The state of American manufacturing is in dire need of improvement. For decades, the U.S. economy has been transforming into a service-based model while the manufacturing power we associate with the American postwar capacity of the 1950s and ’60s has dispersed offshore.

This slow degradation of U.S. manufacturing capacity is coupled with fears of a significant labor shortage. A recent study by Deloitte found that by 2033, U.S. manufacturers will need about 3.8 million new workers, and half of those jobs might go unfilled. As an industry, we can’t remain on the same path and risk falling behind to an irreversible degree.

A popular narrative right now is that automation and our advancements in machine learning will help mitigate the effects of this predicted labor shortage. However, with global competitors also making strides in these areas, the U.S. faces losing ground in the global landscape.

It’s surprising that we didn’t hear much about any of that during the campaigns leading up to the 2024 elections last November.

Discussing these trends and challenges with Quality Digest is Yushiro Kato, CEO and co-founder of CADDi Inc., a globally operating Japanese company that provides a one-stop procurement solution for fabricated parts and components. Here’s what he had to say in a recent interview.

Quality Digest: Please tell us a little more about yourself and your company.

Yushiro Kato: At CADDi, we’re on a mission to revolutionize the manufacturing supply chain by harnessing the power of technology and data. Our platform connects manufacturers with suppliers in ways that eliminate inefficiencies, reduce costs, and unlock new opportunities. We believe manufacturing should be smarter, more transparent, and better connected—and we’re building the tools to make that happen.

As someone who’s deeply immersed in the challenges facing global manufacturing, I see firsthand how these trends—offshoring, labor shortages, and global competition—are playing out. The manufacturing industry is at a crossroads, and our decisions will define its future.

At CADDi, we’re not just responding to these challenges; we’re creating solutions that empower manufacturers to thrive in this new landscape. Whether it’s leveraging data to optimize procurement or using AI to bridge skill gaps, our focus is on enabling resilience and growth for manufacturers everywhere.

The future of manufacturing isn’t about choosing between human talent and technology—it’s about making them work together seamlessly. And while these challenges are real, I’m optimistic. With the right mix of innovation, strategic thinking, and collaboration, we can build a stronger, more sustainable future for this industry. That’s what CADDi is here to do.

QD: To what do you attribute a decline in U.S. manufacturing in the past few decades?

YK: The idea that U.S. manufacturing is in a steep decline isn’t entirely accurate. Sure, industry revenue has dipped slightly—about 0.4% annually over the past five years—but that’s not the full story. Over the last two decades, manufacturing of durable goods has grown by 45.4%, while nondurable goods have seen a small decline. What’s happening isn’t a universal collapse but a shift that’s hitting some sectors harder than others. And these sector-specific trends have profound implications for jobs, global competition, and geopolitics.

What’s happening isn’t a universal collapse but a shift that’s hitting some sectors harder than others.

The disappearance of manufacturing jobs is undeniable, driven by automation, offshoring, and relentless cost pressures. But it’s not just the jobs we’ve lost—it’s the skilled workforce. As work moved overseas, many people left the industry entirely, creating a talent void. At the same time, global competitors—bolstered by decades of U.S. investment—are thriving. China’s middle class, for example, owes a lot to offshore American manufacturing. Now, those same factories compete with us, producing electric vehicles and other goods for global markets. Add geopolitical instability—wars in Europe and the Middle East, tensions with China—and manufacturers face a perfect storm of rising costs and uncertainty.

Fixing this is no small task. Offshoring created structural dependencies on global supply chains that can’t just be unwound. Building domestic capacity takes time, political coordination, and significant capital. Even if companies reshore production, who’s going to run the machines? Addressing the skilled labor gap isn’t something we can solve overnight—it requires massive investment in training and rethinking how we position manufacturing as a career.

But the clock is ticking. The longer we wait, the harder it will be to reverse these trends and secure the future of U.S. manufacturing.

QD: How does America’s ability to fill open jobs compare to other countries?

YK: America has at least one glaring advantage over most of the rest of the world when it comes to filling open jobs: our educational system. The U.S. education system is the envy of the world and represents an amazing delivery mechanism for the skills necessary to stimulate new growth in American manufacturing. However, that will take time.

In the short term, we’re likely to see a stampede of OEMs rushing to a small number of viable fabricators to fill orders. Production is likely to be constrained by the labor shortage until fabricators can more fully automate their manufacturing processes.

QD: What can the U.S. do to reverse these trends?

YK: Reversing the trends hollowing out U.S. manufacturing requires a strategic, long-term commitment to rebuilding our economic and industrial base. The first step is realigning incentives. Tax policies must penalize offshoring while rewarding domestic investment in advanced manufacturing, automation, and clean energy infrastructure. Companies that benefit from access to the American market should be held accountable for reinvesting in the American economy. This isn’t about isolationism; it’s about ensuring a balanced, resilient economic framework that prioritizes national interests.

Addressing the skilled labor crisis is equally critical. Decades of offshoring gutted the talent pipeline as workers left the sector for more stable opportunities. Restoring this pipeline will take years of investment in education, vocational training, and partnerships between industry and academia. A comprehensive approach—ranging from subsidized reskilling programs to a nationwide push to elevate the trades as respectable and well-paying careers—is essential. Without a robust, skilled workforce, efforts to rebuild manufacturing will stall before they even begin.

Trade policies must also evolve. While free trade has its benefits, the U.S. can’t afford to outsource critical industries like semiconductors, green energy, and defense. Strategic protectionism, aligned with national priorities, is necessary to safeguard these sectors. Trade agreements should prioritize partnerships with nations that uphold similar labor and environmental standards, ensuring competition doesn’t come at the cost of American jobs or values.

Finally, a significant reinvestment in infrastructure and manufacturing capacity is required. Federal initiatives, akin to Roosevelt’s New Deal or Eisenhower’s Interstate Highway System, should fund the development of modern factories, resilient supply chains, and energy independence. This will not only drive job creation but also reestablish the U.S. as a leader in the global economy. Rebuilding U.S. manufacturing is a complex, multidecade challenge, but with coordinated action and strategic focus it is achievable, and it’s critical to the nation’s long-term prosperity.

Federal initiatives, akin to Roosevelt’s New Deal or Eisenhower’s Interstate Highway System, should fund the development of modern factories, resilient supply chains, and energy independence.

QD: What effects do you think AI will have in filling the labor gap?

YK: AI is going to be a game-changer in U.S. manufacturing, but not in the way people usually think. It’s not about replacing humans with robots; that’s science fiction. The real power of AI right now is as a partner to human workers. It fills the gaps where there aren’t enough skilled people or where workers are stretched too thin. Think about it: AI can analyze production data faster than any human, flag potential problems before they happen, or even guide someone step-by-step through complex tasks. It’s like giving every worker a super-intelligent assistant that makes them better at their job.

In the long run, AI could transform the entire workforce. But it’s not going to happen overnight. The key is creating hybrid roles where humans and AI work together—people handle judgment calls and creativity, while AI crunches the numbers and optimizes processes. But here’s the catch: Companies need to invest in training people for these roles. AI isn’t going to magically create a skilled workforce. If manufacturers don’t step up to reskill and upskill their teams, they’re just going to dig themselves deeper into the labor gap.

And here’s the controversial bit: I think AI can actually save smaller manufacturers that are struggling to compete with big guys offshoring their operations. AI makes it possible to do more with fewer people and less money. It democratizes high-tech efficiency. If smaller companies adopt AI the right way, they can stay competitive without moving jobs overseas. But we have to remember that AI isn’t a silver bullet—it’s a tool. The companies that win will be the ones that figure out how to make humans and AI work together, not replace one with the other.

QD: Does the U.S. trail other countries in this regard?

YK: There isn’t a simple answer to that. The U.S. may trail some other countries in very specific respects. For instance, countries like Germany and Japan have built highly advanced, integrated manufacturing ecosystems. The sheer scale of China’s manufacturing is unprecedented, thanks to years of foreign direct investment and relentless focus on cost efficiency. In comparison, the U.S. has allowed areas of its manufacturing sector to be hollowed out through decades of offshoring and underinvestment in workforce development.

One major difference is the way these countries have embraced long-term strategies to address challenges. Germany has invested heavily in vocational training and apprenticeships, ensuring a steady pipeline of skilled labor. Japan has excelled in lean manufacturing and integrating technology into production processes.

The U.S., by contrast, has seen a decline in its manufacturing workforce and expertise as workers shifted to other industries, and it’s paying the price now in the form of a massive skilled labor shortage. But the U.S. still has unique strengths. Its innovation ecosystem is unmatched, with cutting-edge research and development in automation, AI, and advanced manufacturing technologies. If these tools are harnessed strategically, they can help close the gap, especially in areas where labor shortages are most acute. We’ve barely scratched the surface of AI’s ability to act as a force multiplier, helping smaller manufacturers optimize their operations and supplement human labor in critical ways.

The U.S. still has unique strengths.

The bottom line is the U.S. has fallen behind in certain aspects of manufacturing. But we can close the gap. With smart investments in technology, a recommitment to workforce development, and a willingness to rethink its reliance on global supply chains, the U.S. can reclaim leadership in this space. The key is treating this as a national priority—not just for economic competitiveness, but for long-term resilience and security.

QD: How do you think the recent election will affect the labor market?

YK: The idea that the election will drastically change the labor market is probably overstated. While elections can set the tone for policy and priorities, labor market conditions are shaped far more by macroeconomic forces and geopolitics than by who’s in office. Factors like inflation, interest rates, global supply chain disruptions, and energy markets will probably play a much larger role in determining job growth, wages, and overall labor demand.

Of course, if you anticipate the new president having strong influence over the Federal Reserve’s interest rate policy, then the election will absolutely have an impact on the labor market.

It’s worth also mentioning how ongoing conflicts in Europe and the Middle East, as well as U.S.-China tensions, have already reshaped global supply chains and driven up costs for manufacturers. These pressures have as much influence on trends like reshoring and automation as U.S. trade policy or the specter of tariffs.

The other thing worth acknowledging is how conditions aren’t likely to sustainably improve for labor in the absence of strong unions. Without stronger unions, workers are going to struggle to secure higher wages, better benefits, and improved working conditions, regardless of the demand created by a push for onshoring work.

It’s easier said than done. Without broader structural changes, such as better support for workforce development and training, even the most well-organized labor movements will struggle to counterbalance the larger economic forces at play. Improving labor market conditions will take more than an election cycle—it will require sustained effort to address systemic issues and adapt to global realities.

QD: How do you think American companies will react to or benefit from a change in the political climate?

YK: American companies are likely anticipating a reduction in corporate taxes from the incoming administration. Historically, companies have taken advantage of these moments to repatriate cash from overseas. We’re likely to see managers fall into one of two camps: 1) those who take the opportunity to return capital to investors or shareholders, or 2) those who choose to make longer-term capital investments to fuel long-term growth.

Either way, this is likely to be a period of exuberance for companies that have been languishing under the interest rate regime of the prior administration. Of course, if inflation returns, or if global supply chains are further disrupted, that exuberance will turn to anguish pretty fast.

QD: What do you think the future holds for American manufacturing?

YK: America’s manufacturing sector is at a complicated crossroads. What sectors should live on shore? What does the future of our labor force look like? How should profits be divided between labor and management? None of these questions have simple answers. How we decide to answer them will have profound consequences for the manufacturing sector and for the daily lives of average Americans.

Whatever we decide, these things are unavoidable: AI is here, and its impact is increasing exponentially. The global order is shifting under our feet, and America’s role in that order may evolve significantly over the next 50 years. We are facing an intense period of rapid transformation that we all need to embrace.

Buckle up.