If Reshoring's Happening, Where Does The US Get The Capital Goods?

When the Biden Administration announced its CHIPS Act subsidies – which Smith hails as a great leap forward for American manufacturing – the rush to build chip fabrication plants ran into shortages of labor and materials. The Producer Price Index for new plant construction rose by 37% in a single year, an utterly unprecedented event. At the same time, the number of unfilled construction jobs nearly doubled.

Smith is elated that US solar panel manufacturing capacity reached 27,000 megawatts in 2024, allowing that the US is“still way behind China.” How far behind? Smith doesn't say. I will: China can produce 890,000 megawatts of solar panels – 33 times the US figure.

The elephantine omission in Smith's panegyric to US industry is America's overwhelming dependence on imported capital goods – goods that produce other goods.

US imports of capital goods at $1.1 trillion a year are nearly three times domestic orders for capital goods at just $400 billion annualized. Both numbers are deflated to January 2000 using the government's price indices for cap goods imports and private capital equipment, respectively. Both series exclude autos. Whatever the US is producing, it produces it mostly with imported capital goods.

Of course, the US imports a lot of electronics, whose prices have fallen by half since 2000, and it exports machinery, whose price has doubled (the US exports about half as much capital goods as it imports). It's hard to get an apples-to-apples comparison of domestic cap goods orders and cap goods imports. But the trends nonetheless are startling: US cap goods imports jumped after Covid, rising by 60% from 2020 through 2024.

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Yes, the United States shortly will produce more computer chips onshore, thanks to Taiwan's TSMC, which built a plant in Arizona – staffed mainly by workers and technicians imported from Taiwan, because TSMC couldn't find enough skilled labor in the United States. That's the kind of success that makes failure seem attractive by comparison.

But the big picture is that America's foreign dependence is rising fast. Overall industrial output has been virtually unchanged during the past ten years, while imports of capital goods have nearly doubled. It will take more to re-shore American industry than hot air from an economics blog.

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