A recent Bloomberg article by Dan Wang and Ben Reinhardt had some interesting things to say about US manufacturing. Instead of high tariffs, they suggested that the US encourage foreign investment into facilities producing goods in America. I particularly liked this paragraph:
But the more that Trump makes the country captive to his impulses—whether on trade policy, immigration or the treatment of investors—the more likely that it won’t be China that’s isolated from the rest of the world, but America itself.
But what if the entire premise of the article is false. Is it possible that the US is not in fact falling behind in manufacturing? Given all of the stories about the hollowing out of the Rustbelt, that optimistic view seems a bit far-fetched. But consider this graph provided in the Bloomberg piece:
It is important to recall that China has more than 4 times America’s population. Thus in per capita terms, American manufacturing output is more than two and a half times larger than that of China. Indeed in per capita terms the US leads every single country on that list, except for Germany (which has 1/4th our population). We even lead countries like Japan and South Korea in per capita manufacturing output, despite their impressive export sectors. I suspect that people underestimate American manufacturing because it is a relative low share of GDP. But that doesn’t reflect that fact that our manufacturing sector is doing poorly–it isn’t–rather that our other sectors are so productive that out total GDP per capita greatly exceeds that of almost all other countries.
A recent article by Gary Winslett showed that the decline in the Rustbelt was largely caused by a re-allocation of industry to other regions, especially the Sunbelt. Another article by Ben Glasner showed that workers in manufacturing are actually more likely to be college graduates than workers in other sectors of the economy. American manufacturing is doing far better than many people assume.
PS. The strong dollar may somewhat overstate our manufacturing strength. But recall that manufactured goods are often traded internationally, and hence “PPP” type adjustments are much less important than in the service sector.
