MacroScope

Revving down

January 23, 2012

It used to be the low-end stuff like shoes, clothes and furniture that displaced American manufacturing, then cars and consumer electronics.  A new report by Alan Tonelson, a researcher at the U.S. Business and Industry Council which represents 1,500 American companies, now shows that high-end U.S. industry is facing ever tougher foreign competition in its own backyard.

Tonelson has crunched the numbers since 1997 on high-value, advanced manufacturing – the crown jewel of American industry that is capital intensive and depends on technological superiority such as turbines, pharmaceuticals and electrical engineering. He finds that imported products had captured 38 percent of the $1.63 trillion U.S. market for advanced manufactured products by 2010, up from 24.5 percent when the government started collected the data in 1997.  Only six U.S.-based advanced manufacturers have gained market share in the United States in the 13-year period.  Sectors that are more than 50 percent dominated by foreign producers have risen from eight in 1997 to 32 by 2010, he said.

The high-value core of America’s domestic manufacturing sector is suffering chronic and significant weaknesses. They strongly indicate that advanced U.S.-based manufacturing industries as a whole are failing a basic test of competitiveness – thriving in a market that is not only the world’s largest single market for such goods, but the market that they should know far better than their overseas counterparts.

Industries that have lost their U.S.-market dominance  include metal-cutting machine tools, broadcast and wireless communication equipment, mining equipment, heavy-duty trucks and chassis, turbines and turbines generator sets – to name a few.  None of the data are consistent with a smartly recovering, healthy domestic manufacturing sector, he said.

Interestingly, it has occurred even though the U.S. dollar on a trade weighted basis has declined in value by 10 percent over that time, making imports more expensive.  His report throws a different light on 2010 as a banner trade year for the United States when exports increased by $85.6 billion, and on U.S. manufacturers adding jobs last year at the fastest pace since 1997.  It’s the kind of data that has trade and industry groups in Washington talking of the U.S. needing an industrial policy. Remember Rolls Royce and Great Britain’s manufacturing slide?

Tonelson reviewed 108 industry sectors in 2010 against 114 in his 1997-2004 study.  The differences were due to some changes in government data collection, U.S.-import tariffs, on iron and steel, tires and the degree of detail available.  Although some significant sectors were excluded as a result, Tonelson said it reflects general trends on import penetration to the U.S. market.

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