- The Washington Times - Saturday, July 1, 2006

American manufacturing is back — or so the headline official economic data say. After a brief but steep 2001 recession, output has surpassed pre-slump levels, and even employment in the sector is stabilizing — after literally millions of jobs have been lost.

The United States does keep buying many more industrial goods from the rest of the world than it sells — in 2005, the gap hit an all-time high of $603 billion. But most economists attribute these imbalances to America’s strengths — notably, strong growth, which pulls in imports from our more sluggish trade partners.

A very different story is told by economic figures that the government does not track, and that consequently few policymakers or economists know of. They show unmistakably that U.S.-based manufacturing is failing the biggest test faced by any business: winning and keeping markets.

Specifically, in recent years, most industries producing goods in the United States have been steadily losing their home market — the world’s biggest, most important and most competitive — to products from overseas. In other words, numerous U.S. industries are facing the kind of import tide that has pushed General Motors and Ford dangerously close to receivership. Moreover, this weakness shows up in so-called smokestack and high-tech industries alike.

Unless this rising import penetration is reversed, the nation’s long-time global industrial leadership and all the benefits it has generated will be irretrievably lost.

The U.S. Business and Industry Council has calculated import penetration rates for a large, representative cross-section of American industry totalling112 different sectors. The data do not distinguish between U.S.- and foreign-owned companies producing in the United States, or between U.S.- and foreign-owned companies producing abroad. But they make clear that America is becoming a less and less desirable location for manufacturing.

Of the 112 industries examined, import penetration fell in only four between 1997 (when the leading current government industry classification system was introduced) and 2004: semiconductors, semiconductor manufacturing equipment, heavy trucks, and synthetic dies and pigments. Of these, only heavy trucks gained more than 1 percentage point of market share during that time.

Among the losers were industries critical to the fate of any modern industrialized economy: aircraft, aircraft parts including engines, telecommunications equipment, pharmaceuticals, navigation and guidance instruments, machine tools, ball bearings, turbines for power plants, and farm and construction equipment.

During this period, moreover, in 19 of the 112 industries, import penetration rates more than doubled. These included pharmaceuticals, computers, telecommunications equipment and environmental controls. Fourteen more industries lost nearly half their U.S. market share in these seven years, including turbines, navigation and guidance instruments, and electricity measuring and test equipment (critical for all information technology-related manufacturing).

Consequently, imports have seized control of numerous industries that have long fueled U.S. growth, productivity gains, technological progress, and high-wage jobs. In seven of the 112 industries examined, imports now represent at least 70 percent of the U.S. market, including machine tools, computer storage devices, and industrial process controls.

In 14 more sectors, imports have captured between 50 and 69 percent of the U.S. market, including autos, heavy-duty trucks, broadcasting and wireless communications equipments, and aircraft engines and engine parts.

Import penetration rate figures are superior measures of U.S. manufacturing competitiveness for several reasons, but in today’s global economy, one carries special importance: Unlike financial indicators like the profitability or share prices of U.S.-owned companies — which often reflect results from sizable overseas operations — import penetration figures focus on activity that contributes directly to domestic economic growth.

These figures say nothing about how U.S.-based manufacturing is doing in foreign markets. Yet although reliable, comprehensive statistics on world market shares do not exist for most industries, it defies reason that their international performance is offsetting domestic losses. After all, America’s is the market that U.S.-based producers should know best. It’s also one of a handful worldwide where they don’t face trade barriers.

The story of underlying weakness told by the market-share figures powerfully challenges the view that American manufacturing is out of the woods. For example, it indicates that today’s record output figures reveal little per se about industry’s health. A country whose manufacturing sector keeps losing share of a growing national market is like a company that keeps losing share of a growing product market. It is a country with weakening, not strengthening, fundamentals.

In fact, the clearest message sent by the import penetration data is that the great expansion of U.S. foreign trade that Washington began to encourage in the early 1990s has been no bonanza for U.S.-based producers. Specifically, their widespread home market share losses point to the heavy price these companies and industries have paid for the U.S. government’s failure to combat predatory foreign trade practices like dumping, production and export subsidies, and intellectual property theft. All of these tactics give foreign producers advantages in U.S. — and global — markets that have nothing to do with economic efficiency.

Nothing on the economic horizon, consequently, is more disturbing than Washington’s determination to keep U.S. trade policy on its recent track. Without fundamental change, the import penetration data signal domestic industry’s decline will be pushed closer to the point of no return.

Alan Tonelson, a research fellow at the U.S. Business and Industry Council Educational Foundation, is a columnist for its americaneconomicalert.org Web site and the author of “The Race to the Bottom” (Westview Press). Peter Kim is a research associate at the Foundation.

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide