The problem is not that Americans have stopped starting businesses.
For more than three decades, the United States has been quietly losing one of the foundational acts of industrial civilization: the birth of new manufacturing companies. Since 1989, the number of manufacturing start-ups launched each year has fallen by 58 percent — not because entrepreneurs have grown timid, but because the market conditions that once made manufacturing a viable frontier have been steadily eroded by foreign competition and an indifferent financial system. What is at stake is not merely economic output, but the industrial capacity a nation requires to remain sovereign and self-determining in an uncertain world.
- American manufacturing start-ups have collapsed from over 27,000 per year in 1989 to barely 11,500 in 2023, while start-ups in every other sector of the economy have actually grown — making this a crisis specific to the factory floor, not the entrepreneurial spirit.
- Each wave of foreign competition — first Japan, then NAFTA and the strong dollar, then China — knocked the numbers lower and lower, and since 2010 they have never recovered, settling into a depressed plateau that experts now fear is permanent.
- The damage cuts deepest where it matters most: dual-use and enabling industries critical to national defense have declined nearly as sharply as consumer sectors, meaning the industrial sinews of American sovereignty are thinning alongside the rest.
- The financial system is structurally misaligned with manufacturing's needs — venture capital chases software and media, where scaling requires no factories, while capital-intensive manufacturing ventures are left without backers and without buyers.
- Policymakers are being urged to nearly double annual manufacturing start-ups to 23,000 by 2030 through industrial policy, expanded capital access, and stronger technology transfer — a target that would require reversing decades of structural drift in just four years.
The United States is running out of new manufacturing companies. In 1989, American entrepreneurs launched more than 27,000 manufacturing start-ups. By 2023, that number had fallen to 11,525 — a 58 percent collapse over three and a half decades. What makes this especially alarming is its specificity: start-ups in every other sector of the economy grew by 4.6 percent over the same period. Americans have not stopped starting businesses. They have stopped starting manufacturing businesses. Exclude food and beverage — the one subsector holding relatively steady — and the decline accelerates to 66 percent.
The damage arrived in waves. Japanese competition in the early 1990s triggered the first drop. NAFTA and a strengthening dollar deepened it through the late 1990s. Then came the most severe blow: Chinese competition and the offshoring of production, which drove start-up numbers from roughly 16,000 in 2006 to around 12,000 by 2015. Since then, the numbers have never recovered, hovering between 10,000 and 12,000 annually. The correlation with America's trade deficit is striking — as the goods deficit surged 69 percent between 1989 and 2009, manufacturing start-ups fell in near-perfect lockstep. When imports flood a market, the opportunity for new domestic producers to find customers simply evaporates.
This is fundamentally a birth-rate problem, not a death-rate problem. Young manufacturing firms that survive their first year continue to do so at roughly historical rates — the survival curve has not worsened. But far fewer firms are being born, and those that are start smaller: the average manufacturing start-up employed 9.2 people in 1989; today it employs 7.7. The pipeline is drying up at the source. Meanwhile, the culprit is not corporate consolidation — research across 345 manufacturing industries found that the vast majority saw stable or only marginally rising concentration. The real problem is that the overall market for American manufacturing has contracted, and older firms exiting the sector are not being replaced.
The strategic implications are severe. Dual-use manufacturing start-ups — firms in sectors critical to both economic competitiveness and national defense — have fallen 60 percent. Enabling industries, which supply essential inputs to other manufacturers, have dropped 56 percent. Only defense manufacturing has fared somewhat better, declining 45 percent, largely because the federal government remains a stable, buy-American customer. That protection does not extend to the broader industrial base.
The policy environment for start-ups has actually improved over the past 35 years — lower capital gains taxes, more support programs, more resources. But none of it addresses the core problem: there is no capital and no market for capital-intensive manufacturing ventures. Venture capital flows to software, where companies scale without factories. Manufacturing requires physical infrastructure, supply chains, and patient money that the American financial system is not structured to provide. Researchers are calling for a doubling of annual manufacturing start-ups to 23,000 by 2030 through strategic industrial policy, expanded capital access, and stronger technology transfer programs. The window to reverse this trend is narrowing, and the cost of inaction is measured not only in jobs, but in the industrial independence a nation needs to defend itself.
The United States is running out of new manufacturing companies. In 1989, American entrepreneurs launched 27,126 manufacturing start-ups. By 2023, that number had collapsed to 11,525—a 58 percent decline across three and a half decades. The drop is not incidental to broader economic trends. It is a structural crisis that threatens the nation's ability to compete globally and defend itself.
What makes this decline particularly alarming is its selectivity. While manufacturing start-ups have plummeted, start-ups in every other sector of the economy have actually grown by 4.6 percent over the same period. The problem is not that Americans have stopped starting businesses. The problem is that they have stopped starting manufacturing businesses. When you exclude food and beverage production—the one manufacturing subsector holding relatively steady—the decline accelerates to 66 percent. This is not a tide lifting all boats. This is a specific hemorrhaging in one critical part of the economy.
The damage has come in waves. Japanese competition in the late 1980s and early 1990s triggered the first decline, dropping manufacturing start-ups from 26,099 in 1990 to 23,417 by 1995. The North American Free Trade Agreement and a strengthening dollar deepened the wound in the late 1990s, pushing the number down to 17,743 by 1999. Then came the third and most severe wave: Chinese competition and the offshoring of production. Between 2006 and 2015, manufacturing start-ups fell from 15,912 to 12,444. Since then, they have remained stuck in a narrow band between 10,000 and 12,000 per year, never recovering.
The correlation between this collapse and America's trade deficit is striking. From 1989 to 2009, while manufacturing start-ups fell 58 percent, the U.S. trade deficit in goods as a share of GDP surged 69 percent. The two lines move in lockstep—as imports flooded the market, the opportunity for new American manufacturers to find customers and grow simply evaporated. A young company trying to enter the market faced not only established domestic competitors but also overseas producers selling identical goods at lower prices. The math became impossible. Since 2009, both the trade deficit and start-up numbers have stabilized at depressed levels, suggesting the damage is now baked in.
What is particularly troubling is that this decline is not concentrated in nonstrategic industries. Dual-use manufacturing start-ups—firms in sectors critical to both economic competitiveness and national defense—have fallen 60 percent. Enabling industries, which provide essential inputs to other manufacturers, have dropped 56 percent. These are not luxury goods or consumer conveniences. These are the industrial sinews that a nation needs to remain independent. The one bright spot is defense manufacturing, which has declined only 45 percent, largely because the U.S. government remains a stable customer that prefers to buy American. But that protection does not extend to the broader industrial base.
The decline is fundamentally a birth-rate problem, not a death-rate problem. Young manufacturing firms are surviving at roughly the same rates they always have—firms that make it past their first year have a reasonable chance of lasting five years. But far fewer firms are being born in the first place. Manufacturing start-ups have fallen 58 percent since 1989, yet the survival rate of young firms has actually improved slightly. The bottleneck is at the entry point. Fewer entrepreneurs are attempting to start manufacturing companies, and those who do are starting smaller. The average manufacturing start-up employed 9.2 people in 1989. Today it employs 7.7. These are weaker firms from the moment they open their doors.
The culprit is not monopoly power, despite what some antitrust advocates claim. When researchers examined 345 manufacturing industries, they found that 82 percent saw either declining concentration or only slight increases of five percentage points or less between 2017 and 2022. Big companies are not crushing start-ups by dominating their sectors. The real problem is that the overall market for American manufacturing has shrunk. As older firms exit the sector, there are not enough new ones being born to replace them. In 1989, manufacturing start-ups and young firms made up 33 percent of all manufacturing firms. By 2023, that share had fallen to 21 percent. The pipeline is drying up.
Policymakers have not yet grasped the scale of what needs to change. The current policy environment for start-ups is actually better than it was 35 years ago—lower capital gains taxes, more state and local support programs, more resources available. But none of it is enough to overcome the fundamental problem: there is no money and no market for capital-intensive manufacturing ventures. Venture capital in America flows to software and media, where companies can scale with minimal physical investment. Manufacturing requires factories, equipment, supply chains. The financial system is not built to fund it. Meanwhile, China continues to expand production in strategic industries, and the United States is not replacing the manufacturing capacity it has lost. The window to reverse this trend is narrowing.
Citas Notables
The decline in start-ups was 10 percent more than the decline in manufacturing output, and the average employment size of manufacturing start-ups has also declined.— ITIF analysis
The dominant driver of the observed decline is a sustained contraction in manufacturing start-up entry rather than rising exit rates, pointing to structural constraints on the formation of new manufacturing firms as the main concern.— ITIF report
La Conversación del Hearth Otra perspectiva de la historia
Why does it matter that manufacturing start-ups have declined? Couldn't the existing large manufacturers just keep producing what we need?
Because existing manufacturers eventually age out, close, or move production overseas. You need a constant stream of new companies bringing new ideas, new technologies, new ways of doing things. That's how industries stay competitive. When the birth rate of new firms collapses, you're left with an aging base that can't adapt.
But the source says survival rates for young firms are actually stable. So the ones that do start are surviving fine. Doesn't that suggest the problem will self-correct?
No, it actually makes it worse. If survival rates were falling, you could argue that market conditions are just brutal and we need to wait it out. But survival rates are fine. The problem is that almost nobody is trying to start a manufacturing company anymore. The ones who do tend to succeed. But there are so few of them that the overall sector keeps shrinking.
What changed? Why would entrepreneurs stop trying to start manufacturing companies if the policy environment got better?
The market opportunity disappeared. When you're competing against Chinese factories that can undercut your price by 40 percent, and your customers can buy from them instead, there's no business case for a new American manufacturer. Policy can only do so much. You can lower taxes and offer grants, but you can't create demand that isn't there.
The report mentions that defense manufacturing start-ups declined less than others. Why is that different?
Because the U.S. government is the primary customer, and it will always prefer to buy American for national security reasons. That creates a protected market. But most manufacturing doesn't have that protection. Most manufacturers have to compete in an open global market where they're at a cost disadvantage.
So what would actually fix this?
You'd need to either restore the market opportunity—which means addressing the trade deficit and import competition—or build a financial system that can fund capital-intensive manufacturing ventures at scale. Right now, venture capital won't touch it. You'd also need to double the number of manufacturing start-ups by 2030 just to stabilize the sector. That's not a small ask.