Manufacturing Surprise: The U.S. Still Leads In Making Things

Last Updated Jun 21, 2010 11:50 AM EDT

We all know that the U.S. has lost ground as a manufacturing power in the world economy, thanks to emerging countries' ability to make things more cheaply. But did you know that in spite of all the rhetoric, and more to the point the erosion of those important advantages, the U.S. is still the world's leading manufacturer? It is, but won't be for long.

IHS Global Insight, an economics consulting firm, has published a ranking of the manufacturing output of the leading economies, and to my surprise, the U.S. still manufactures more stuff than anyone else -- $1.7 trillion in manufacturing value added in 2009, compared to $1.3 trillion from China.

This advantage is mostly in the rear-view mirror, however. As you have read in these pages before, the goods-producing sector of the U.S. economy has been in decline for many years, both as to its contribution to the economy and the people it employs. (Please also see a post from a while ago about manufacturing jobs, called "Sharing the Pain of Unemployment.")

The Bureau of Economic Analysis says that the goods-producing sector took a back seat to services as early as 1943. That seems hard to believe, consider all the armaments and uniforms the war effort required, but that's how the numbers shake out. Goods claimed the lead again in 1946, but services have grown faster, dominating since 1958. This graph says it:


Still it's a surprise to me that the U.S. manufacturing is so big -- larger than Japan and Germany together. But as IHS reports, China is gaining, while most everyone else is shrinking or flattish:


Here are IHS Global Insight's thoughts on the relative positions (sorry, no links). The bad news:
[L]ooking ahead, the IHS Global Insight forecasts for relative growth in the U.S. and China manufacturing sectors show that the "real" inflation adjusted size of China's manufacturing sector will...reach the size of the U.S. manufacturing sector ... sometime around 2013-2014.
But our manufacturing has the advantage of strong backup from the services sector:
[T]he composition of manufacturing in the U.S. has a more economically appealing profile than it does in China. For example, China has a commanding lead in lower tech areas such as textiles, apparel, appliances, as well as certain commodities. By contrast the U.S. has a larger share in higher tech areas such as aircraft, special industrial machinery (machine tools, turbines, equipment for construction and mining), medical and scientific equipment, and of course media related industries (publishing and printing).
...
The share of manufacturing value added that is claimed by electronics (including computers) is roughly the same in China as in the U.S. However the U.S. based tech industries consistently achieve higher productivity and wage levels than do their counterparts in China. Also the U.S. tech industries enjoy a stronger domestic base than is seen in China, despite the latter's robust macro economic growth rates, since the higher tech industries in China have traditionally been driven by trends in multinational investment, and other forces related to international trade.
In addition the well developed services sectors in the U.S., in particular the dynamic areas of programming and software applications that are resident in the "information" sectors, play a strong role in the supporting the ongoing vitality and development of the electronics part of U.S. manufacturing (in addition to supporting other industries such as 'Publishing'). So the strength of U.S. in services sectors should continue to provide competitive support for the viability and fast growth rates of technology based manufacturing in the U.S.
So U.S. manufacturing is still big -- maybe not bigger than everyone else by a mile, but it's important. And by the reasoning of IHS Global Insight, we're still pretty good at it. And if Chinese manufactured goods become more expensive due to a rising renminbi, maybe we can reclaim some of that market share.
  • John Keefe

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