You are currently viewing the printable version of this article, to return to the normal page, please click here.

TONELSON: Manufacturing-comeback claims debunked

- - Tuesday, January 15, 2013

ANALYSIS/OPINION:

If only American manufacturing was displaying the growth and resilience of the prominent Pollyannas hyping its prospects lately. The nation's industry might actually be entering renaissance mode and its economy might actually be replacing the past decade's disastrous bubble with genuine, production and earnings-led prosperity.

After all, President Obama, the Boston Consulting Group gurus, Atlantic Monthly authors and flocks of others keep trotting out anecdotes to show a historic comeback brewing in domestic industry, thanks to soaring production costs in China and other economic rivals, coupled with falling costs for labor and energy in America. Yet reams of wide-ranging new data repeatedly point to major, even mounting manufacturing woes — including flatlining growth and new record trade deficits practically by the month.

The latest reality check? A new study I authored for the U.S. Business and Industry Council (where this writer is a research fellow) revealing that advanced domestic manufacturing keeps failing a crucial competitive test — holding onto markets in its own enormous American backyard.

Imports continue to gain at the expense of U.S.-based companies and employees in sectors such as semiconductors, high-tech medical equipment, construction machinery and machine tools. Their unprecedented inroads not only make clear that the nation's technological and industrial crown jewels are becoming just as vulnerable to foreign competition as their long vanished labor-intensive counterparts such as clothing and toys. Imports' mounting U.S. market presence also helps explain why the current recovery has been so painfully slow.

According to the study ("Import Penetration Rises Again in 2011; Challenges Manufacturing Renaissance, Insourcing Claims," available at http://americaneconomicalert.org/USBICImportPenetrationReport2013Final.pdf), the import share of American consumption for 106 capital- and technology-intensive industries hit an all-time high of 37.57 percent in 2011 — the latest year for which the needed data are available.

That level topped the previous record — set just the year before — by 1.33 percent, and is more than 50 percent higher than the figure for 1997, when the critical underlying data series debuted.

Worse, advance indicators signal that imports supplied even more of these combined $2 trillion markets in 2012.

The import tide is an unmistakable economic difference-maker. Had imports in the 106 sectors simply remained flat between 2010 and 2011, their total output would have been nearly $90 billion higher (on a pre-inflation basis), and the entire growth-starved U.S. economy's expansion would have been 16 percent greater.

The findings also reinforce the case for big U.S. manufacturing- and especially trade-policy change. Although Mr. Obama focuses exclusively on boosting exports when talking about quickening the recovery through trade, the new import-penetration data show a bigger payoff from controlling imports. From 2010 to 2011, the advanced manufacturers examined lost more sales in their own home market (thanks to $89.2 billion in greater imports) than they gained in foreign markets (through export increases of $56.8 billion).

In other words, as common sense indicated long ago, the economy's best bet for trade-related gains is enabling domestic producers to regain the home markets they should know best and that lack any trade barriers, not trying to sell more to foreign customers unenthusiastic about buying American even in good economic times.

Thanks to these cockeyed policy priorities, U.S. industries that had lost half or more of their home market as of 2011 included construction equipment; electricity measuring and test equipment (vital for producing information-technology hardware); turbines and turbine-generator sets; metal-cutting machine tools; and mining machinery and equipment. And not far behind are them are semiconductors, auto engines and industrial controls. They're exactly the industries America has long relied on heavily for technological progress, rising productivity and high-wage jobs.

Companies losing market share are never described on Wall Street as winners, and whole industries suffering such setbacks don't deserve this label, either. USBIC's import-penetration study reminds us that domestic manufacturing is anything but out of the woods, and that wishful thinking won't revive it.

Alan Tonelson is a research fellow at the U.S. Business and Industry Council, a national business organization whose nearly 2,000 members are mainly small- and medium-sized domestic manufacturers. The author of "The Race to the Bottom," Mr. Tonelson also is a contributor to the council's website, www.AmericanEconomicAlert.org and tweets at @AlanTonelson.