in that it proposes a learning system to improve performance (Baldrige Performance Excellence Program, 2026; Baldrige Performance Excellence Program, 2023). It is also consistent with established practices in agricultural R&D, where ex-ante impact assessments have been used to inform research priorities and ex-post assessments have subsequently provided evidence for refining assumptions and informing future investment decisions (Bantilan et al. 2013; Pearson et al. 2012).

The estimates of realized impact can be used to better understand the project designs or common components that result in impact (e.g., methods for disseminating research findings, industries targeted, and company types that adopt). This approach can help shift resources toward project designs that have the greatest potential impact by identifying which combinations of R&D, standards, dissemination, adoption, and other activities produce the highest returns. Shared data, standardized methods, and common platforms can allow organizations to learn across projects over time. The result is a system of continuous improvement where each investment not only generates an economic benefit but also produces information that improves the effectiveness of future investments, increasing impact per dollar over time.
 

PROTECT Competitive Advantages and Value Signals

Differentiation is not only about the quality and performance of a product, it also often about the reputations of the producer, the origin of the product, and capabilities of suppliers. Although the U.S. is a differentiator, its ranking as a brand slipped from 7th to 14th (see Table 5.2). Additionally, factors that affect U.S. products, such as prices and basic infrastructure, decreased in ranking according (See Figure 5.7). These trends suggest that the factors affecting competitiveness and the value customers associate with U.S. products cannot be taken for granted.

Competitiveness can be increased not only through cost reduction and product quality but also through the value that customers associate with products made in the United States. That value, however, requires credible information about what “Made in USA” means. Clear and consistently applied origin standards, supported by measurement and conformity-assessment systems to help ensure that the designation conveys meaningful information rather than becoming diluted through inconsistent or marginal claims.

The U.S. also possesses other important competitive advantages, including strengths in R&D and leadership in select industries and technologies. These advantages can be eroded even as progress is made in other dimensions of competitiveness. For example, gains in cost or productivity may not translate into sustained competitiveness if they are accompanied by the loss of capabilities, technological leadership, supplier strengths, quality attributes, or other sources of cost and differentiation. Protecting competitiveness therefore requires not only creating new advantages, but also maintaining and strengthening the advantages the U.S. already possesses. Sustaining and growing these advantages is essential to ensuring that improvements in one aspect of competitiveness do not come at the expense of another, and that the overall competitiveness of U.S. manufacturing continues to strengthen over time.