do you think this trend could eventualy goad the USA to return to a manufacturing based economy instead of debt and consumer based as it stands now ?
Could be. Some insourcing has begun.
Back when we were a "manufacturing based economy" what percentage of GDP do you think manufacturing represented?
“do you think this trend could eventualy goad the USA to return to a manufacturing based economy instead of debt and consumer based as it stands now”
To be the only force (exchange rates) that works in that direction, no, not without too much economic pain, domestically before that point is reached.
But a combination of tax policies that encourage savings -
(quit taxing income earned on savings all together, or at least quit taxing all income earned in regular savings accounts, reduce taxes on dividends and enlarge the level at which income can be placed in tax-deferred retirement accounts) -
together with higher import prices could bring it about much quicker.
A higher domestic savings rate and higher manufacturing rates go together because domestic sources of capital are greater (as a % of GDP) and manufacturing is capital intensive, compared to services. At the same time, in a rising-import-cost environment, investment in domestic manufacturing becomes more profitable, as the price-advantage of imports is squeezed out.
Look at the countries with the highest manufacturing rates, as a % of GDP, and usually they will also be countries with higher domestic savings rates, as a % of GDP. For instance, the savings rate (savings as a % of GDP) for some selected countries are - Canada-23%, China-40to50%, France-19%, Germany-20%, Italy-18%, Japan-28%, UK-15%, US-12%; while manufacturing, as a % of GDP, is approximately, Canada-16%, China-44%, France-30%, Germany-33%, Italy-25%, Japan-20%, UK-15%, US-10%. In addition, many of the current high manufacturing countries are also countries where exports, of all types, are a large % of GDP (in U.S. it was about 7%).
Some of these numbers help explain further why changing currency values are not zero sum items. Americans moan about the Canadian Dollar’s value increase, but the U.S. gets 60-75% of all Canadian exports, which become less assured of keeping their U.S. customers with every full % increase in their currency.
As further indication of how complex and variable the manufacturing, import, export and currency value relationships are to GDP and in spite of how low, as a % of GDP that US manufacturing looks, another figure will leave your head spinning - the United States remains the world’s top manufacturing country, in dollar value, with its factories producing goods worth $1.49 trillion in 2005, 1.5 times the level in the next country, Japan.
Correcting our savings vs manufacturing imbalance, will increase our excellent performance.