Here is a question asked on the FM website this week (some of these were assertions, which I’ve rephrased at questions): does the US still manufacture anything? Rephrased, is US manufacturing prospering or dying?
- Manufacturing output in the US has increased steadily for generations in both nominal and real terms.
- Measured by gross output/GDP, it has remains roughly flat, 14% of GDP since 1980.
- But these measures mask a deterioration, as imports “hollow-out” our manufacturing base — and manufacturing valued-added increases more slowly than gross output. Hence the contribution of manufacturing’s valued-added to GDP was 20% in 1980 but only only 11% in 2008. Just like agriculture, which remains healthy but a shrinking fraction of the US economy.
The last point is the overlooked key. Output grows, but imports take a growing share of that.
Why? One of the major problems with US manufacturing is the overvalued dollar (much as the overvalued pound was for the UK after WWI). When the bizarre large imbalances in the global economy right themselves, our trade deficit will melt away. That can happen in many ways, some more pleasant for us than other. I recommend that we do not continue trusting to luck in these matters. Some planning and effort now might prevent much pain in the future.
For more about this see Globalization and free trade – wonders of a past era, now enemies of America (16 March 2009).