Alan Tonelson, research fellow at the U.S. Business and Industry Council, has been one of the few expert observers to push back against talk that rising wages in China, increased transportation costs and technological advances at home foreshadow a major turnaround for American manufacturing. President Obama consistently pushes advanced manufacturing at home as part of his economic agenda. The Brookings Institution has devoted its brainpower to the topic. But outside of a few coddled companies (hello, Boeing), is manufacturing even holding its own, much less turning around, particularly as an employer? Tonelson says no.
In a new paper, Tonelson lays out the data showing how China kept increasing its market-share penetration in the United States through 2011. To put a fine point on it:
These Chinese gains have occurred in a wide range of capital-and technology-intensive industries, including semiconductors and other high value electronics goods, machine tools, sophisticated industrial machinery, fabricated metal products, and chemicals, where producers in high income countries like the United States are supposed to enjoy overwhelming natural advantages. Yet China’s inroads in these capital- and technology-intensive sectors are mirroring earlier trends in labor-intensive industries like apparel and toys, where significant U.S.-based presences have all but disappeared.
Tonelson argues among other things that the American renaissance school ignores how Chinese manufacturing has changed. It’s no longer so dependent on lower-end, labor-intensive work but has migrated quickly into the high end. Its market penetration in the U.S. is enhanced by the many large transnational corporations — nominally based in America — that not only manufacture in China but have established major research and design operations there. Also, rising Chinese labor costs are accompanied by rising productivity. Tonelson writes:
The need for new trade priorities becomes all the more urgent upon recognizing the bottom line takeaway from this China import penetration report and its globally focused predecessor: Both show that for all the loose talk of industrial renaissance, the U.S. economy continues to lose valuable growth and employment opportunities in manufacturing to other countries. Consequently, the goal of turning the U.S. economy from one based on borrowing and consuming, to one based on investing and producing, continues to grow more distant, not closer.
My two cents: As long as China requires American companies to locate there as a price for market entry, practices a host of stealth protectionism against American exports and, yes, manipulates its currency, the vast, dangerous imbalances that mark Chimerica will not be solved. As trade guru Clyde Prestowitz likes to point out, it’s not really a matter of “fair trade”; rather, America is playing tennis while China and others are playing football.
Links for tax day:
Five myths about taxes | Washington Post
And how are corporate profits doing after taxes? Very, very, very well:
Today’s Econ Haiku:
A good hedge-fund guy
A city that’s come around
Await Stern judgment