Despite the denial chorus of the same politicians, financiers, and economists who told us prior to 2008 that our financial sector was fine, the American public is increasingly aware of the truth: American manufacturing is in a state of deep crisis. (And ,as I argued in a previous article, the recent small uptick in this sector doesn't change that fact.)
Let's start with manufacturing employment. Below is a chart giving the grim story of job losses in this sector. (Source.)
This degree of manufacturing job loss is not inevitable or normal. The U.S. actually enjoyed relatively stable employment levels in manufacturing as recently as the year 2000. Then, thanks to our burgeoning trade deficit, things fell off a cliff.
Neither is there anything inevitable about our poor export performance--which is, by definition, half the cause of that deficit. Over the decade after 2000, America's share of world exports dropped from 17 to 11 percent. But the share of the European Union, home of trade-savvy export superstars like Germany, held steady at 17 percent, despite the relentlessly expanding share of China and the rest of the industrializing Third World. (Source.)
Our trade deficit is going to be balanced, the hard way or the easy way, eventually. And it will be essentially impossible for the U.S. to balance its trade without healthy manufacturing exports. Unless, of course, we are willing to radically curtail our imports, which means either:
a) A reduced living standard, or:
b) We start producing the formerly imported goods for ourselves. This, of course, itself requires a strong manufacturing sector, so we're back where we started.
So there's no way to avoid manufacturing.
People sometimes imagine that the U.S. can balance its trade by exporting more services or agricultural goods. Unfortunately, the numbers just don't add up.
For example, in 2010, we ran a deficit in goods of $646 billion, while our surplus in services was only $149 billion. (Source.) Even worse, thanks to the offshoring of services, our surplus in services is shrinking, not expanding.
As for agriculture, forget it. Our surplus in agriculture is less than a tenth the size of our overall deficit.
It is crucial to understand that manufacturing is not the "past" of our economy. It is, in fact, a big part of our future (albeit an endangered part).
For example, it is no secret that the U.S. will need to transition, over the next few decades, to green energy technologies--whatever form they ultimately take. And these technologies, be they solar cells, windmills, electric cars, fusion reactors or dilithium crystals, are emphatically not virtual. One cannot download them.
They are good old -fashioned things. And there's nothing low-tech about an electric car.
Unfortunately, the U.S. is losing its position in green-energy manufacturing, as shown by the fact that we now run a multi-billion dollar deficit in these goods.
One fact that belies the idea that manufacturing belongs to the past is that manufacturing is the origin of 70 percent of U.S. research and development. (According to one recent study, 22 percent of manufacturing firms engage in some kind of innovation, compared to only 8 percent of other companies.) So despite the myth that innovation is a post-industrial activity, losing our manufacturing means losing a lot of our future opportunities to innovate.
Can service industries fill the gap? No. Among other things, even healthy service companies frequently depend upon manufacturing. For example, many companies sell design, customization, operation, optimization, training and maintenance for the products they make. But the skills needed to provide these services often only accrue to those who are intimately involved with building the product in the first place.
Manufacturing tends to draw these other activities along with it. In the words of economist Gregory Tassey of the National Institute for Standards and Technologies--which is, by the way, just about the only serious national civilian industrial-policy agency left in this country:
When technological advances take place in the foreign industry, manufacturing is frequently located in that country to be near the source of the R&D. The issue of co-location of R&D and manufacturing is especially important because it means the value-added from both R&D and manufacturing will accrue to the innovating economy, at least when the technology is in its formative stages. Thus, an economy that initially controls both R&D and manufacturing can lose the value-added first from manufacturing and then R&D in the current technology life cycle--and then first R&D followed by manufacturing in the subsequent technology life cycle.
It is no accident that 90 percent of electronics research and development now takes place in Asia, hardly boding well for America's future in an industry we dominated as recently as the early 1970s.
This won't just hurt blue-collar workers. Despite the unfortunate image of manufacturers employing lunch-bucket labor, in reality, 51 percent of their current workforce consists of skilled production workers, 46 percent of scientists and engineers, and only 7 percent is unskilled production workers. (Source.) So losing manufacturing industry means losing not just assembly-line jobs, but many white-collar jobs, too.
It's not just electronics that's decaying. Other high-tech industries are, with a few exceptions, in no better shape, as shown in the chart below. (Source.)
What categories of manufactured goods does the U.S. still have a strong position, signaled by a trade surplus, in? Only aircraft, aircraft parts, weapons, and specialized machine tools (mainly machine tools for making the former). These areas are the last redoubt of American industry largely because they have been the beneficiaries of just about the only institution in the U.S. which still does serious industrial policy and blocks inappropriate trading relationships: the U.S. military.
This may be a clue to what America needs: an appropriate dose of protectionism, plus some serious government-led industrial policy to stoke the fires of industry bright again.
Follow Ian Fletcher on Twitter: www.twitter.com/IanFletcher
Leo Hindery, Jr.: Why We Need a Manufacturing Renaissance - Economically and Ethically
Yuen Pau Woo: Pay Attention to Asia, Eh!
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Your green'ism is an invitation for the some to say, "Well let's just subsidize this green stuff (crap)" instead of saying, "Flat Tariff on China."
Look at ordinary working Americans.
For too many of us, our standard of living is already going downhill.
For a time this increased 'demand' of more resources creates an artificial boom till it crashes.
But:
We ourselves criminally manipulated the banking system.
We ourselves manipulated Wall Street with Hedge Funds, Insider trading and lax enforcement.
We speculated on the market; creating bubbles, for last 2 decades.
We ourselves manipulated home-building and related industries causing the boom and bust.
And:
We ourselves are mismanaging our school and college education system.
We are mismanaging health-care delivery, which could be an international industry.
We are mismanaging energy management which could be an international industry.
We are mismanaging environmental pollution which could be an international industry.
We ourselves are mismanaging our and the world's monetary debt.
We ourselves are mismanaging world peace.
For some time we have been deluded by our slogans of exceptionalism; which is no longer be bought by ourselves or the rest of the world.
I don't think that you would argue that there are certain goods that can be produced in lower labor cost markets which would result in lower priced goods than can be made in the US at our manufacturing labor costs. That is the basic premise behind specialization and trade. For us to "reimport" that production, must by definition, cost the US in standard of living as the buyers provide the producers a wage higher than they need to.
Also, all those dollars that are recycled by the surplus nations into US Treasury obligations are a store of future inflation, which will decrease our standard of living.
Fundimentally, we are living at a level we cannot afford in the long run, regardless of where the goods are manufactured.
You explain the advantage of free trade very well. However the fact is that free trade players are not playing fair by hoarding US dollars in Treasuries instead of buying US products. Milton Friedman preached that free trade would mean that the dollars accumulated by unbalanced trade would return to the US when the holders of dollars bought US products and services. Instead they bought Treasuries so they could accumulate interest instead of US products and services to keep the trade balances in their favor
.
So if free trad de is not fair, the partners do not use the dollars to buy US products and services, the free trade system is a detriiment to the economy of the unbalanced trade partner instead of an asset.
Let all the foreign holders start buying US products and services. or build plants in the USA with their dollars ..and the unemployment proplems in the USA will end.
If inflation results in the US, it also affects the foreign holders of the hoarded dollars.. So they should all get together and start slowly investing the dollars back in the US and "PLAY FAIR" or they will lose out too same as the US has lost out by allowing free trade to decimate manufacturing jobs and technology in the US at the expense of US workers..
The other choice would be to sell dollars and repatriate the currency back into their local currency, which would increase the cost of all the goods coming into the US from that local (again inflation).
The end result of almost all scenarios is that we are enjoying a standard of living that is too high.
A comprehensive study of similar non-tariff trade barriers combined with US loan guarantees to manufacturers would comply with US international trade agreements and make our goods more exportable, more safe and green. Part of the guarantee programs would have that innovations supported by the government must be shared among rival manufacturers at a reasonable cost of licensing such innovation.
The creation of a single payer health system in the US would make exports cheaper. Estimates show healthcare costs add some $1,500.00 to the cost of an auto in the US. Americans can all have healthcare. The cost of manufactured goods for sale goes down large percentages, making our US goods cheaper here and abroad. Similar savings could be realized across the manufacturing sector. The US is the only major industrial nation which doesn't have such a healthcare system and unnecessarily imposes these costs upon its manufacturing sector.
Innovation in supports for research and development and cutting the underlying cost of goods could make US manufacturing more competitive. We only need the political will to do what will work.
A strong industrial policy should be the core of rebuilding America. A healthy manufacturing industry would generate greater tax revenue and increase employment thereby reducing social costs cutting deficit spending in a much more beneficial way than slash and burn cutbacks. While health/social/tax/military reform are desperately needed to put us on a more sustainable future course we need a policy directed not only at cutting spending but also at generating new sources of revenue.
http://blogdredd.blogspot.com/2011/05/reds-want-butter-too.html
The only hope for your message to ever be heard is for you to run for office of the President in 2012.
You know the nitty grity details and have the ability to debate the problems of unbalanced trade to blow away any compromised politician on this subject.
Writing books helps, but US manufacturing workers need more than written words.
Announce your entry in the Presdential Race and watch how fast you will obtain both volunteer support, campaign donations, and media attention.
We all will help. Just put your pen away on this blog and use it to fill out the Presidential application forms. Get on the radio and TV commentary shows and watch how fast you get support.
Just do it.Trump brought up this issue and gained immediate support in the election poles. He could never win though because he has too much baggage.
The worse thing that could happen to you is you will sell more books and the best thing will be to get this hushed up Congresstional issue out in front of US voters. We are all sick and tired of being told the economy is doing great when millions of US workers are still unemployed and underemployed working two part time jobs to put food on their table and roofs over their heads.
There will never be a better time than now for you to run for election.
"Free traded by my politician, now unemployed, broke, and forclosed."
or
"Nothing is free when you lose your job because of unfair free trade."
A review of the many crisis facing the country, including unemployment, government budget deficits, etc. have at their source, the trade deficit. It does matter.
As for the national debt issue, it is irrelevent as long as the seller of goods is obligated to buy Treasury obligations with their surplus to negate the natural exchange rate impact of the surplus/deficit issue. As long as they do not let the surplus enter the US dollar market inflation is contained and we get to live a better life. It only becomes an issue when they want to use the dollars for something other than currency manipulation. Then we all get inflation, which hurts the person with a surplus.
There is no such thing as free trade. Trade can be (1) positive (2) negative (3) neutral. If trade becomes 'free' for one of the parties it becomes charity. You may have noticed that charity is not what the free traders have in mind.
In spite of the factory worker approaching extinction nearly as complete as the farmer's, there still is tremendous disdain spouted by many for such people, even though it was hardly the mindless and lazy drudge often depicted that made us the most productive and often admired manufacturers of the world. The other disciplines described by Mr. Fletcher worked in concert with the producers and often achieved remarkable results. In fact, I rather think a lot of careers were made on the backs of those on the factory floor. No, I was never one of the latter, but I respected them.