Charts of the day, world manufacturing output, 2012

AEI ^ | Mark J. Perry | December 15, 2013

[1rudeboy]

The charts above are based on new data from the United Nations on GDP and its components for more than 200 countries, updated through 2012. Here are some highlights of the UN’s data update:

1. The top chart compares the annual manufacturing output from 1970 to 2012 (measured in current US dollars) for the five countries that produced the most manufacturing output last year: China, US, Japan, Germany, and Korea.  As I reported last year, China officially became the world’s largest manufacturer in 2011, with output in 2011 ($2.34 trillion) that was 20.6% higher than the $1.94 trillion (updated) of factory output in the U.S. In 2012, China’s manufacturing output increased by 9.7% to $2.556 trillion, while factory output in the US increased by 2.6% to $1.993 trillion. For the second year in a row, China was the world’s largest manufacturer and out-produced the US by 28.2%. Previously, China’s manufacturing output exceed German’s factory output in 2000, and Japan’s output in 2006.

2. The U.S. is still a world leader in manufacturing and America’s factory output continues to increase, despite the rise of China to the world’s No. 1 manufacturer. The bottom chart above puts the enormous size of the U.S. manufacturing sector into perspective, by comparing America’s manufacturing output in 2012 ($1.993 trillion) to the combined manufacturing output of Germany, Korea, Italy, Russia, Brazil and India, which are the countries that are ranked No. 4 through No. 9 in 2012 for manufacturing output.

3. It’s also important to remember that China’s manufacturing workforce is estimated to be around 100 million and could be as high as 110 million, compared to America’s manufacturing employment of slightly more than 12 million. Therefore, even though China is producing more manufacturing output than the US, the productivity of American factory workers is so high compared to China, that China needs almost ten factory workers for every one American worker to produce 28% more output. On a per worker basis, the average American factory was responsible for $166,000 of output in 2012, while the average Chinese factory was responsible for less than $26,000 of manufacturing output; the productivity of American factory workers was more than six times that of the average worker in China.

4. Also noteworthy was the fact that South Korea produced more manufacturing output than Italy last for the first time ever, and moved ahead of Italy to become the world’s No. 5 largest manufacturing nation last.  Also noteworthy: India’s factory output exceeded manufacturing production in France for the second straight year, which moved India into ninth place for both 2011 and 2012.

[1rudeboy]

I bought some American-made socks at Walmart just a couple of days ago.

In any case, the trouble that American manufacturing suffers is American-made [pun intended].

[bigbob]

You raise a fair point, but I would challenge this statement:

“Meanwhile it imports virtually all the small high-value stuff”

This makes it necessary to examine “value”. If we were to tear down a washing machine or refrigerator and lay all the parts out in front of us, what would we see? Many parts are very low on the value chain, what the article called “metal bashing”. They purchase raw materials like steel or plastic resin and cut, form, forge, mold etc them into piece parts. This kind of manufacturing is highly dependent on the cost of raw materials which they have little control over, thus they take as much labor out as possible to try to stay in business. Not usually seens as the best profit zone.

Moving up the chain, someone integrates those parts to create sub-assemblies like a compressor or a transmmission. Next someone integrates various subsystems along with new parts to create the finished product, and increasingly there is a software element in this integration. As hardware is replaced by software the cost of the bill of materials goes down, but the selling price might even go up, due to near features and performance. This is happening now in white goods where variable speed electrical motor controls are replacing mechanical transmissions, and the resulting value is being captured by the GEs, Whirlpools, etc - even though the PC board containing the microcontroller which runs that code is built in a low-cost country.

This is why US productivity continues to go up. Apple and Google sell a “user experience” as much or more than they sell computer hardware. The hardware is a means to an end.

The hard reality is, capitalism does not reward companies for creating jobs, it rewards them for creating wealth. And most of us I think would agree that wealth is not and should not be equally shared. Fortunately American companies still are motivated to out-think, out-engineer, and do more with less, and that’s what I beleive is the source of true value in the eyes of the consumer.

[DannyTN]

"In any case, the trouble that American manufacturing suffers is American-made [pun intended]."

That's true. Americans lowered the import tariffs. And that started the trouble.

[1rudeboy]

Well, choose your starting point. Do you want to go with 1950? 1960? 1970?

Then, ask yourself: do we make more now rather than then?

[1rudeboy]

And, sorry but again: define “trouble.” Output, or employment?

[DannyTN]

Find a dictionary.

[DannyTN]

Find a dictionary.

[DannyTN]

Real wages have stagnated since the 1960s. Which coincidently is when we lowered the import tariffs.

[DannyTN]

Real wages have stagnated since the 1960s. Which coincidently is when we lowered the import tariffs.

[1rudeboy]

Show me.

[DannyTN]

Dictionaries

[bigbob]

I don’t mean to answer for knarf, but here’s my reply: Yes. That is how accounting works all over the world, but it’s not quite the way your example suggests. First, few companies could exist if material costs comprised 80% of their selling price. I know you were just making up an example, but it’s actually more the other way-round, let’s say $30 million of materials goes into a $100 million aircraft. In addition, there’s labor - which is paid wherever the integration work is peformed, to everyone from assembly workers and those like QA and purchasing people who support manufacturing operations and the bosses. In addition, companies have to pay SG&A (administrative) and R&D (engineering) costs, and again these are US-based jobs. All these salaries go into local economies where they are used to pay mortgages, buy groceries, pay the Obamacare bills, etc - and where the multiplier effect is 3 to 10X.

Would Boeing sell more planes if it paid US wages for those components that are outsourced? Let’s transpose the question to “Would McDonalds sell more Happy Meals if it paid it’s workers $15 an hour like the protesters last week were demanding? It’s the same argument. More likely, Airbus would win more fleet purchases by offering a better aircraft for the money, and Boeing would lose market share instead. That’s how free markets work.

Consider also what makes a Boeing 787 have value to an airline? It’s because of who Boeing is - their superior reputation and track record for many years. Much of the “value” Boeing has is due to Boeing’s skill and track record at integrating components into the best, safest, most effective aircraft in the world. Boeing creates that value through everything it has ever done, and it’s entitled to be rewarded for it. Where parts come from isn’t any more of a factor to Boeing’s customers as where the cornfield was located that produced the sweetener for our favorite beverage. Companies are rewarded for managing cost in the context of all other factors to create value for their customers.

[1rudeboy]

Nice try, bud. I figured you don't know what the hell you are talking about.

[DannyTN]

[Wyatt's Torch]

Stunning levels of US productivity:

“It’s also important to remember that China’s manufacturing workforce is estimated to be around 100 million and could be as high as 110 million, compared to America’s manufacturing employment of slightly more than 12 million. Therefore, even though China is producing more manufacturing output than the US, the productivity of American factory workers is so high compared to China, that China needs almost ten factory workers for every one American worker to produce 28% more output. On a per worker basis, the average American factory was responsible for $166,000 of output in 2012, while the average Chinese factory was responsible for less than $26,000 of manufacturing output; the productivity of American factory workers was more than six times that of the average worker in China.”

[Wyatt's Torch]

Just made it up. Like shadowstats.

[DannyTN]

The problem with your chart is includes CEO's and wall street types who have made money devastating American industry and sending it to China. Look at non-supervisory wages to see the real story. This article explains why your chart is bunk.

[DannyTN]

The problem with your chart is includes CEO's and wall street types who have made money devastating American industry and sending it to China. Look at non-supervisory wages to see the real story. This article explains why your chart is bunk.

[1rudeboy]

Good grief. Never heard of that dude, but his blog activated every anti-communist alarm in the house.