The most vital sector of the U.S. economy continues to exhibit worrisome indicators.
Manufacturing is a vital source of employment, and a key component of America’s balance of trade. In August, according to the Institute for Supply Management it registered a “PMI” of 51.1 percent, a decrease of 1.6 percentage points from the July reading of 52.7 percent. (The Project Management Institute figure is widely used as an indicator of economic trends, and as a short-term forecaster of several important lagging output variables.) The New Orders Index registered 51.7 percent, a decrease of 4.8 percentage points from the reading of 56.5 percent in July. The Production Index registered 53.6 percent, 2.4 percentage points below the July reading of 56 percent. The Employment Index registered 51.2 percent, 1.5 percentage points below the July reading of 52.7 percent. Inventories of raw materials registered 48.5 percent, a decrease of 1 percentage point from the July reading of 49.5 percent. The Prices Index registered 39 percent, down 5 percentage points from the July reading of 44 percent, indicating lower raw materials prices for the 10th consecutive month. The New Export Orders Index registered 46.5 percent, down 1.5 percentage points from the July reading of 48 percent.
According to the Economic Policy Instiute “The United States lost 5 million manufacturing jobs between January 2000 and December 2014… job losses can be traced to growing trade deficits in manufacturing products prior to the Great Recession and then the massive output collapse during the Great Recession…Between 1970 and 2000, manufacturing employment was relatively stable, ranging from 16.8 to 19.6 million, and generally remaining between 17 and 18 million…However, this relationship broke down in the early 2000s, a period of rapidly growing trade deficits.”
What happened? According to the Daily Caller, “Bill Clinton. It was his efforts at the end of his second administration that opened U.S. markets for Chinese imports. Under a prior system of rules that apply to communist countries, if the United States had found China to be exporting goods in an unfair manner (e.g., special export subsidies to artificially lower prices), we could respond unilaterally by raising import taxes (tariffs) on Chinese products. This was a relatively simple system of retaliation largely because it was unilateral. Enter Bill Clinton…he pushed to have China become a member of the U.N.’s World Trade Organization (WTO), and to have U.S. trade disputes with China arbitrated by this multilateral organization. Consequently, China was no longer subject to U.S. unilateral action under our trade rules…What about U.S. exports to China? According to the U.S. Census Bureau, in 2013 our trade deficit with China hit a record high at $318.4 billion…”
According to Eamonn Fingleton, writing in Forbes “Some of us have long argued that the United States has been committing economic suicide by letting its once-peerless manufacturing base fade away. To those who have investigated the facts, the case has, for decades, seemed unchallengeable…”
Richard McCormack, reporting in the Alliance for American Manufacturing blog, states that many of America’s problems can be traced to the decline in manufacturing. In the aftermath of the Baltimore riots, he notes, “For generations, tens of thousands of Baltimore workers living in the iconic row-houses of densely populated neighborhoods went to work in nearby factories…Now, for the first time in 300 years, Baltimore’s population makes nothing, save for processed sugar at the 93-year-old Domino Sugar factory, the last large manufacturing plant remaining in the city…As the factories left, the economy collapsed.”
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“Massachusetts is awarding a contract to build rail cars to CNR Changchun Railway Vehicles, a Chinese state-owned company, a subordinate of China CNR Corporation Ltd… The company was able to bid low enough to get this contract because of Chinese government subsidies such as grants, tax breaks, loans, and debt forgiveness.
“This deal is a problem for two reasons. First, US companies cannot compete on a level playing field against companies that are subsidized by governments. China has a national focus on gaining key, strategic industries, and applies national resources as necessary to accomplish this. They understand the long-term value of being able to make a living as a country. Unfortunately they have been overdoing it, and running a very large trade surplus, which sets the rest of the world’s economy out of balance.
“Second, this deal uses taxpayer dollars to undercut the long-term competitiveness of American companies that do the same work. They don’t get this contract, and the Chinese company gains a foothold in the US — with a factory and supply chain and in-country expertise — and as is able to compete for even more future business as a result. Again, this all done with US and Massachusetts taxpayer dollars. The solution is not to ban non-US companies from bidding on such contracts. The solution is to be smart, and strategic and recognize that other countries have national plans to develop their own industries for their own national interests and we should as well.”
The Information technology & Innovation Foundation calls for action:
“Over the last 15 years the U.S. manufacturing sector has declined significantly compared to those of competitor nations. In the face of this decline, congressional action is needed more than ever to reduce the effective corporate tax rate; to boost investment incentives, including for R&D; to better enforce trade rules globally; and to support manufacturing innovation and workforce development.”