Monday, September 10, 2007

“Reports of the death of U.S. manufacturing have been greatly exaggerated.” This is the opening line in a revealing and timely economic analysis aptly titled “Thriving in a Global Economy — The Truth About U.S. Manufacturing and Trade.”

At a time when much of the American electorate is sour on trade and wrongly believes America doesn’t make much of anything anymore, this report by Daniel Ikenson, a top analyst at the Cato Institute’s Center for Trade Policy Studies, comes as breath of fresh air on a subject poisoned by political demagogues, union leaders and uninformed partisans posing as broadcast journalists.

The latter group of course is led by CNN’s Lou Dobbs, who each week spreads more disinformation about U.S. manufacturing than a convention of AFL-CIO members. Mr. Dobbs wants us to believe our factories are all moving overseas; U.S. manufacturing is in deep decline; pay and benefits in factory jobs are at record lows; competitors like China are beating us in manufacturing; we are losing our competitive edge; and imports are killing us.

But the facts about U.S. manufacturing tell a much different story in this valuable study that starts off saying 2006 “was a record year for output, revenues, profits, profit rates, and return on investment in the manufacturing sector.” Indeed, “despite all the stories about the erosion of U.S. manufacturing primacy, the United States remains the world’s most prolific manufacturer — producing 2½ times more output than those vaunted Chinese factories in 2006,” Mr. Ikenson reports. The unvarnished truth is that we are manufacturing more, selling more and exporting more abroad than at any time in our history.

True, critics can point to the loss of 3 million manufacturing jobs largely between 2000 and 2003 (and millions more over the last two to three decades). But that downsizing has more to do with our ability to make more with fewer workers as a result of technological advances that have kept us competitive in the global economy.

Sad to say, the Lou Dobbs disinformation campaign has been swallowed hook, line and sinker by many politicians on Capitol Hill, where more than a dozen protectionist, trade-related bills are floating around, based on the premise that manufacturing is going down the tubes and free-trade pacts are the principal culprits.

Quite the contrary, says Mr. Ikenson, “The totality of evidence points to a robust manufacturing sector that has thrived on account of greater international trade.” We need more, not fewer, free-trade agreements to open more foreign markets to U.S.-made goods and services, he says.

Mr. Ikenson does not dismiss the decline in manufacturing employment, or the sector’s smaller share in U.S. gross domestic product, which he acknowledges “are important statistics which should be considered.” But we need to consider them in the context of other relevant data “if informed conclusions are to be reached and bad policy choices avoided.”

So he offers these underreported manufacturing facts from 2006 when the United States was experiencing record imports of manufactured products:

c Real U.S. manufacturing output reached an all-time high.

c Real manufacturing revenues reached an all-time high.

c Real manufacturing operating profits reached an all-time high.

c After-tax profit rates for manufacturing corporations reached an all-time high.

c Return on equity for manufacturing corporations reached an all-time high.

c The value of U.S. manufacturing exports reached an all-time high.

c U.S. factories remained the world’s most prolific, accounting for more than one-fifth of world manufacturing value added. Free-trade critics never mention any of these statistics, focusing almost entirely on the decline in manufacturing employment and their belief that if we raise the costs of imports through tariff/taxes and other regulations, we can boost factory jobs.

But higher tariffs would raise consumer prices that would especially hurt middle- to lower-income Americans; undermine those sectors in our economy that buy, distribute and sell imported products; and lead to trade retaliation against us abroad. All of which would destroy jobs.

Producing more with fewer workers at less cost is “something to cheer about,” because it leads to long-term increases in our living standards. “When manufacturers can produce more output with fewer and less costly inputs, that’s called progress,” Mr. Ikenson says.

He quotes from Harvard business professor Michael Porter’s influential book, “The Competitive Advantage of Nations”: “A nation’s standard of living in the long term depends on its ability to attain a high and rising level of productivity in the industries in which its firms compete.”

Still, the economic myth persists that trade and the global economy is the cause of manufacturing decline, a contention that Mr. Ikenson says “is all but moot. What is perhaps most surprising about the data, given the antitrade rhetoric so popular in Washington, is that [U.S.] export growth was evident for all but one of the 18 [manufacturing industries.]”

Indeed, double-digit export growth “was the case for 16 of 18 industries. Export growth has been an important part of manufacturing’s strong revenue and profit growth.” In short, there is abundant evidence that U.S. manufacturing is alive and well and prospering in a thriving global economy.

Back to you, Lou Dobbs.

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.

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