The State of U.S. Manufacturing

Foreign Exchange Daily ^ | October 2nd 2009 | Marc Chandler

[expat_panama]

The United States has been hollowed out. It no longer manufactures goods. Once the factory of the world, the U.S. now manufactures debt. The high wage manufacturing jobs have been out-sourced to low wage economies. The demise of U.S. manufacturing is at the core of the decline of America, its chronic trade deficits and growing international indebtedness. It makes the world’s savers reluctant to be exposed to the U.S. dollar.

There is one problem with this widely held view: It is factually wrong.

The value of U.S. manufacturing output in real terms (adjusted for inflation) was a little more than $3 trillion in 2008. That is up from $1.2 trillion in 1972. If the U.S. manufacturing sector was a separate country, it would be the world’s 5th largest economy (behind the rest of the U.S., Japan, China and Germany). The U.S. remains the world’s largest manufacturer. Full stop.

Although international comparisons are fraught with measuring problems, it appears that the U.S. share of world manufacturing is roughly the same as the combined total of the BRICs (Brazil, India and Russia account for a combined 11-12% share).

The data also suggests that the impressive rise of Chinese manufacturing has come at the expense of Japan and other East Asian countries more than the United States, which the UN data suggests actually saw a small rise of its global share in recent years.

China has largely injected itself into the production chain at the labor intensive stages, so that television or electronic good that may have been made in Japan or Taiwan or South Korea now says made in China.

[snip]

[dennisw]

Doesn’t make the trade deficit debt. Try again?.......

You can call it whatever you want but everyone else knows a trade deficit accumulates into debt. You can ask the Chinese if they think our trade deficit becomes a debt

[Toddsterpatriot]

You can call it whatever you want but everyone else knows a trade deficit accumulates into debt.

Accumulates into debt? What does that even mean? Do you imagine it turns into debt?

Does it only "accumulate into debt" if the foreigners buy T-Bills? What if the government balanced the budget and paid off all the T-Bills? Would it still "accumulate into debt"?

What if the foreigners then bought GE bonds with their cash? Would it still "accumulate into debt"?

What if they bought stock instead of bonds? Would it still "accumulate into debt"?

[expat_panama]

So you were right Todd, he’s got a couple miss-toggled dip-switches.

[1rudeboy]

I’m wondering if we should try this angle: say I buy a case of Sam Adams, and Boston Beer Co. takes the profit and buys a Treasury note. Am I contributing to our debt? Is this where the “but the profit stays in the country” thing comes into play?

[1rudeboy]

Australia might not be the best example for you, seeing that it has a merchandise goods trade deficit with the U.S.