[OPE] US manufacturing, and China

Howard French writes (2006):

The US is still the top manufacturing nation, producing almost a quarter of global output, the same as in 1994, while Japan's share has shrunk. Adjusted to reflect steady falls in the prices of manufactures relative to other goods and services, US output has doubled since 1985 and its share of gross domestic product has changed little in half a century. True, more output is from plants owned by non-US companies, some of which have displaced indigenous production. That may fuel popular perceptions of national decline, particularly because greenfield factories usually shun the old rust belt. But corporate nationality is irrelevant to overall economic welfare, except insofar as foreign-owned plants often out-perform locally owned ones.

What of China as "job thief"? US manufacturing employment is in long-term decline, just as it is in other rich countries. But that is chiefly because of impressive productivity gains. Had none occurred since 1970, almost 40 per cent of all US jobs would "in theory" be in manufacturing, three times today's level. But the comparison is meaningless because standing still would have consigned US manufacturers to competitive oblivion.

Of course, Chinese competition has claimed some US manufacturing jobs. But Oxford Economics puts the losses from 2000 to 2010 as low as 500,000 "no more than the US labour force sheds each week". Their disappearance is also partly a statistical illusion. Many manufacturing jobs are actually in services, such as finance and marketing, which yield far higher returns. As companies have disaggregated or outsourced operations, official employment data have re-allocated swaths of workers to the services sector.

If US manufacturing is stronger than many Americans believe, China poses a weaker challenge than is often supposed. Its output is still less than half that of the US and many of its industries are suffering a severe profits squeeze. Indeed, to call China a manufacturing economy is something of a misnomer. In reality, it is the world's biggest final assembly shop, with minimal local value-added. As a forthcoming report by the Institute for International Economics and the Center for Strategic and International Studies points out, on average two-thirds of the value of Chinese products is imported and much more in some industries. Furthermore, China's much-ballyhooed "high-tech" exports are a quirk of customs classification: most are low-margin electronics products, such as DVD players. According to Jonathan Woetzel of McKinsey, the management consultancy, China still lags far behind the US in precision engineering industries.

>From http://www.howardwfrench.com/archives/2006/04/04/china_manufacturing_myths/

See also http://www.chinabusinessforum.org/pdf/the-china-effect.pdf

http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_51-100/WP89.pdf

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Received on Sun Sep 14 16:49:45 2008