The United States ranks behind every industrial nation except France in the percentage of overall economic activity devoted to manufacturing — 13.9 percent, the World Bank reports, down 4 percentage points in a decade. The 19-month-old recession has contributed noticeably to this decline. Industrial production has fallen 17.3 percent, the sharpest drop during a recession since the 1930s.
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Manufacturing has long been viewed as an essential pillar of a powerful economy. It generates millions of well-paid jobs for those with only a high school education, a huge segment of the population. No other sector contributes more to the nation’s overall productivity, economists say. And as manufacturing weakens, the country becomes ever more dependent on imports of merchandise, computers, machinery and the like — running up a trade deficit that in time could undermine the dollar and the nation’s capacity to sustain so many imports.
Those are the statements that started me thinking this morning. In general I am a free trader. Trade benefits me as a consumer and the countries we trade with by allowing them to increase their standard of living and develop stable social institutions, but does it really benefit America? The offshoring of manufacturing leads to a loss of well paid jobs as well as an increase in trade deficits. Both of which are not particularly good for the economy.
The free trader in me says that neither of these would be a problem if American companies learned to compete more effectively. In that case companies would have no reason to shift production offshore. The same applies to tax policy. If it wasn't punitive then companies wouldn't feel a need to leave.
That holds true as long as everyone is playing by the same set of rules. Some, such as Douglas Bartlett, the protagonist(?) of the NY Times article would argue that is not happening and it places American businesses at a disadvantage:
“Bush and Obama,” Mr. Bartlett said scornfully, “one is as bad as the other in terms of manufacturing policy.”
He acknowledged that the recession was the immediate reason for the demise of his family’s business. But what really did it in, he said in an interview, was the competition from less expensive Chinese circuit boards — less expensive, he argued, because the Chinese undervalue their currency and this administration, like the ones before it, lets them get away with it.
“Our orders went from $8 million at an annual rate to $4 million, which was not enough to make money,” he said.
Mr. Bartlett, who is co-chairman of an organization called the Fair Currency Coalition, said that Chinese competitors charged only $1 for each printed circuit board sold in this country, while he charged $1.40. Like many economists and government officials, he says he believes the Chinese currency is artificially undervalued. As a countermeasure, he said the Obama administration should impose a 40 percent tariff on imported Chinese goods.
Raising tariffs in a recession is a blunder, as Smoot-Hawley showed, but Bartlett raises a valid point. The type of behavior the Chinese are allegedly engaged in is essentially illegal under WTO rules, both as a form of dumping and as an illegal subsidy. If the rules can't be enforced then why do we belong to the organization?
I believe that a strong manufacturing sector is vital to the country and there are a number of things I would do to increase manufacturing in this country, such as economic Free Zones, where business taxes such as the capital gains tax would be waived and tax credits for jobs created among others. At the same time we need to ensure open global markets so that once those jobs are created we have a market for the goods.
In short we need globalization but I am not so sure about the WTO.
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