US National Power Industries Are at Risk – Information Technology and Innovation Foundation (ITIF)

Report on the State of U.S. National Power Industries and Implications for Sustainable Development Goals

This report analyzes the performance of key U.S. industrial sectors between 2007 and 2022, with a specific focus on their alignment with and impact on the United Nations Sustainable Development Goals (SDGs). The analysis reveals a concerning decline in industries critical to national security, economic resilience, and innovation, thereby posing significant challenges to achieving SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation, and Infrastructure), and SDG 16 (Peace, Justice, and Strong Institutions).

Methodology for Industrial Classification Aligned with SDG Priorities

To assess the performance of industries critical to sustainable development, a novel framework classifies 970 six-digit North American Industry Classification System (NAICS) industries into four distinct categories. This classification allows for a targeted analysis of sectors whose health is paramount for building resilient infrastructure, fostering innovation, and ensuring stable economic growth.

Industrial Categories

• Nonstrategic Industries: Sectors, including both traded and non-traded goods and services, whose performance has a limited direct impact on national security and the core industrial base. These comprise 78% of all classified industries.
• Enabling Industries: These industries form the bedrock of the “industrial commons,” producing goods and fostering knowledge ecosystems that are essential for the production of more advanced goods. Their health is fundamental to achieving SDG 9 by supporting a robust and innovative industrial infrastructure. Examples include the automotive sector.
• Dual-Use Industries: Industries that produce goods with both civilian and defense applications, such as semiconductors, chemicals, and telecommunications equipment. These sectors are direct drivers of SDG 9 (Innovation) and SDG 8 (Economic Growth), but their decline creates vulnerabilities that threaten SDG 16 (Peace and Stability).
• Defense Industries: Industries producing goods primarily for military applications. Domestic production is essential for national sovereignty and contributes directly to SDG 16 by ensuring national security.

Empirical Analysis of Industrial Performance (2007–2022)

Data from the U.S. Census Bureau’s Annual Survey of Manufacturers and Economic Census reveals divergent trends across the four industrial classifications. The findings indicate a significant erosion of the industrial base most critical for long-term sustainable development.

Economic Output and Value Added (SDG 8)

Nominal value added, a key indicator of economic contribution, demonstrated the weakest growth in the core industrial base of enabling and dual-use industries. When adjusted for the Producer Price Index (PPI), the decline is stark, with value added falling across all sectors but most severely in enabling industries (approximately -31%). This trend directly undermines the objective of sustainable economic growth as outlined in SDG 8.

1. Nonstrategic Industries: Highest growth in nominal value added.
2. Defense Industries: Substantial growth in nominal value added.
3. Enabling Industries: Weakest growth in nominal value added; sharpest decline in real value added.
4. Dual-Use Industries: Minimal growth in nominal value added; significant decline in real value added.

Capital Investment and Innovation Capacity (SDG 9)

Capital expenditure is crucial for productivity, innovation, and upgrading industrial infrastructure. The analysis shows a concerning disinvestment in the sectors that underpin the nation’s innovation ecosystem.

• Enabling Industries: Experienced a decline in overall capital expenditures, including a significant drop in investment in productivity-enhancing machinery and equipment.
• Dual-Use Industries: Saw minimal change in capital expenditures and little growth in investment in data processing equipment.
• Defense Industries: Showed a substantial increase of over 50% in capital expenditures, including a 241% boom in spending on computers and data processing equipment, reflecting its insulation from global competitive pressures.

This investment disparity signals a weakening of the broader industrial base, hindering progress toward the innovation and infrastructure targets of SDG 9.

Employment and Decent Work (SDG 8 & SDG 10)

While overall U.S. employment grew 11% from 2007 to 2022, manufacturing employment saw a broad decline, disproportionately affecting the most strategic sectors. This trend challenges the goal of achieving full, productive, and decent work for all (SDG 8) and risks exacerbating inequalities (SDG 10).

• Enabling Industries: Steepest employment decrease at 19%.
• Dual-Use Industries: Second-steepest employment decrease at 17%.
• Nonstrategic & Defense Industries: Experienced smaller declines in employment.

The loss of production workers was most acute in dual-use industries, further eroding the skilled labor base essential for a modern industrial economy.

Industrial Infrastructure and Production Capacity (SDG 9 & SDG 11)

The physical footprint of the U.S. industrial base has shrunk, particularly in strategic sectors. This decline affects the resilience of industrial infrastructure (SDG 9) and can negatively impact the economic sustainability of communities (SDG 11).

• Establishments: The number of physical establishments fell most significantly in dual-use and defense industries (over 20%).
• Energy Consumption: Electricity purchases, a proxy for production activity, declined in enabling and dual-use industries, indicating a shrinking capacity to produce goods. In contrast, purchases rose in the defense sector.

Implications for Sustainable Development Goals

The hollowing out of the U.S. industrial commons, specifically the enabling and dual-use sectors, presents severe consequences for achieving the 2030 Agenda for Sustainable Development.

Threat to SDG 9: Industry, Innovation, and Infrastructure

The decline in capital investment, employment, and value added in enabling and dual-use sectors directly weakens the U.S. innovation ecosystem. An over-reliance on foreign supply chains for critical components like semiconductors and rare earth minerals creates an unsustainable and non-resilient industrial model, contrary to the principles of SDG 9.

Challenges to SDG 8: Decent Work and Economic Growth

The loss of manufacturing jobs and the stagnant economic output of core industrial sectors threaten the nation’s capacity for inclusive and sustainable long-term growth. Reversing this trend is essential for providing decent work and ensuring shared prosperity.

Risks to SDG 16: Peace, Justice, and Strong Institutions

Economic security is inextricably linked to national security. Dependence on geopolitical competitors for materials and goods essential for both civilian and defense applications creates vulnerabilities. This reliance can be leveraged to disrupt supply chains, thereby undermining national sovereignty and threatening the stability that SDG 16 seeks to promote.

Conclusion: The Need for a Strategic Industrial Plan

The analysis demonstrates that between 2007 and 2022, the core of U.S. manufacturing—its enabling and dual-use industries—eroded more rapidly than nonstrategic sectors. This decline is not merely an economic issue but a critical challenge to achieving foundational Sustainable Development Goals related to industry, economic growth, and global stability.

Allowing these strategic industries to fail would weaken supply chain security, diminish innovation, and increase geopolitical vulnerability. Therefore, a comprehensive and strategic industrial plan is imperative. Supporting these industries through targeted policies is essential to rebuilding the U.S. industrial base, ensuring its continued success and security, and making substantive progress toward a sustainable and resilient future.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on the health of U.S. manufacturing and its importance for national power connects to several Sustainable Development Goals (SDGs). The analysis focuses on economic performance, employment, industrial capacity, innovation, and national security, which are central themes in the global development agenda.

• SDG 8: Decent Work and Economic Growth: The article extensively discusses the manufacturing sector’s role in the economy. It analyzes trends in employment, wages, and economic growth, directly linking to the goal of promoting sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. The text questions the conventional view that “manufacturing matters because it provides good jobs” and analyzes “manufacturing labor productivity,” “employment multiplier,” and changes in “median nominal wages.”
• SDG 9: Industry, Innovation and Infrastructure: This is the most central SDG to the article. The entire report is an analysis of industrial health, focusing on building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation. The article classifies industries (defense, dual-use, enabling, nonstrategic), examines “capital expenditures,” investment in “machinery and equipment,” and R&D as a key criterion for advanced industries, all of which are core components of SDG 9.
• SDG 7: Affordable and Clean Energy: The article touches upon energy as a key input for manufacturing. It uses “electricity purchases” as an indicator of industrial capacity and output. It also briefly mentions “alternative energy-generation technologies” like “wind turbines,” connecting the industrial strategy to the broader energy landscape.
• SDG 12: Responsible Consumption and Production: The article’s focus on domestic supply chains and vulnerabilities to foreign powers like China relates to sustainable production patterns. The discussion on reliance on China for “rare earth minerals” and other advanced electronics highlights the need for more resilient and sustainable supply chains, a key aspect of SDG 12.
• SDG 16: Peace, Justice and Strong Institutions: The article’s primary argument is that a strong manufacturing sector is essential for “national power” and “national security.” It discusses the importance of “defense industries” and the risks associated with losing “dual-use industries” to geopolitical rivals. This directly relates to the goal of promoting peaceful societies and building effective, accountable institutions, as national security is a prerequisite for stability and peace.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the issues discussed, several specific SDG targets can be identified:

1. Under SDG 8 (Decent Work and Economic Growth):
   • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation… The article directly addresses this by analyzing “manufacturing labor productivity,” the decline in “value added” in key sectors, and the importance of investment in technology and R&D to drive growth. The classification of industries into high-tech and strategic sectors is an exercise in identifying where technological upgrading is most critical.
   • Target 8.5: By 2030, achieve full and productive employment and decent work for all… The report’s detailed analysis of the decline in “manufacturing employment,” including specific data on “production workers” and “non-production workers,” directly relates to this target. It also examines “median nominal wages” across different industrial sectors.
2. Under SDG 9 (Industry, Innovation and Infrastructure):
   • Target 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product… The article’s core analysis tracks the performance of U.S. manufacturing industries, measuring their decline in “value added” (a component of GDP) and “employment.” The finding that “dual-use and enabling manufacturing industries declined faster than non-power industries” is a direct commentary on the status of this target in the U.S. context.
   • Target 9.5: Enhance scientific research, upgrade the technological capabilities of industrial sectors… The article emphasizes the role of R&D, noting that other methodologies classify industries based on “research and development (R&D) intensity.” It also tracks “capital expenditures” on “machinery and equipment” and “computers and data processing equipment” as measures of technological upgrading. The concern over losing “institutional knowledge” in declining industries also aligns with this target.
   • Target 9.b: Support domestic technology development, research and innovation… The entire premise of the article—that the U.S. must have a “strategic and comprehensive industrial plan” to support its “national power industries”—is an argument in favor of this target. It warns against losing domestic production in critical sectors like “semiconductors” and the need to defend against “unchecked Chinese dominance in advanced industries.”
3. Under SDG 12 (Responsible Consumption and Production):
   • Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources. The article’s discussion of China’s control over “rare earth minerals” highlights the geopolitical and sustainability risks of concentrated resource supply chains. The concern over supply chain vulnerabilities for “batteries, basic metals, and advanced electronics” implies a need for more diversified and sustainable resource management.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article is rich with specific quantitative indicators used to measure the performance of the U.S. manufacturing sector. These can be directly mapped to the identified SDG targets.

• For Economic Performance and Industrialization (Targets 8.2, 9.2):
  • Value Added: The article uses “nominal value added” and “PPI adjusted” value added as a primary indicator of industry performance, stating it is “the best indicator of the performance of the manufacturing sector.”
  • Value of Shipments: This is used as a “proxy for sales” to measure the output and market health of different industrial classifications.
• For Employment (Target 8.5):
  • Change in Employment: The report provides specific percentages for the decline in “U.S. manufacturing employment” and “manufacturing employment relative to the overall economy.”
  • Type of Employment: It breaks down employment data into “production workers” and “non-production workers” to offer a more detailed view of the workforce.
  • Wages: “Change in manufacturing median wages” is used to assess the quality of jobs.
• For Innovation and Technological Capacity (Target 9.5):
  • Capital Expenditures: This is used as a measure of investment in industrial capacity. The article specifies this further by tracking “expenditures machinery and equipment” and “expenditures on computers and data processing equipment” as indicators of technological upgrading.
  • R&D Investment: While not tracked over time in the article’s main analysis, it is cited as a key criterion for defining advanced industries (e.g., the automotive sector invests “$26 billion in R&D annually”).
• For Industrial Infrastructure (Targets 9.2, 9.5):
  • Number of Establishments: The “change in U.S. manufacturing establishments” is used to measure the physical footprint of the industrial base.
  • Electricity Purchases: This is used as an indicator of production capacity and activity, with a reduction suggesting “a shutdown of factories and a decrease in output.”

4. Table of SDGs, Targets, and Indicators

Source: itif.org