The Death of US Manufacturing Has Been Greatly Underemphasized

Arthur K. of AoSHQ (and other, less savory sites) linked to this article in the Top Headlines sidebar. Basically Kevin Williamson’s linked article defended the health of the US manufacturing sector, using an old Bruce Bartlett article to support his case that manufacturing in the US was stronger than ever.

He is, unfortunately, not taking a very thorough look at manufacturing, so his claims of its health are baseless.

Let me start by saying that the output of the manufacturing sector has tracked the overall economy fairly closely, as shown in this Bush administration chart from 2004:

So then what’s my beef? Manufacturing seems to be quite healthy indeed!

But not so fast. Let’s take a look at two sectors of manufacturing: computers & electronics vs. everything else. I’m switching from real output to 2000 dollars here, which suppresses the growth a bit, but bear with me:

Yeah. All other manufacturing hasn’t grown a bit, while computers & electronics have been an amazing growth sector. Or, as another article put it:

“The average annual growth rate from 1997 to 2005 for manufacturing excluding computer and electronic products is only 1.2 percent. Average annual growth for manufacturing including computers and electronic products is 3.0 percent; and overall inflation adjusted GDP is 3.1 percent per year.”

But the computer and electronics industries have moved much of their manufacturing overseas, so even though the final product is “manufactured” in the US, all the components were imported from abroad. Thus, the health of manufacturing, even in the computer & electronics sector, is suspect. New Scientist makes this point:

But America’s high-technology industry is being eroded. … The manufacturing industry that produced its consumer electronics is lost; indeed, most of the high-volume electronics industry is gone. Its computer industry is under attack, and its semiconductor industry has been on a long-term downward trend. Since the mid-1980s, the electronics industry has been losing about 3 per cent of its share of the world market each year – a market now worth about $750 billion, and expected to be $2 trillion (million million) by the beginning of the next century.
…
Japan supplies about half of the world’s semiconductors; the US, which used to supply them all, now has only a 40 per cent share of the market.

My final point is that the vaunted productivity gains of US manufacturing come almost entirely from the computer & electronics sector. And those productivity gains come almost entirely from outsourcing manufacturing to overseas companies.

A healthy manufacturing sector in the US? Not really.