Reprinted from Portsmouth Herald / Seacoastonline.com –10 February 21, 2011
Recent reports from the U.N. and several industry associations indicate that China may have overtaken the United States as the world’s top producer. For as long as anyone can remember, the United States has led the world in industrial output — by a large margin. Over the last few years, however, Chinese production has been soaring while United States output has increased at a relatively modest pace.
While China lagged the United States by as much as 40 percent just a few years ago, it has been closing the gap and came very close to matching U.S. factories in 2009. The final numbers are not in, but China may have pulled ahead in 2010. If not, it almost certainly will in 2011.
Currency exchange rates make a difference, of course, with the U.S. dollar losing considerable value over the last year or two, making the value of our products lower on the world stage. Nevertheless, Chinese growth rates are considerably higher than ours and they have caught up and probably passed us by most any comparison. One analyst looking at U.N. data estimates that, at current exchange rates, China’s output in 2010 was just over $2 trillion compared to $1.78 trillion for the United States.
Just because another country is now a bigger producer than the United States is not, in itself, a problem. It is a fact that U.S. industrial output is still increasing year-to-year as it has for decades. And the outlook is good — more (faster) growth is expected this year. The fly in the ointment is that this increased output is being accomplished with rising productivity and disproportionally fewer jobs are being created. Automation and better management are helping companies compete in global markets but factory jobs are continuing to disappear, although there was a modest net gain in manufacturing jobs in 2010.
Regardless of who is number one or number two, manufacturing is important to the U.S. economy. Manufacturing is one of only a few ways to create wealth by adding value. The others are mining and drilling, construction, farming, ranching, and fishing. Service industries provide employment but do not create wealth in the economic sense and it is difficult to export services.
Our manufacturing strength is in high-value goods, innovative products, and technology. As long as we keep innovating, our manufacturing base will continue to grow and our exports will remain strong. As manufacturing for more mature products moves to lower-cost areas, we need to replace it with new production of new products to keep the cycle moving. That’s simply the way it works and how it has worked since the industrial revolution moved manufacturing from back rooms and backyard sheds into factories along the Merrimack River.
Those cotton and woolen factories died as production moved South (closer to the cotton fields). Yet, those buildings came back into use making shoes. When the shoe industry moved to Europe and the Far East, those same buildings were used to make computers and other high-tech products. Now many of them house bio-technology and software companies.
Is it a concern, then, that we are no longer the world’s top manufacturer? Yes, if only because it indicates that the competition is getting stronger and we have to make sure that our manufacturing base continues to grow if we are to maintain our economic health.
