Between 1992 and 2000, manufacturing contributed 22% of the country's economic growth, far more than any other sector except finance, insurance and real estate, which also contributed 22%, according to calculations by the National Association of Manufacturers and Commerce Department data. During that same period, U.S. economic growth increased at an average annual rate of 3.6%, while manufacturing's share grew by 4.5%, contributing to the country's longest economic expansion.
Those are brutally sobering statistics considering the current slump in manufacturing.
In the last three years, shipments of manufactured goods have fallen $270 billion, and 2.8 million American factory jobs have been lost-roughly one in six, according to NAM. On a regular basis, there is a story about another company moving its manufacturing facilities out of the country, or about how local economies are suffering from the ripple effect of those losses.
The most recent casualty (as of this writing) was Levi Strauss & Co., whose trademark blue jeans are a globally recognized symbol of America. It closed its last two U.S. plants on January 8, putting 800 people out of work. Only two decades ago, the company had 63 U.S. plants.
As I reported last June, in the months following the enactment of permanent normal trade relations with China, there was an escalation of production shifts into that country from the United States. In the period from Oct. 1, 2001, to April 30, 2002, the number of announced shifts increased each month, from two in October to 19 in April.
With healthcare costs ballooning along with litigation costs, increasingly expensive and volatile energy supplies and unfair trade barriers put up by China and other Asian nations, can manufacturing bounce back and thrive? If it doesn't, can the economy, given the importance of manufacturing, mount a strong comeback?
The employment situation seems to be improving, confidence is rising, U.S. productivity continues to make extraordinary gains, and there are positive economic signs regionally. But, the budget and trade deficits are ballooning, and we continue to bleed good manufacturing jobs.
What's the Bush administration doing? It dispatched Treasury Secretary John Snow to China last September to hector the Chinese about their $100 billion-plus trade surplus with the United States and encourage them to let their currency gain in value, which would make their exports more expensive and their imports cheaper. The administration also said it would create a "jobs czar" with the rank of undersecretary of commerce. Time will tell if these efforts are worthwhile or merely window dressing.
A certain amount of job losses may be inevitable. As Everett Ehrlich, an undersecretary of commerce in the Clinton administration, points out, the "real culprits" of manufacturing job losses are technology-driven productivity gains and structural change in the economy.
"Manufacturing has sustained productivity growth rates of 4% annually for 10 years," Ehrlich says. "If the demand for manufactured goods doesn't grow by 4% each year, the manufacturing labor force is going to shrink." To be sure, the economy has grown slowly in recent years. But it has grown. Additionally, with freer trade, markets-particularly the Chinese market-should be a boon to U.S. manufacturing. Only about 8% of China's imports come from the U.S. So there is plenty of opportunity to export more, and create jobs. In fact, exports to China are now growing rapidly.
Regarding structural changes, Ehrlich points to outsourcing as a prime culprit. When a manufacturing company outsources its maintenance, for example, manufacturing shrinks and services grow, "even though nothing's really changed." That's true, if the jobs stay in the country. But they often don't, and the outsourced job often pays much less.
Advances in technology and the creation of new industries and new markets have helped manufacturing thrive in the past, and I believe that will be the case in the future, once we tackle trade barriers and domestic economic forces threatening its growth. In the meantime, we need to evaluate candidates for political office in part based on how they say they will act on these issues if we want a strong manufacturing base and robust economy.