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It didn't. For one: the US still manufactures physical goods. The value of the US manufacturing sector is second only to China. It outstrips the combined output of the European Union.
What happened was that the US went from a position of absolute dominance in manufacturing in the late 70s to having a wide range of competitors today (most prominently China). Short of bombing China, however, this was pretty much unavoidable. It hasn't helped that the US pursued soft deindustrialization policies domestically while the tech sector hoovered up human and financial capital, but US manufacturing supremacy was unlikely to last even with a more favorable legal/financial environment.
Unavoidable long-term yes, but short and medium term?: Quite preventable. The US rolled over to China and allowed IP theft on industrial scale, strategic acquisitions of US and global companies in key industries, ignored blatant limitations on foreign companies within China, ignored massive targeted state subsidies, and failed to support manufacturing in other more friendly and allied low-labor-cost countries, all because US companies were convinced that they could double their profits by getting access to the Chinese market - which, and the real kicker of it all, obviously did not work in any way, shape, or form for anyone in the West, at least beyond a decade or two. Sadly nothing too new; I still regularly curse Nixon's name to this day over leaving us with the Taiwan shitstorm because he was too busy trying to reap short-term political benefit at home - sound familiar?
There's an alternate world where Taiwan, Vietnam, Mexico, Thailand, etc. (possibly India but that's a different can of worms) all picked up significant amounts of manufacturing slack which we could play off of each other, and China's technological acceleration was delayed by a full additional decade (and thus also their military, political, and economic clout). China really backstabbed us when it came to the "promises" made on joining the WTO in the leadup to 2001, Bush should have taken action by the mid-2000s to give them a warning, and Obama shouldn't have taken so long to bring about the TPP (2016!) which ended up both shitty and even worse, sailing without us. Even worse, especially under Obama's watch, the forced technology transfer, ownership restrictions, and outright theft reached critical proportions with essentially zero real response. I personally think that will go down in history as one of the worst economic blunders of all time.
What hath this wrought? There's a strong chance we're war with China over Taiwan within two years after Trump leaves office, and if so we will lose. Badly. It won't even be all that close.
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