Guy de Jonquières in the Financial Times takes on what he terms the myths of Chinese manufacturing (subscribers only). A valuable contrarian view:
By most measures, [US manufacturing] is in rude health. 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.
In, Manufacturing Jobs Data: USA and China, I examine the Clemson University working paper exploring the job data (another China myth)
“In this paper he is examines the factors leading to a reduction in manufacturing job worldwide. He concludes that job losses are mainly due to increased manufacturing productivity (worldwide, manufacturing productivity is increasing and jobs are decreasing – including China).” China is losing far more manufacturing jobs than the USA (and they are rapidly growing the manufacturing output).
There are real macro economic changes taking place but the belief about those changes is not very accurate.
China isn’t Our Worst Enemy
Tell people something long enough and eventually it seems to become the truth – even when it isn’t.
Many folks in America will tell you the economy is somewhere between downtrodden and destitute, for instance, despite all the evidence to the contrary. It’s largely the result of a mainstream media that seems intent on giving the economy short shrift.
And so it goes with the U.S. manufacturing industry. Talk to the average person on the street and they’ll tell you U.S. manufacturing is dead. Worse yet, talk to many people in the industry – people who should know better – and they’ll tell you only a slightly less depressing story. It’s almost as if they’ve given up.
They’re wrong.
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