Is US manufacturing on the rise?

Sam Miranda

Don’t let government rhetoric and the China blame game hide the truth

PEX contributor Sam Miranda evaluates the claim of an American manufacturing renaissance, arguing that political posturing obscures proper investigation.

"Is the US manufacturing renaissance real?" reads a recent headline in Time magazine. The article’s answer is a tentative yes, with the caveat that the indices used to gauge performance are diverse, sometimes conflicting, and subject to temporal bias.

The renaissance doctrine is shared by major consultancies. PWC and The Boston Consultancy Group are vaunting a shift towards domestic manufacturing, citing the rising costs of labour, shipping and utilities associated with offshoring. They point to the appreciation of the Chinese currency the Yuan, which in tandem with the Fed’s quantitative easing policy to devalue the US dollar and tax incentives for US manufacturers, brings capital investment back to American shores.

US manufacturing is gearing up?

So, is this renaissance real? Is this shift cyclical or sustainable? Was there even a decline in the first place? With debate surrounding US manufacturing highly politicised, it’s worth analysing the word from the White House.

A political hot potato, and China’s the oven

There’s been a bipartisan push to reinvigorate US manufacturing – understandable given America’s trade deficit and that, according to National Economic Council head Gene Sperling, for every $1 of manufacturing output in a community it creates another $1.48 of wealth. In February this year, Obama announced that 500,000 manufacturing jobs had been added since 2010, citing the return of Caterpillar and Ford to domestic operations.

Both parties have acknowledged undervaluation of the Yuan as detrimental to US manufacturing, since it undercuts competitors in the exporting of goods. Republican rhetoric is more belligerent; during his presidential campaign Mitt Romney castigated China for being a "currency manipulator" and promised to tackle its maleficence head on.

Peter Navarro’s magisterial – if somewhat chauvinist - article in World Trade Affairs outlines the case against China:

"It manipulates its currency by pegging the value of the Yuan primarily to the US dollar. To maintain that peg in the face of massive trade surpluses with the US, China must recycle hundreds of billions of dollars of that surplus back in the US every year. China does so primarily by buying US bonds and other assets."

Navarro’s indictment stretches further – beyond cheap labour, China’s socialist market economy funnels illegal subsidies into capital and utilities, which is a violation of the 2001 WTO agreement.

All this, Navarro asserts, leaves the US paralysed with debt, a trade deficit, and as Patrick Molloy of the US-China commission explains, "a 40% tariff on goods coming from the US" – seen as a crippling body blow to US manufacturing.

The Obama administration is singing from the same hymn sheet, minus Navarro’s snarl. In January 2012, the President announced, "I will not stand by when our competitors don’t play by the rules." It’s an approach that the Treasury claims is working; in April this year it declared: "China has taken a series of steps to liberalise controls on capital movements, as part of a broader plan to move to a more flexible exchange rate regime."


Drawing on the statistics, and the problems with the China blame game

At this point, it looks like a China-orchestrated US manufacturing nadir is coming to an end. Political bluster is winning.

The Boston Consultancy Group affirms this change – ATM maker NCR has shifted its production to a Georgia plant employing 870 people, and the "Coleman Company is moving production of its 16-quart wheeled plastic cooler from China to Wichita, Kansas, owing to rising Chinese manufacturing and shipping costs." Relocating to Southern states comes with the benefit of weaker unions.

Regardless of whether the manufacturing landscape is changing, the anti-China lobbyists have an insular way of thinking. Victory in the "currency war" will not guarantee a second-birth, nor will it destroy the allure of offshoring – cheap labour in Vietnam, Thailand and Mexico is seeing to that. The state of US manufacturing is far more complex. In fact, the very assertion of a perennial "decline" since World War Two can be challenged.

First of all, there’s the challenge to the renaissance claim. As Time points out, recent figures are ambiguous. Take the Empire State Manufacturing Survey, of which the most observed statistic is the business confidence index as it provides the overall sentiment of New York’s manufacturing industry participants on the economy. The base score is zero, meaning that any score below zero means that business sentiment is getting worse while scores above zero indicate an improving outlook. In April, the rating was 3.05, a 10 point increase from the -7.78 clocked at the start of the year

However, an April report of the US Purchasing Managers Index (PMI) paints a more pessimistic picture. The fall to 50.70 represents adecrease of 3.40 points or 6.28% from last year, and a figure below the long term average of 52.73. This reading is barely over the magic 50 mark – a general indicator that the industry is expanding.

The concept of long-term "decline" can also be contested. From an employment perspective, decline is substantiated: between 1999 and 2009 one in three (6 million) manufacturing jobs were culled. Yet, between 1997 and 2008 – the onset of recession – the US manufacturing output increased by one third to $1.65 trillion. Following the 2008 dip, growth in productivity is now rallying again.

Writing for Counterpunch with a Marxist slant, John Walsh explains why US politicians attribute all job losses to offshoring, and refuse to discuss automation: "First of all, the ability to produce more manufactured wealth (i.e., goods) argues that there should be no crisis of consumption, i.e., aggregate demand, which we see in the economic downturn. The question then arises as to why the politicians cannot deliver a solution and increase aggregate demand and the number of jobs. One way to do so would be to shorten the hours of labour with no cut in pay. But that would take a political and economic struggle for which politicians have no stomach." It’s much easier, Walsh concludes, to blame China.

A less vehement critique of the China blame game comes from Stephen Roach, former chairman of Morgan Stanley Asia. Rather than obsessing with currency conflict, the US should embrace China as a chance for market access. China is already America’s third largest, and most rapidly growing export market and its need to satisfy its 1.3 billion consumers will see it call on automotive parts, biotechnologies and I.T. systems manufactured in the US.

A real understanding of US manufacturing is out there for those astute enough to seek it. Just don’t let political posturing and China grumblings obscure things.

Do you have an opinion on the state of the US manufacturing industry? Share your thoughts in the comment section below!