OT: state of manufacturing in US and why things seem to be going so wrong

FYI
http://www.huffingtonpost.com/michele-nashhoff/us-manufacturing-crisis_b_922889.html After dominating the globe for over 60 years as the world's largest, most productive, and technologically advanced in the world, America's manufacturing sector is in a decline in nearly all industries. America's lead in a number of industries vanished years ago, and nearly all industries are facing potentially dangerous erosion.
No single indicator represents manufacturing capabilities or trends. But several key indicators, when taken together, provide strong evidence that America's manufacturing has greatly weakened in the last decade. These are: ndustrial output (as measured by share of Gross Domestic Product), industrial capacity, employment, number of manufacturers, balance of trade in goods, and import penetration rate.
The trend in employment and number of manufacturers is dramatic -- 5.5 million manufacturing jobs and over 50,000 manufacturing companies gone since 2000. The balance of trade in goods has grown steadily since 1979, growing from a deficit of $25.5 billion in 1980 to $645.8 billion in 2010, which was down from a high of $835.7 billion in 2006 (Balance of Payment basis.) Manufacturing's share of the Gross Domestic Products had taken a serious downward trend -- dropping from a high of 28% in 1965 to 11% in 2010. <snip>
Anyone think this is why the classical Keynes economic stimulation is no longer working?

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http://www.huffingtonpost.com/michele-nashhoff/us-manufacturing-crisis_b_922889.html
The trouble with these articles is that they mix employment and actual manufacturing output, generally ignoring the fact that output has climbed steadily, even as manufacturing has declined as a percentage of GDP. That can lead to some misleading conclusions. The main things it tells you are that it takes fewer people today to produce a given dollar volume of goods, and that services and other non-manufacturing sectors have simply grown faster:
http://research.stlouisfed.org/fred2/series/IPMAN
It appears that the real change is a structural one that's based on the rise of lower-end manufacturing in many developing countries, and a shift in US manufacturing to very high-value-added functions and market segments. In other words, we don't do the cheap end of manufacturing, the low-cost/high-labor end, as much as we used to. This should not be a surprise to anyone. But we still put out a growing dollar volume of higher-end manufactured goods.
Back in the '70s, there were around 145,000 metalworking shops and plants in the US. Over 100,000 of them were small job shops, many of them two- or three-man operations running manual machines. They're the ones that have dropped like flies. And many of the larger ones have consolidated, particularly in the second and third tiers of the automobile supply chain.
Here's some comment on a recent analysis of the subject from a trade perspective. It's worth following the links to the study summary, although you'll have to sign up (free) to _Foreign Affairs_ to read the whole thing:
http://economix.blogs.nytimes.com/2011/07/22/is-there-hope-for-the-unemployed/?scp=1&sq=unemployment%20and%20globalization&st=cse
I'm about to get to work on analyzing their analysis. <g> Since I worked with those catagories for decades, I want to see what else it tells us about the changes in US manufacturing.
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I'm not ready to accept that idea. We don't know where we'd be without the stimulus, for starters. And the effect of conventional stimulus may be hampered more by the structural changes than by a simple lack of demand. In other words, the decline in manufacturing *jobs* may be due to factors that are outside of the influence of Keynesian stimulus, but the numbers in that article don't tell you why it has happened.

On 8/10/2011 11:06 PM, Ed Huntress wrote:
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Where would we be without China and India?

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Right here, paying more.

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Into unemployment ?

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Possibly that, too. No one who has actually looked at the trade data has convinced me that they know what they'd do about the $1.29 trillion in merchandise exports we shipped last year, if we didn't have big trading partners.
Take a look, for example, at what China buys from us.

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What happens when china catches up to us and makes the merchandise they currentley buy from us ?
Best Regards Tom.

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Assuming they will, which is unlikely in the near term, or even the medium term, then, eventually, Milton Friedman's theories kick in -- the dollar devalues, and the trade imbalance slows or stops.
China can't afford NOT to have us as a major trading partner right now. They're still in the neo-merchantilist stage, like Japan was four decades ago, and South Korea was two decades ago. They need net exports to keep their employment up and to keep social unrest at bay.
As their domestic consumption increases, as it must, or their growth is going to slow down as the West becomes less able to absorb their output, they'll also become better customers for the West's exports.
The trouble is that, in the long run, we're all dead. None of this helps our current situation.

On Thu, 11 Aug 2011 12:23:28 -0400, "Ed Huntress"
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Even the Japanese have not gotten around to making airliners and such like.
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The US consumer is slowly becoming non-essential. Even for multinationals. I read recently that even GM does less than 30% of their unit volume in the US.
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Even if that is true, exports don't have to go to the US. Europe is a bigger market for them, and Japan almost as big, plus they're going to be selling a lot to Africa, the Middle East, India, Brazil and so on as those countries get income from the raw materials and food that they export to China.
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Quite likely, especially exports of luxury goods and food.
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Ah, the US consumer is hardly becoming non-essential to any major manufacturing country.
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US consumption is around 25% of China's exports. No other country is even close. Japan is about 1/3 as large a market for China as the US is.
Hong Kong represents about 1/2 of the US export volume for China, but you know what that's about. That's mostly trans-shipment.
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On Thu, 11 Aug 2011 14:35:57 -0400, "Ed Huntress"
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Keep telling yourself that. That's why multinationals don't care about killing off the US middle class- it's no longer essential to their profits.

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You're not looking at the numbers or the (pace of) the trends. The idea that the US market isn't important to China is a fiction created by editors in need of a headline, and reporters in need of a provocative story.
It's baloney.
As for the multinationals, they're not China.

On Thu, 11 Aug 2011 16:10:28 -0400, "Ed Huntress"
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That's a straw man argument. I did not say the US market was not _important_ to China, I said the US consumer was becoming _non-essential_ to China and the multinationals. There's a difference between a customer you can't fire because you'd lose your business and your house and one that you'd prefer to have around but if they get too demanding and arrogant you're quite willing and able to tell them to go p*ss up a rope.
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Even in that case, China can't afford to lose us as a customer. They need a high rate of growth, fueled by neo-mercantilist export policies, to meet the expectations of vast numbers of Chinese workers who are not yet part of their economic miracle. We're a significant part of their export market (around 25%) and we're the most unprotected market they sell to. They sell us things the Japanese and Europeans won't let through their ports. The same was true with the Japanese a few decades ago, when Europe put caps on Japanese imports of cars, electronics, etc.
And they know it; and we know it; and they know we know it; etcetera. <g>
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On Thu, 11 Aug 2011 17:58:58 -0400, the renowned "Ed Huntress"
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And the export market is maybe 30% of their GDP, so 7.5% of GDP. If the US middle class collapsed their buying by a disastrous 50% it would only knock a couple of points off of their GDP. This is what their GDP over time looks like:
http://www.google.ca/publicdata/explore?ds Õbncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:CHN&dl=en&hl=en&q=chinese+gdp
Not much of a setback, wot?
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Well, yeah, but they can probably rejig many of those machines that churn out forty-foot containers full of substandard sex toys to make flip-flops for Africans or something along those lines.
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The main difference is that the Japanese wanted to BE the dominant multinationals and buy nothing whereas the Chinese are in a tight partnership with the multinationals.
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Best regards, Spehro Pefhany

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http://www.google.ca/publicdata/explore?ds Õbncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:CHN&dl=en&hl=en&q=chinese+gdp
A superficial look at the numbers isn't going to get us very far. And I'm leaving in a couple of days for the following week so I can't get into the details with you.
But most experts agree that China is highly dependent upon US markets. So do Chinese officials. This summary from 11 months ago still holds as a general principle:
(Wall Street Journal, 9/30/2010)
"For China, the U.S. is a market it can't afford to lose. It accounts for about a fifth of all Chinese exports, some of those goods that the U.S. no longer makes and has to buy from somewhere. In the first seven months of this year, according to U.S. data, the U.S. imported $193.9 billion worth of goods from China, more than from the European Union ($178.9 billion) or Canada ($159.9 billion) or Mexico ($128.8 billion) or Japan ($66 billion).
"China's reluctance to bow to U.S. pressure to let its currency, the yuan, appreciate against the U.S. dollar is driven in large part by the interest of its politically powerful exporters. A higher currency would make their wares more costly in the U.S.
"In New York recently, Chinese Premier Wen Jiabao said that if China were to allow the yuan to appreciate by as much as some U.S. politicians demand, a wave of job losses and business bankruptcies would engulf China. 'Only the Chinese premier has such pressure on his shoulders,' Mr. Wen said. 'And that is the reality.'"
http://online.wsj.com/article/SB10001424052748703431604575522483394950938.html

On Thu, 11 Aug 2011 21:31:45 -0400, the renowned "Ed Huntress"
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So down to 20% of exports, rather than 25%. Looking even less vital at a mere 6% of GDP (and shrinking).
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IOW, if you want us to change our monetary policy to suit your domestic politics, you can go p*ss up a rope.
Best regards, Spehro Pefhany

On Thu, 11 Aug 2011 21:53:37 -0400, Spehro Pefhany
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<snip> ===============Who would have "thunk it?"
You mean to say that the primary loyalty of the members of the Chinese politburo remains with the "middle kingdom," and they aren't team players in the new global economy and citizens of the "brave new world order?" What a bunch of ingrates - making/enforcing policy designed to put the interests of China first...

On Thu, 11 Aug 2011 12:02:13 -0400, "Ed Huntress"
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<snip> ==============Problem is that what you gross does not matter, only what you net, and even this understates the case.
If we export 500 billion dollars of unprocessed agricultural commodities and import 500 billion dollars worth of high-tech high value added products, there is a huge net aggregate loss, even though the base numbers appear to be a wash, because of the number of jobs involved, maintenance and improvement of manufacturing expertese/technology, local/domestic economic activity generated (the economic multipliers), and the amounts of state and local taxes, i.e. local sales, income, and property taxes, paid.

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No, and that's a major, and common, misunderstanding of the situation. Our exports matter. If we cut off imports, those things we now export would lose their export markets and would not, for the most part, find replacement markets in the US. So most of those jobs, and those sales, would just be lost.
The friction in the system would lead to a long slump before we would recover. According to many trade experts of both liberal and conservative persuasions, we would NEVER recover. Without large volumes of trade, our economic activity would find a new steady-state far lower than the present one. We'd be a second-rate economy, if we had an economy at all.
Our imports matter, too. As Richard pointed out, quoting from his research paper, a great deal of domestic economic activity results from importing products and services from abroad, selling and distributing them, warehousing them, marketing them, etc.
So the net actually is secondary. It's the total amount of trade activity that matters most. Virtually all modern economists have agreed on this point, except when they get into politics. <g>
Extended periods of negative trade balance have negative effects. But they're not necessarily what most people think they are.