Manufacturing industries make a direct contribution to the UK economy worth about 8% of GDP; this has roughly halved since 1990. The UK has deindustrialised more than other wealthy developed nations; in Germany and Switzerland manufacturing still accounts for 18% of GDP. Amongst the fast-growing economies of East Asia, Korea has a manufacturing share of 24% of GDP and Singapore 16%. The world’s manufacturing behemoth is China, where manufacturing accounts for about 25% of its large and rapidly growing economy. The rise of China as a huge manufacturer and exporter mirrors the deindustrialisation of the USA, where the manufacturing share has fallen to 10% [1]. Rebuilding US manufacturing was an explicit policy goal of the Biden administration, while Trump promises “a new era of American manufacturing dominance”, and this is a key motivation for Trump’s tariff policy[2]. There is less consensus in the UK that manufacturing should be a larger share of the economy [3]; I think it should be, but recognise that many reasons advanced for this are wrong. This post is my attempt to separate good reasons from bad, and to highlight some areas of uncertainty.
It’s about value, not jobs
Clearly in the bad category is nostalgia for old-fashioned factory jobs – we should support manufacturing for the value it creates, not for the number of low level jobs it makes. Overall, as shown in my first plot, manufacturing has above average productivity, though there are marked differences between subsectors [4]. High value manufacturing sectors are characterised by high R&D intensity and a high degree of accumulated process knowledge which provide high barriers to competitors. It is no surprise to find pharmaceuticals, aerospace, and automotive in this category, but as the plot highlights, the sometimes neglected chemical industry should be included too.
Figure 1. Relative productivity of different sectors. From J. Martin, C. Taylor (2025) Labour productivity estimates for detailed industries in the UK, 2009 to 2023. Working Paper No. 60, The Productivity Institute.
But it is not enough to talk about levels – one also needs to consider long-run productivity growth, and here manufacturing has a special status, particularly in comparison to service sectors. Manufacturing should be characterised by high productivity growth – innovation, under competitive pressure, develops new products that can be sold for more money, and allows existing products to be made more efficiently. Of course, innovation happens in other sectors too, but if we look at cumulative total factor productivity growth since 1995, manufacturing is second only to information and communication technologies, where productivity growth reflects the huge technology-driven quality improvements we’ve seen in computing and telecommunications technologies.
Figure 2. Cumulative total factor productivity growth by sector; detail in bottom panel . Data from Euklems & INTANProd database, 2024 release.
It’s precisely because productivity tends to grow faster in manufacturing than many service sectors that we shouldn’t expect a return to mass employment in manufacturing. One of the routes to higher productivity in manufacturing is automation, and this is to be welcomed. We shouldn’t expect the share of employment in manufacturing to increase much, even if it is contributing a higher share of GDP.
Why would one want an economic sector that provides value, even if it doesn’t provide many jobs? As a thought experiment, we can imagine the sort of molecular assembler or matter compiler that some people see as a goal of radical nanotechnology, something like a super-3d printer, able to manufacture any artefact from a software blueprint. This would eliminate manufacturing labour entirely – but it’s difficult to imagine that any firm or community would choose not to have access to such a technology.
The blurred boundaries of the manufacturing sector
Even if manufacturing itself were to be completely automated, other high value jobs would remain associated with it. Upstream of manufacturing itself would be research and development and product design; downstream would be distribution, marketing and post-purchase servicing and maintenance [5]. It’s become common to talk about a “U-shaped value chain”, where the highest value activities take place upstream and downstream, with the actual manufacturing step being where least value is added.
One consequence of this is that statistics about the fraction of the economy arising from manufacturing depend to some extent on how firms organise themselves. For example, pharmaceuticals count as part of the manufacturing sector; it’s a very R&D intensive activity, and if that R&D takes place inside a large pharma company, that adds to the manufacturing GDP fraction. But if a pharma company outsources some part of its R&D to a contract R&D firm, that will show up as a transfer of activity from the manufacturing sector to the service sector. It’s possible that part of the decline in manufacturing share of GDP from the 1990s is a reflection of a trend to outsource activities. A corollary of this is to to suggest that manufacturing is more important to the economy than the 8% figure suggests, given that much activity in high value services such as design, R&D, consultancy, and marketing is in direct support of manufacturing[5].
On the other hand, a big feature of the last few decades has been to treat manufacturing as the part of the process that can be outsourced – notably, to China. This kind of unbundling of value chains across the world has been a key feature of globalisation. Vertically integrated firms, with everything needed to develop a product, manufacture it, and bring it to market, is contained within the firm, have been replaced by global networks of suppliers and contractors.
For a positive example of the power of this approach, take the modern semiconductor industry. The Taiwan Semiconductor Manufacturing Company (TSMC) introduced a new business model, focusing entirely on manufacturing; design of integrated circuits is left to “fabless” companies like Nvidia. In contrast, integrated device manufacturers like Intel keep all aspects of semiconductor design and manufacturing under one roof. The success of TSMC and Nvidia compared to the troubles of Intel points to the value of unbundling, with firms able to focus on doing what they are best at.
But what’s happened in the last decade suggests that the approach has downsides. Apple famously describes its products as “Designed in California, Assembled in China”, and this has been an enormously successful business model for them; much of their success is down to the tight control they have exerted over their far-Eastern supply chains and the degree to which Apple engineers have transferred their manufacturing knowledge to their Chinese sub-contractors. Similarly, about half of Tesla’s electric vehicles are made in Chinese factories, again with a majority of the component parts coming from a Chinese supply chain.
A decade or so ago, it would have been common to say that China was good at doing the manufacturing, but the higher value parts of the “U-shaped value chain” would always remain in the West. China, it was said, would struggle to do the R&D, design and branding which was where so much of the value lay. This has proved to be a dangerously complacent and mistaken view, with high-tech Chinese brands such as Huawei, Xiomi and BYD taking leading positions in the global market-place, threatening the positions of the very western firms that have created such effective manufacturing ecosystems in China, like Tesla and Apple.
Security, not autarky
World events over the last five years have emphasised that manufacturing capacity is deeply linked to state security. The Covid pandemic reminded us that, in a global emergency, nations will intervene in the global marketplace to prioritise their own needs, and that disruptions in global supply chains cause unpredictable hold-ups in production. In the pandemic, we saw automobile production halted in many countries because of shortages of semiconductors, and interruption in the supply of drugs because of shortages of key chemical ingredients.
The war in Ukraine reminded us forcefully that physical security depends on the ability to rapidly ramp up production of missiles, shells and drones. In the Second World War, the USA became the “arsenal of democracy” precisely because of its ability to redirect manufacturing capacity towards military equipment. In the USA, between 1940 and 1944, aircraft production rose from 3,611 a year to 96,270 in 1944, through the adoption of the mass production techniques that Ford had developed for automobiles to military aircraft [6]. The Ukraine war has proved a testing ground for the use of drones, where China has a massive advantage. Here it is the supply chain of components developed for manufacturing mobile phones – cameras, GPS chips, sensors – that has put China in such a dominant position.
So it’s going to be important for nations to understand where there are vulnerabilities in their manufacturing capacity and the wider supply chains they depend on. But this doesn’t mean that achieving manufacturing autarky – complete self-sufficiency in manufactured goods – is desirable or even achievable. China’s dominant position in world manufacturing means that it probably could achieve autarky. China’s energetic, state-supported efforts to fill in those areas where its manufacturing capability still lags – notably the most advanced semiconductors – will, in all probability, succeed in the next few years.
Figure 3. Share of world manufacturing value added. From IfM’s UK Innovation Report 2025 [7].
For the USA, manufacturing autarky would have been entirely possible prior to the deindustrialisation of the last few decades. Perhaps it would be possible again, but it would be practically difficult, hugely economically disruptive, and likely to lower living standards. The attempt to reshore advanced semiconducting manufacturing started in the Biden administration did represent a first step in this direction.
But for the UK, manufacturing self-sufficiency – “Juche UK”, one might call it – is out of the question. The UK currently accounts for 1.9% of world manufacturing value added, with perhaps a slightly higher fraction in higher value sub-sectors. The UK accounts for 2.6% of world GVA in one definition of “Advanced industries” which includes IT and information services as well as high value manufacturing [7]. Being generous, one could call the UK a 3% economy. It is not a USA or a China, nor can it hope to become one, but it remains a significant player in the world high-tech economy.
A 3% economy needs to understand what its niches are, and how its manufacturing activities fit into broader global supply chains. Manufacturing autarky isn’t possible or desirable, but there needs to be an understanding of where the pinch points in the supply chain might be, and the UK will need to work with other friendly nations to build more resilience and security.
Rebuilding national manufacturing capacity
So I think there are good reasons for the UK to take positive steps to increase the manufacturing share of the economy, but care will be needed to identify the right areas for growth, building on the manufacturing capacity that already exists, looking for areas of high potential productivity growth, and identifying and ameliorating key weaknesses in relation to resilience and national security.
What in practise will be needed to increase the manufacturing share of the economy? It’s partly about rebuilding communities of engineering practise, what has been called the “industrial commons”; I think the government’s new Industrial Strategy (discussed in my earlier blogpost ) is going in the right direction here, but there is more to be done. This will certainly need to have a strong regional dimension, and will need to have a focus on the mechanisms for diffusion of new technology, including AI. I’ll return to these issues in future blogposts.
References
[1] Data from https://data.worldbank.org/indicator/NV.IND.MANF.ZS
[2] See e.g. Proclamation for National Manufacturing Day 2025, US White House https://www.whitehouse.gov/presidential-actions/2025/10/national-manufacturing-day-2025/
[3] For an example of an explicit case for more UK manufacturing, from a right-leaning think-tank, see A Conservative Economy: Building a fairer and more productive nation
[4] J. Martin, C. Taylor (2025) Labour productivity estimates for detailed industries in the UK, 2009 to 2023. Working Paper No. 60,
The Productivity Institute.
[5] Inside the black box of manufacturing: conceptualising and counting manufacturing in the economy
By Jostein Hauge and Eoin O’Sullivan
[6] On the US WW2 “production miracle”, see for example How Growth Really Happens: the making of economic miracles through production, governance, and skills, by Michael H. Best
[7] Cambridge Industrial Innovation Policy (2025). UK Innovation Report 2025. IfM Engage. Institute for Manufacturing, University of Cambridge.