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Trade deficit on course for surplus
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Question of the Day
“The most important domestic energy development in the last 50 years is poised to reshape American manufacturing,” said Kevin Swift, chief economist of the American Chemistry Council, who noted that increasing production in the U.S. this year turned a chronic trade deficit in chemicals into a modest surplus.
Has China peaked?
Analysts see progress as well on the other major cause of the trade deficit: China. After decades of jobs and industries lost to China, some analysts say, the pendulum is starting to swing back toward the United States.
“There is growing evidence that China’s challenge to U.S. manufacturing has peaked, and its competitive advantage is in decline,” said Jerry Jasinowski, former president of the National Association of Manufacturers. “The resurgence may be even stronger and more broader-based than most people realize.”
A study last year by the Boston Consulting Group found that the cost of producing goods in China is rising rapidly. China has the fastest growing wages of any country and has had to pay steeply higher bills for the oil, coal, copper and other raw materials it imports in massive quantities from abroad to feed its manufacturing base. The costs of industrial real estate, energy and transportation have been escalating in China as well, and citizens are demanding more safety and environmental controls, making it more expensive for manufacturers to locate there.
China’s sharply rising costs for basic materials and housing drove up inflation 7 percent there last year, forcing the government to douse the inflation fires with tighter lending policies that produced a sharp slowdown in China this year. Within five years, the Boston Consulting Group predicts, the cost of producing goods in China’s coastal cities will be only 10 percent to 15 percent less than in some regions of the U.S. — not enough of an advantage to overcome the high legal, transportation and inventory costs of manufacturing there.
For this reason, the group cites a growing list of companies moving production back to the U.S. from China, including NCR Corp., the Coleman Co., Ford Motor Co. and the Outdoor GreatRoom Co.
“The tide is turning in our favor,” said Mr. Jasinowski, citing the “strongest productivity growth in the industrial world” and subdued wage growth that has made the U.S. more attractive to global companies such as General Electric Co. and Apple Inc., both of which have announced plans to locate facilities at home after years of moving abroad.
Plenty of skeptics, however, question whether the U.S. is losing its appetite for cheap Chinese imports.
“The data say almost exactly the opposite,” said Alan Tonelson, a research fellow at the U.S. Business and Industry Council, which represents small U.S. manufacturers that compete with the Chinese.
“If China’s manufacturing clock is rapidly being cleaned by America, why have the Chinese taken the global industrial output lead during the past two years?” he asked, citing an IHS Global study. “Why did the U.S. manufacturing trade deficit with China set a new monthly record in October?”
End of trade deficits?
But the view that the trade deficit is on the wane has gained some prominent backers. Mr. Levy, the New York forecaster, said he is convinced that the U.S. has turned the corner on trade, thanks to a combination of declining oil imports, soaring farm exports and a sea change in global manufacturing. He predicts that the chronic trade deficits that have been in place since the 1970s will all but disappear as the economy gains momentum.
But even the optimistic Mr. Levy has been surprised at how quickly declining fuel use and increasing oil production in the U.S. have deflated the oil gap this year.
“It’s striking,” he said, but the renaissance in manufacturing has been building for a decade. Mr. Levy traces the comparative advantage of the U.S. to the automation of many manufacturing processes previously performed by unskilled workers. That means companies now need fewer but more highly skilled workers who are more likely to be found in developed countries such as the U.S.
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