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That was some set of claims in a Bloomberg.com article yesterday:

>”If you wanted to figure out where Asian exports were headed, U.S. manufacturing data used to be a logical place to start. Not anymore.”

>”The U.S. is buying more goods from neighbors such as Mexico instead of Asia, and the shale-gas boom has kept demand within the country….”

>”The recovery in the world’s biggest economy is also more services-oriented this time….”

>”Asia’s definitely lagging behind the U.S. recovery, and so if you’re talking about an export-led recovery, I’m afraid that’s not happening in Asia. It’s the structural shift in terms of the U.S. recovery where demand is now more domestic oriented.”

But is any of this true? While reading the piece, I had my doubts. In particular, these assertions didn’t seem to track with the reality of several consecutive years of record U.S. manufacturing trade deficits despite historically weak economic growth rates. Also fishy: the Australian bank study that was the basis of this article used Institute for Supply Management’s manufacturing gauge as a proxy for American manufacturing growth. My own examination of how this series compares with the official manufacturing growth statistics kept by the Federal Reserve indicated that this private sector survey was anything but reliable. Finally, the Australian bank didn’t even look at Asian manufactures exports to the U.S. Specifically. It examined those exports to the entire world.

So I decided to compare the best, most relevant data: the Fed manufacturing production statistics with U.S. industrial purchases from East Asia and their recent growth. And it became clear as a bell, that the Asia lag thesis holds zero water.

The Australian bank study focused on manufactures exports from China, Japan, Korea, and Singapore as a proxy for the entire East Asia region, which isn’t completely unreasonable. But here’s what the correct data show: Before the financial crisis kneecapped world trade, the growth of manufactures exports to the United States from these four countries combined regularly exceeded the growth of American manufacturing itself by healthy ratios. But during the pre-crisis years selected by the Australians – 2005-2006 through 2007-2008 – this ratio steadily fell: from 1.92:1 to 1.40:1.

During the following two crisis years, these Asian manufactures exports to the U.S. collapsed much faster than American domestic manufacturing itself – because global trade took such an outsized hit. But once the recovery began, the ratio of this Asian manufacturing export growth to U.S. manufacturing output growth became higher than ever, reaching 2.82:1 between 2011 and 2012. (Between 2009 and 2010, the ratio soared to 7.78:1, but that reflected its rubber band-like snapback from its nosedive in recessionary 2008-2009.

Over the last two years, this trend has reversed. As suggested by the Australian bank report, the gap between the “Asian Four’s” manufacturing export growth and domestic U.S. manufacturing’s output growth has closed dramatically. As of last year, it was only 1.25:1. But here’s where you both need to know something and to start using your noggin. Because however important the four countries chosen are, they’re not the whole of export-happy Asia. More important, since much of the region is a highly, increasingly integrated, and dynamic manufacturing complex, all the links in these supply chains need to be analyzed.

One of the Australians’ most conspicuous omissions in this regard is Vietnam. Although still relatively small, it’s growing almost exponentially, largely because it’s an ever more popular destination for companies seeking a combination of very low-wages, a complete absence of worker rights, and highly trainable and productive employees. Therefore, no one well versed in Asian economics should be surprised that, as some of the higher priced, more developed Asian exporters (like Japan, Korea, Singapore, and even in some sectors, China) have become less competitive, Vietnam has filled many resulting gaps and manufacturing niches.

The most reliable numbers bear out this observation. Since the growth of the “Asian Four’s” manufactures exports to the United States has decreased relative to U.S. manufacturing production, Vietnam’s has surged. Already high at 4.37:1 between 2011 and 2012, it climbed to 5.59:1 in 2014.

One trend the Australian bankers and the Bloomberg piece got right – Mexico has been making growing inroads into American domestic manufacturing markets, too. But its push not mainly at the expense of Asia, but at the expense of its U.S.-based competition. That’s of course the principal reason for the U.S. manufacturing trade deficit’s flight into record territory – and for continuing to recognize claims of growing domestic American industrial competitiveness as an ongoing flow of hopium.

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