U.S. manufacturing start-ups have collapsed by 58 percent over the past three decades, dropping from 27,126 new firms in 1989 to just 11,525 in 2023, according to a new report published June 22, 2026, by the Information Technology and Innovation Foundation (ITIF). The decline stands in stark contrast to the rest of the economy, where all other start-ups grew 4.6 percent during the same period. The report warns that the trend threatens America's industrial base and its ability to compete with China in sectors critical to national security and economic power.

The data paints a troubling picture across multiple dimensions. From 1989 to 2023, manufacturing start-ups fell from an index of 100 to 42.5, while non-manufacturing start-ups climbed from 100 to 104.6. Manufacturing start-ups declined faster than total manufacturing firms, which dropped from an index of 100 to only 74.8 over the same period. The average new manufacturing firm is also getting smaller—down from 9.2 employees in 1989 to 7.7 employees in 2023, a 16 percent drop. Young manufacturing firms aged one to four years fell 52 percent, and together with start-ups now make up just 21 percent of all manufacturing firms, down from 33 percent in 1989. Most critically, dual-use industries—sectors like aerospace, semiconductors, and pharmaceuticals that serve both civilian and military needs—saw their start-ups plunge 60 percent, from 5,776 to 2,334. Enabling industries dropped 56 percent and non-strategic industries fell 57 percent. Only defense manufacturing start-ups fared better, declining 45 percent, likely because government contracts shield them from foreign competition.

The report identifies the timing and cause of the collapse. "Most of the decline occurred prior to 2009 and appears closely tied to the long-running erosion of U.S. manufacturing competitiveness during that period," the authors write. From 1989 to 2009, as manufacturing start-ups fell 58 percent, the U.S. trade deficit in goods as a share of GDP surged 69 percent. The report traces three waves: Japanese competition in the early 1990s drove start-ups from 26,099 in 1990 to 23,417 in 1995; NAFTA and dollar appreciation pushed them to 17,743 by 1999; and Chinese competition cut them further from 15,912 in 2006 to 12,444 in 2015. The report also dismisses the notion that monopoly power is to blame, noting that 82.3 percent of manufacturing industries saw declining or flat concentration from 2017 to 2022, and the average manufacturing firm shrank from 69.4 workers in 1978 to 55.7 in 2023.

The decline isn't a death rate problem—it's a birth rate crisis. Survival rates for young manufacturing firms have actually held steady or improved slightly over the decades. Exit rates for one-year-old firms ranged between 16 and 22 percent from 1989 to 2023, while five-year-old firms saw even tighter variation at 8 to 12 percent. "The dominant driver of the observed decline is therefore a sustained contraction in manufacturing start-up entry rather than rising exit rates, pointing to structural constraints on the formation of new manufacturing firms," the report explains. The problem isn't that new manufacturers are failing more often—it's that fewer entrepreneurs are even trying. The report argues that market potential has withered as imports flood in and export opportunities shrink, while the U.S. financial system remains biased toward capital-light software ventures instead of the capital-intensive hardware firms manufacturing requires.

To reverse the slide, the report calls for policymakers to set a goal of at least 23,000 manufacturing start-ups annually by 2030—double the current rate. Recommendations include developing a national power industry strategy for defense and dual-use sectors, expanding capital programs through the Small Business Administration or a national industrial development bank, offering tax incentives for deep-tech venture investments, and boosting funding for Manufacturing USA centers and the National Institute of Standards and Technology's Manufacturing Extension Partnership. The bottom line: as China expands production in strategic industries, America's shrinking pipeline of manufacturing start-ups leaves the country increasingly vulnerable in the sectors that matter most.