Events

U.S. Manufacturing: Flourishing or Floundering?

March 21, 2007 // 10:00am12:00pm

Alan Tonelson, a Research Fellow at the U.S. Business and Industry Council (USBIC) and author of The Race to the Bottom, presented the findings of a USBIC analysis which point to the decline of many U.S. manufacturing sectors. This decline is evidenced, Tonelson said, by slow growth in value-added manufacturing and industrial capacity in high technology, durable goods, and non-durable goods sectors over the past ten years. Furthermore, the import penetration rate (the share of the U.S. market for manufactured goods that has been taken by imports) has increased significantly in nearly all high-technology and capital-intensive manufacturing sectors.

From 1997 to 2005, Tonelson said, 110 of 114 industries examined lost market share to imports. In addition, 26 of the 114 industries examined lost more than fifty percent of their market share to imported products. The only sectors that gained ground were semiconductors, computer storage devices, and heavy trucks and chassis. These findings are revealing, Tonelson said, because they are based on the performance of products made in the U.S. compared to the performance of products made overseas in the same U.S. market. This differs from the trade deficit, which compares the performance of U.S.-made products in foreign markets to foreign-made products in the U.S. market. While acknowledging that the trade deficit figure is important, Tonelson argued that it is manufacturing within the U.S. that is most relevant to our standard of living and overall economic well-being.

In addition to showing that U.S. manufacturing is being "hollowed out," Tonelson points to the findings as evidence that a strong dollar does not impact the competitiveness of manufacturing as much as originally thought and that the U.S.'s manufacturing problems are not cyclical in nature – two major assumptions that have been built into U.S. economic thinking. The vast majority of industries studied, Tonelson said, actually lost market share to imports when the dollar was falling. They also lost market share when the economy was growing strongly and weakly, which suggests no connection with the business cycle. In concluding, Tonelson called for new policies that will enable U.S. manufacturing to keep apace with foreign competition.

Ernest Preeg, a Senior Fellow in Trade and Productivity at the Manufacturers Alliance/MAPI, agreed that the U.S.'s advanced manufacturing sectors are under siege and require a serious policy response. Although the U.S. manufacturing sector accounts for only a small percentage of GDP, he noted that it produces ninety percent of R&D and new patents within the U.S. In response to Tonelson's argument, Preeg cautioned that many imported products ultimately end up being exported and cannot therefore be counted as contributing to the import penetration rate. He cited Boeing as an example of a company that imports parts from Mexico to build and export commercial aircraft. He also argued that U.S. exports must be counted when considering the state of U.S. manufacturing and that China's undervalued currency is the single biggest issue impacting U.S. economic competitiveness. Domestically, Preeg said, education, R&D, corporate taxes, and litigation costs are the most significant determinants of the manufacturing sector's competitiveness.


Drafted by Mitch Yoshida

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