The federal government released December employment results for the economy last week. The manufacturing sector lost another 27,000 jobs, according to the Wall Street Journal. That may sound bad, but compared with the rest of the decade, it actually was pretty good: total employment in the domestic manufacturing sector declined from 17.3 million in December of 1999 to 11.6 million last month, meaning 5,700,000 jobs have disappeared over the last decade — an average of 47,500 per month.
Said differently, the number of U.S. workers employed in manufacturing activities shrank 32.7% over the last ten years. Since per capita productivity grew by a similar percentage, it would appear that total output hasn’t changed much in ten years. But the nature of U.S. manufacturing has changed a lot: the nation no longer produces a number of products in which it was once a global leader, such as televisions, and much more of the domestic manufacturing base is owned by foreigners. For instance, when the Pentagon wanted to surge production of high-strength steel for armored trucks used in Iraq, it discovered the only plant making such steel in the U.S. — a former Lukens facility in Coatesville, PA — is now owned by Luxembourg-based Arcelor Mittal.
Of course, a much bigger chunk of the manufacturing base in places like China is now owned by foreigners too — including us. But the more striking trend is that since China joined the World Trade Organization in 2001, it has rapidly expanded its manufacturing sector while America has pretty much stood still. The economics consultancy Global Insight estimates that China will surpass America in manufacturing output by 2020, and by some areas such as electronics and steel, it already has. China isn’t the only challenger to our standing as a manufacturing power though: Airbus regularly outsells Boeing in the commercial transport market, and Samsung outsells Motorola in cell phones (Samsung will displace Hewlett Packard as the world’s biggest tech company this year).
There may be no practical way to arrest the decline of U.S. manufacturing in an open trading system as long as labor is a key input. With Chinese engineers available for a tenth of the cost of their American counterparts and commodity prices pretty much the same everywhere, it’s hard to see how U.S. producers could make up the difference even if their tax rates were cut in half. But that doesn’t mean Washington shouldn’t do everything it can to assure a level playing field for U.S. exporters. The 40-year campaign of European governments to hobble Boeing by giving its rival billions of dollars in illegal subsidies is outrageously unfair. And the Chinese currency peg to the dollar is estimated by the Economic Policy Institute to give Chinese exports the equivalent of a 30% subsidy by depressing prices below where the market would set them. If these abuses are not corrected, America’s manufacturing sector faces a bleak future.
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