(What’s Left of) Our Economy: Were the US Washing Machine Tariffs Really Failures?

Tags

consumers, Federal Reserve, General Electric, imports, jobs multiplier, large residential washers, LRWs, manufacturing jobs, metals tariffs, safeguard tariffs, South Korea, tariff-rate quota, tariffs, U.S. International Trade Commission, University of Chicago, USITC, washing machines, Whirlpool, {What's Left of) Our Economy

It’s as close to a slam dunk conclusion as can be – at least according to economists, think tank hacks, and Mainstream Media journalists: The early 2018 U.S. tariffs on large household laundry machines have been a dismal failure.

Or have they been?

The levies belong in a category different from those of the main Trump administration trade-limiting measures because they were first mandated by an independent federal agency (the U.S. International Trade Commission, or USITC) via a long-standing legal process.  And they’ve been panned for supercharging costs for consumers, and padding the profits of the domestic industry to extents that dwarfed the new production and jobs they fostered. (Here’s a typical example of the press’ evaluation, drawing on equally typical research from the venerable University of Chicago and the even venerable-er Federal Reserve.)

What has gone oddly unreported has been the verdict rendered by the USITC – which came out in August. Sure, the agency is grading itself. At the same time, it’s privy to the most authoritative data (taken from the domestic and foreign companies involved themselves), and it’s surely worth noting that the Commission paints a significantly different , and brighter, picture.

The tariffs, put in place in February, 2018, affected the nation’s total global imports of these products, but mainly impacted such “large residential washers” (LRWs) from China, Mexico, South Korea, Thailand, and Vietnam – the biggest foreign suppliers to the U.S. market. The duties’ aim: stemming a sudden surge of LRWs that injure U.S.-based manufacturers. But they don’t shelter the domestic industry forever.

After three years – the amount of time the Commission has determined these domestic manufacturers need to adjust – they’re phased out for both the final products and many of the parts covered in the “safeguard order.” In addition, consistent with their surge focus, they only apply to imports above a certain level of units – a trade curb known as a “tariff-rate quota.” In all, moreover, the ultimate objective is to give victim industries time to adjust and then stand on their own two feet. That’s why detailed adjustment plans are a condition of receiving tariff relief.

To some extent, the USITC’s judgment doesn’t contrast dramatically different from that of the tariffs’ critics. Both noted (in the Commission’s words) “generally increased prices” and “decreased imports.” The Commission, though reported some developments generally missed by the critics (especially “some improvement in the financial performance of continuously operating [domestic] producers,” and market share gains for these companies) and some given decidedly short shrift (“increased production by two new U.S. producers” – both of whose owners come from South Korea, undoubtedly because the option of supplying the American market through exports was sharply limited).

The Commission didn’t address one of the critics’ most compelling points – that the new U.S. jobs were created at a cost to consumers (via the higher prices they’ve paid) of a whopping $817,000 per job. But the University of Chicago/Federal Reserve study actually conceded that this number might be an exaggeration, since manufacturing jobs (like all jobs) create a “multiplier effect” – that is, they foster additional employment in related industries ranging from suppliers of inputs to transportation, packaging, and warehousing services. What these researchers didn’t mention is that manufacturing’s jobs multiplier is unusually high.

Moreover, like virtually all scholars of trade, tariffs, and employment, the Chicago/Fed team neglected other benefits of manufacturing job creation (and prevention of further manufacturing job loss). These include:

>avoiding the wage losses suffered by displaced manufacturing workers who find work in lower-paid industries (an especially important consideration given today’s very low overall unemployment rates)

>avoiding the revenue losses incurred by these workers’ communities and the economy as a whole due to reductions in their taxable income;

>avoiding the increased pressure on social programs required to serve employees who can’t find new jobs – which encompass not only unemployment compensation but spending that seeks to address the pathologies that often follow working class Americans’ deteriorating personal finances, like divorce, delinquency, alcoholism, and opioid and other drug use, not to mention higher mortality;

>and the costs incurred by local businesses because of worker-customers who can no longer afford as many of their products and services, which of course reduces business’ own taxable income and additionally crimps public finance at all levels. (See, e.g., this highly cited study.)

The USITC report, moreover, shed light on another big reason that the costs-per-manufacturing-job-saved might be exaggerated: Not all of the increased costs of the tariff-ed products are due to the tariffs. In particular, the Commission listed no less than 14 factors other than import competition (and the tariffs placed on these goods) that affect the prices of LRWs. They range from raw materials, transportation, and energy costs to competition levels from substitute and between domestic producers, U.S.-based production capacity, productivity changes, labor contracts, and state and local government incentives, and demand levels at home and abroad (because all the U.S.- and foreign-owned manufacturers sell all over the world). The USITC then proceeded to ask producers, importers, and purchasers (retailers) to rate the importance of these factors on prices since the tariffs’ imposition in February, 2018.

The answers were reported in table III-26, and import competition levels were anything but dominant. Indeed, their importance consistently was rated by all three stakeholder as lower or no greater than that not only of raw materials costs (higher due to entirely separate tariffs on metals that were imposed by the Trump administration) but of energy costs, domestic production capacity (surely limited over time by the previous import flood), the allocation of this production capacity to other products, productivity levels, labor agreements, transportation and delivery costs, and domestic demand levels.

And adding to the case for reducing the costs per job figure: According to the official U.S. Bureau of Labor Statistics figures, after jumping by 16.31 percent from the February, 2018 onset of the tariffs through that November, they’ve since fallen by 9.73 percent (through September).

In fact, this development leads to a major point completely missed by the tariffs’ critics. As also indicated by the phaseout schedule and the linkage of the tariffs to the submission of adjustment blueprints, the levies were never intended to produce instant results, or to furnish crutches forever. The USITC describes the implementation of these plans starting on p. IV-5 and, more revealing, presents the evaluations of the retailers – who are bound to be the most demanding judges.

The reviews are mixed, but varying numbers of these companies stated that the two domestic recipients of the tariff relief – Whirlpool and General Electric – introduced new products (the most commonly cited improvement), upgraded product quality, expanded marketing campaigns, bettered their customer service, and taken other positive steps (Table IV-2).

Will these measures prove sufficient? Even after the tariffs come off, definitive answers will prove elusive, because as made clear, the LRW trade policy picture contains so many moving parts. What does look definitive, however, is that so far, the critics have engaged in a flawed rush to judgment.

 

 

(What’s Left of) Our Economy: U.S. Jobs Report Again Shows Evidence of Tariffs Damage

Tags

China, Jobs, Labor Department, manufacturing, manufacturing jobs, metals tariffs, metals-using industries, tariffs, Trade, Trump, {What's Left of) Our Economy

A speaking engagement yesterday prevented me from posting promptly on that morning’s monthly U.S. jobs report (for May), but after crunching the numbers, two conclusions come through loud and clear. First, the overall results added up to a total stinker. And second, like last month’s release, they contained more evidence that President Trump’s tariff-centric trade policies are taking a toll on hiring in manufacturing.

As with economy-wide (“non-farm”) hiring in May, manufacturing employment creation in general grew weakly – and for the fourth straight month. Industry’s payrolls rose by a measly 3,000 on month in May. The revisions, meanwhile, left the discouraging situation basically intact, as April’s previously reported 4,000 net sequential job gain was upgraded to 5,000, but March’s former flatline is now judged to have been a 3,000 net monthly job decrease.

As usual, however, when it comes to the trade policy implications, the results that count are those in manufacturing sectors actually significantly affected by trade policy moves like Mr. Trump’s tariffs. First let’s examine industry’s major metals-using sectors – both the necessary data for these industries goes back to April, 2018 (the first full month when these levies were in effect) and because the industries themselves are much easier to identify.

Here are the figures for these sectors’ employment changes between that month and this past April (both the originally reported numbers and today’s revisions), and between April, 2018 and May, 2019. (All these results, incidentally, are still preliminary.) Serving as control groups are the results for the entire private sector in the United States, for all of manufacturing, and for the durable goods super-sector (where all the main metals-using industries have been found).

                                                    Old thru April   New thru April   April Thru May

entire private sector:                  +1.79 percent     +1.93 percent      +2.00 percent

overall manufacturing:              +1.58 percent     +1.60 percent      +1.62 percent

durable goods:                           +1.92 percent     +1.94 percent      +1.99 percent

fabricated metals products:       +1.82 percent     +1.71 percent      +1.65 percent

non-electrical machinery:         +2.68 percent     +2.52 percent      +2.64 percent

automotive vehicles & parts:    +0.42 percent     +0.20 percent     + 0.48 percent

household appliances:               not available       -4.57 percent       not available

aerospace products & parts:      not available      +7.02 percent       not available

The pattern is clear. Even in metals-using sectors that had been outperforming the overall private sector and overall manufacturing in absolute terms, hiring momentum has waned. Moreover, it’s recently been slackening at a faster rate than evident in those larger sectors. That’s clear from the narrowing of the gap that can generally be seen between the employment increases in the metals-using sectors and the broader parts of the economy.

The impact of the China tariffs remains a puzzle, though, because they’ve been in place for a briefer period of time, and because the industry classification system used by the Trump administration in developing its tariff lists is different from the system used by the Labor Department to track employment changes. In addition, the level of China content of domestic manufactured goods can vary considerably, meaning that the impact of the tariffs can vary just as considerably.

Nevertheless, some exact and reasonably close matches can be identified, and, at least through April (the latest month for which data are available for the specific sectors below, which are narrower than those in the table for metals-using industries), the same relative hiring weakness can be seen. That is, job creation in the China tariffs-affected sectors has been growing more slowly than job creation in the private sector in toto, or in manufacturing overall. This trend is visible even in sectors that have greatly bested the private sector and manufacturing control groups in absolute levels of job creation.

                                   July-March    Old July-April   New July-April    July-May

private sector:         +1.23 percent   +1.44 percent    +1.39 percent    +1.46 percent

overall                   +0.98 percent  +1.03 percent     +1.02 percent     +1.04 percent  

   manufacturing:

aircraft engines       +1.39 percent    not available    +1.51 percent    not available

   and engine parts:

industrial heating   +2.46 percent     not available    +1.45 percent    not available

    equipment:

oil & gas drilling   +5.83 percent      not available   +5.02 percent    not available

    platform parts:

farm machinery     +1.67 percent      not available   +0.17 percent     not available

    & equipment:

ball bearings:        +1.82 percent       not available   +1.54 percent     not available

These results don’t mean that the Trump tariffs, as some keep predicting, are going to throw the American economy into recession, much less that if they do start biting significantly, that they won’t be a price worth paying for overhauling decades of boneheaded, offshoring-friendly, national security threatening (especially in the case of China) trade policies. In fact, they don’t even add up to evidence that the levies are biting significantly now.

But empirical evidence of some damage is finally emerging, at least on the jobs front, and it should be seen as a warning to tariff supporters – including the President – to stop insisting that the current trade wars will entail no costs or need for sacrifice whatever.

(What’s Left of) Our Economy: Some Surprising New Data on Manufacturing and Trade

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China, IMF, International Monetary Fund, manufacturing, manufacturing jobs, Nicholas Lardy, Peterson Institute for International Economics, Trade, Trade Deficits, trade surpluses, World Bank, World Economic Outlook, {What's Left of) Our Economy

That was some chart in this week’s newest International Monetary Fund (IMF) update on the world economy on how different countries (including the United States) have fared when it comes to increasing or maintaining their manufacturing employment and their manufacturing output. (The detail in the below reproduction is tough to see, but for the original, see p. 5 in the third chapter of the Fund’s April World Economic Outlook.) 

 

Looking at performance for 20 high-income countries and 20 low-income countries, it makes clear that, contrary to the conventional wisdom, there’s nothing unusual about national economies boosting manufacturing jobs as a share of total jobs, and manufacturing output as a share of total output, at the same time. So it’s a powerful retort to claims from American globalization cheerleaders that all over the world, in rich and poor countries alike, both manufacturing indicators are bound to fall in relative terms as economies inevitably evolve in more services-oriented directions.

And at the very least, it calls into question the notion that trade balances in manufacturing have little or nothing to do job loss in the sector in particular. For example, according to the chart, 22 of the 40 countries examined have boosted manufacturing as a share of their employment and their real value-added (a measure of output) from 1960 through 2015. And 11 of these were high-income countries, where the conventional wisdom says manufacturing’s economic importance is likeliest to shrink over any significant time frame.

Of these 22 countries, 17 ran surpluses in their combined goods and services trade in 2015. And nine were high-income countries.

Not that trade surpluses are automatic indicators of economic success: This group does include economically stagnant Italy as well as economically collapsing Venezuela. Spain, which experienced a terrible stretch during the last recession, is on this list, too – although it’s been a strong grower more recently. And there’s one country whose failure to qualify sure surprised me: Germany. Nonetheless, the countries that have excelled at manufacturing during this period also include major success stories like Chile, the Netherlands, Sweden, Ireland, Singapore, South Korea, Malaysia, and of course China (along with Japan, which is currently in the midst of its best growth stretch in nearly three decades).

Of course, the 1960-2015 time frame is still problematic at best, especially for China – since in 1960 it was still being run by leaders enamored with ideas like making steel in peasants’ backyard furnaces. But more recent comparisons between China and the United States look much more instructive – and supportive of the idea that a strong manufacturing trade performance is a great way to maintain robust manufacturing employment and production – and of its converse.

Let’s examine the post-2002 period – with the baseline chosen because that’s the year China actually joined the World Trade Organization, and began receiving WTO-style protection for its predatory, surplus-building trade practices. And for manufacturing output, let’s use pre-inflation value-added, since I wasn’t able to find inflation-adjusted data for China.

According to World Bank figures, manufacturing by this measure dipped from 31.06 percent of China’s economy in 2002 to 29.38 percent – a 5.72 percent decline. For the United States, between 2002 and 2015 manufacturing value-added as a share of gross domestic product (GDP) fell from 13.74 percent to 12.27 percent. That 10.70 drop-off was nearly twice that of China.

As for employment, Sinologist Nicholas Lardy of the Peterson Institute for International Economics (and no hardliner on China) has compiled Chinese statistics dating from 2003, and covering employment in the country’s cities. They show that manufacturing jobs as a share of this China total rose from 15 percent that year to 20 percent in 2014. In the United States during those years, manufacturing employment as a share of total non-farm jobs (the U.S. Bureau of Labor Statistics’ American jobs universe), dropped from 11.91 percent to 8.76 percent.

And nowhere have the manufacturing differences between the two economies been greater than in trade flows. For the first year of its WTO membership, China’s goods and services trade surplus (which was mainly in manufacturing) was $30.35 billion. By 2014, it was ballooned to $382 billion. During this period, the American manufacturing trade deficit shot up by just under 74 percent – from $362.64 billion to $629.53 billion.

So the new IMF chart (and related data) by no means ends the debate over whether trade balances impact national manufacturing employment and output. But if I was a globalization cheerleader, I’d sure hope they didn’t attract too much attention.

(What’s Left of) Our Economy: Best Stretch of U.S. Manufacturing Jobs Gains in Nearly Two Years Continues but Wages Outlook is Cloudy

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Bureau of Labor Statistics, inflation-adjusted wages, Jobs, manufacturing, manufacturing jobs, private sector, recession, recovery, wages, {What's Left of) Our Economy

U.S. monthly manufacturing employment grew for the fifth straight month in April for its best such performance since a nearly two-year stretch of sequential gains from 2013 to 2015. As a result, the sector continued to edge out of its latest jobs recession. But the monthly pace of employment increases (6,000 in April) fell for the third consecutive month.

In addition, manufacturing’s share of total non-farm payrolls fell to its latest record low – 8.46 percent. Revisions were negative by 2,000. Year-on-year manufacturing employment growth sped up again in April (to 40,000) – its best annual improvement since February, 2016 (69,000).

Pre-inflation manufacturing wages in April recorded their best monthly improvement (0.68 percent) since last October (0.73 percent). And for the first time in four months, these manufacturing wage advances exceeded that of the overall private sector (0.27 percent.) Year-on-year current dollar manufacturing wage momentum seemed to stall out, registering its slowest such advance (2.71 percent) since last August (2.68 percent). But the strong monthly gain resulted in industry’s annual wages gains resuming their recent pattern of topping those of the private sector (2.55 percent).

Manufacturing remained a recovery-era jobs and wages laggard, but the gap in pay at least narrowed between March and April from a 22.81 percent difference between the recovery-era increase in cumulative private sector and manufacturing wage increases to an 18.61 percent difference. Yet the latest (March) real wage data kept showing manufacturing pay falling further behind.

Here’s my analysis of the latest monthly (April) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>Manufacturing employment grew sequentially for the fifth straight month in April, enabling the sector to keep edging out of its latest jobs recession and record its best stretch of monthly employment improvement since the August, 2013 to July, 2015 period.

>But April’s monthly gain of 6,000 represented the third straight month of slowing advances, and helped drag industry’s share of total nonfarm payrolls (the government’s definition of the U.S. employment universe) to it’s latest all-time now – 8.46 percent.

>So did slightly negative revisions, with March’s originally reported 11,000 monthly jobs gain revised up to 13,000, but February’s already downgraded 26,000 increase reduced again to 22,000.

>On the brighter side, the April figures were good enough to produce a year-on-year manufacturing jobs improvement of 40,000 – the best such advance since February, 2016’s 69,000. The April annual advance also bettered that between the previous Aprils (35,000).

>Manufacturing wages presented a mixed picture, too. In April, industry pay before inflation enjoyed its best monthly increase (0.68 percent) since last October (0.73 percent). The spurt was especially welcome, since the sector’s monthly March wage change was revised down from 0.04 percent to zero.

>Moreover, for the first time since December, such manufacturing wage rises resumed outpacing increases in the private sector overall (0.27 percent).

>The year-on-year April manufacturing pre-inflation wage increase of 2.71 percent, however, was its slowest since last August (2.68 percent). It was lower, too, than that of April, 2015 to April, 2016 (2.99 percent). At the same time, the new April result also bested that of the private sector overall (2.55 percent), continuing a streak of out-performance that began in March, 2016.

>On a pre-inflation basis, manufacturing’s wage increases during the current economic recovery still trail those of the private sector, but the gap narrowed between March and April. The revised figures for the former month show that private sector wages had risen by 17.98 percent since the current expansio began in mid-2009 – 22.81 percent faster than manufacturing wages (14.64 percent).

>As of April, however, private sector wages during the recovery were up by 18.29 percent while manufacturing wages had improved by 15.42 percent – a gap of only 18.61 percent. ,since the expansion began in mid-2009.

>Yet when wages are adjusting for inflation, manufacturing’s performance looks worse than ever. The latest figures only cover March, but show that industry’s 0.37 percent price-adjusted monthly pay improvement fell short of the overall private sector’s 0.47 percent advance.

>Year-on-year, manufacturing wages were up only 0.19 percent – also worse than the (also meager) 0.28 percent rise for the private sector.

>As a result, real manufacturing wages have increased by only 0.93 percent during the current, nearly eight-year old economic recovery. Overall private sector wages are up 3.97 percent.

>In April, manufacturing retained its status as an employment laggard, too. During the recovery, its payrolls are up by only 5.71 percent. The total for employment in the private sector as a whole? 14.09 percent.

>Since the late-2007 onset of the last recession, manufacturing’s performance is equally poor. From that time to the early 2010 troughs, manufacturing lost 2.293 million jobs and private sector payrolls shrank by 8.801 million.

>Since then, manufacturing has regained just 41.43 percent of those lost jobs (a total of 943,000). The private sector as a whole has boosted employment by 16.436 million.

>As a result, total private sector employment is now 6.62 percent higher than at the recession’s late-2007 onset, but manufacturing employment is still 9.82 percent lower.

(What’s Left of) Our Economy: Why Tariffs Can Reverse Offshoring’s Damage

Tags

China, emerging markets, export platforms, foreign investment, free trade agreements, GE, globalization, intermediate goods, Jeffrey Immelt, manufacturing, manufacturing jobs, manufacturing output, Mexico, multinational companies, offshoring, product life cycle theory, reshoring, Richard Baldwin, tariffs, The Great Convergence, The Race to the Bottom, Trade, trade law, World Trade Organization, {What's Left of) Our Economy

It’s definitely weird to be writing a post in response to a recent tweet-storm. But this was no ordinary tweeter. This was someone who’s getting attention from the Washington economic policy establishment as a new oracle on trade and globalization. That’s evidently because his work conveniently sums up many of the leading myths about the world economy and America’s approach to it that have been propagated by this group of interests. So his burst of social media activism provides a valuable opportunity to set the record straight.

The tweeter extraordinaire was Richard Baldwin. He’s not only an international economics professor at the University of Geneva in Switzerland, but the founder of the informative Voxeu.org economics research portal and president of the Centre for Economic Policy Research in London (not to be confused with the Center for Economic Policy and Research in Washington, D.C.). And he’s just come out with a book titled The Great Convergence: Information Technology and the New Globalization.

According to Baldwin, I have been guilty of a “Classic misthinking of globalisation” by supporting an overhauled U.S. trade policy featuring much more aggressive use of tariffs and other protectionist measures. But from the rest of his tweet-storm, a summary presentation he’s touting, and some other statements, it’s should be obvious that his own description of recent international economic trends and their main causes is way wide of the mark.

His fundamental mistake lies in neglecting the crucial role played in fostering today’s flows of goods, services, and capital by trade agreements and by the dramatically differing reductions in trade barriers from both a quantitative and, more important, a qualitative, standpoint. In particular, Baldwin ignores how various bilateral trade deals and decisions, and the multilateral pact that created the World Trade Organization gave multinational companies the essential condition they needed to justify the increasingly sophisticated production and job offshoring that has characterized globalization – guaranteed access to developed country, and especially the U.S. – market.

For the record, here’s the full string of tweets. (Some repeat previous tweets in the sequence.)

Classic misthinking of globalisation by @AlanTonelson

Recent globalisation driven by knowledge offshoring not freer trade

Tariffs don’t address the driving force

Could foster reshoring of some production but also more offshoring

The main problem is domestic: Protect workers, not jobs.

Jobs for U.S.-based robots

Trump tariffs raise cost of industrial import only in US (not Germany, Japan, China, Mexico, Canada)

Knowledge offshore drove 21^st century globalisation

Tariffs don’t address globalisation’s driving force

US tariffs foster some reshoring and some more offshoring

So what is the right way to deal with angry middle class?

Protect individual workers, not individual jobs.

So what is the right way to deal with angry middle class?

Are you familiar with the concept of factor substitutability ? Changing relative prices changes decisions.

But think of it this way. Offshoring, especially the kind focused on by Baldwin, to developing countries, can serve 3 main purposes. It can help companies better supply overseas markets. It can help them better supply their home country market. Or it can seek both objectives.

The great expansion of U.S. trade, primarily with developing countries, that Baldwin rightly notes began around 1990 (with the end of the Cold War and the great strengthening of free market reforms in gigantic developing countries), was justified with many and varied arguments. The paramount rationale, however, was serving the huge, ballooning populations of the world’s Chinas, Indias, Mexicos, and Brazils.

Yet as documented exhaustively in my 2002 book, The Race to the Bottom (and of course many other studies), incomes in these so-called Big Emerging Markets were simply too low to enable their final consumption to rise much – at least compared with their production and productive capacity. No one was more aware of this situation than the emerging market countries themselves – unless it was the global corporations considering pouring investment into them.

That’s why the smartest of these countries understood that they could not possibly grow and develop adequately by supplying their own populations alone, however rapid their income gains. Their only real hope for satisfactory progress was serving markets “where the money is.” America’s relatively open market and consumption-led national economic structure was their best bet by far.

And that’s why the multinationals as well were so determined for Washington to negotiate free trade agreements with these countries. – not to lower foreign trade barriers and permit American businesses their workers to reach the third world’s billions of new actual and potential consumers, but to lock in lower or eliminated barriers to the U.S. market. See the end notes to this recent study for references to just some of the scholarly evidence.

Accomplishing this aim would ensure that their plan to supply well heeled American customers from super low-cost and virtually unregulated third world supply bases would actually make money. Alternatively put, if Washington were legally able to curb or cut off access to the United States for Corporate America’s third world factories, these new facilities would lose much of their value.

Bringing the United States into the World Trade Organization (WTO) was also instrumental in this scheme. Its new rules and especially its unprecedented enforcement authority have greatly weakened America’s legal scope to use its trade law system to turn back goods (including those from the multinationals’ factories) that have been dumped, illegally subsidized, or benefited from other predatory trade policies – including currency undervaluation. In this vein, securing Chinese membership was vital, too. It secured near-invulnerability to U.S. trade law for the multinationals’ favorite export platform.

So the crucial importance of tariffs should be obvious to all. Yes, the technological advances cited by Baldwin (and so many others) have facilitated offshoring – and made the offshoring of even sophisticated production possible from the standpoint of logistics and administration and quality control and numerous similar considerations. But much and possibly most of it couldn’t pass the bottom-line test without the U.S. market access that can be made or broken by tariffs. That is, technology was a necessary condition of offshoring. But it was hardly sufficient.

Consistent with the product life cycle model, it’s unmistakably true that a growing share of multinational investment in developing countries is serving those markets. But compelling evidence abounds that the export platform strategy remains crucial – both to the countries and to the companies. Among the strongest, as I’ve recently written: the howls of protest from the corporate Offshoring Lobby and from export platform countries sparked by President-elect Trump’s talk of tariffs on the output they plan to sell to the United States. If America wasn’t such an important destination, and if so much of the offshored production was sold locally, why would they be so concerned?

Two other key items of evidence for the importance of tariffs:

a. The recent acknowledgment by GE CEO Jeffrey Immelt that trade barriers and other localization moves were mushrooming around the world, and that his company would have no choice but to say “How high” when ever more protectionist governments say “Jump!” Immelt’s statement makes clear that economies much smaller and weaker than America’s will be able to lure his company’s production and jobs either through relatively simple restrictions of access to their market, or through various performance standards imposed on inbound foreign investment that will be enforced through tariffs.

b. The prevalence of these practices and their success in influencing corporate location decisions. Indeed, the only major power that abjures these measures is the United States. Obviously, if smaller and weaker economies can wield tariffs and other trade restrictions successfully, America’s inaction stems from inadequate will, not inadequate wallet.

Yet as Baldwin’s tweet-storm shows, he is also offering three related objections to tariffs that have nothing intrinsically to do with the advent and growth of what he calls “knowledge offshoring.” He argues that tariffs would disastrously raise the cost to domestic U.S. manufacturers of all the imported inputs they use in their final products. As a result, he adds, these American manufacturers would lose competitiveness to any number of foreign rivals. Finally, he repeats the widespread argument that even if significant production was reshored with tariffs, the job impact would be minimal because of soaring, labor-saving productivity advances in manufacturing.

But Baldwin seems unaware that intermediate goods, including of course capital equipment, make up a huge share of domestic U.S. manufacturing. Because output data is too general (in particular lumping together such intermediates with finished goods in many super-categories), the exact figure is difficult to calculate. But other statistics leave no doubt as to the scale.

As I’ve previously shown, what the Census Bureau calls “industrial supplies” and “capital goods” have comprised fully 62.5 percent of America’s total merchandise exports for the first ten months of this year. And as with the output figures, these statistics leave out products such as auto parts (which are included, but not broken out, under a separate heading).

These industries are also gigantic employers. My own tally of Bureau of Labor Statistics data reveals that their workers number 5.764 million. That’s slightly over 47 percent of all manufacturing employees. Moreover, just over 28 percent of the workers in these sectors are white-collar workers – meaning in turn that many of them are in research, engineering, and other STEM fields. These numbers, moreover, indicate that even if I’m whoppingly wrong, we’re still talking about lots of valuable production and workers. 

So tariffs would create enormous new opportunities for this immense sector of manufacturing – and comparable new demand for the kinds of folks nearly everyone wants to become bigger and bigger percentages of the American labor market.

In addition, Baldwin’s case against tariffs seems to assume that they’ll be geographically circumscribed – hence his claim about the competitiveness-harming impact of barriers against these intermediate goods. But this assumption is puzzling, to say the least. Of course tariffs limited to, say, China or Mexico would open new opportunities in the U.S. market or third country markets for other manufacturing powers. Yet this is precisely why the trade proposals being floated by the administration-in-waiting increasingly include world-wide restrictions.

Finally, although labor-saving productivity gains are surely responsible for much manufacturing job loss in recent decades, the benefits of reshoring manufacturing output shouldn’t be underestimated. Industry’s very productivity performance is clearly one big reason – how can a national economy not profit from regaining many of its most productive sectors?

The importance of existing industry for fostering new industries and related economic benefits and opportunities is another big reason. This new paper from the National Bureau of Economic Research presents findings indicating just how much technological advance is generated by incumbent companies (and presumably industries) rather than through the “creative destruction” emphasized by much of the economics profession. So a focus on manufacturing output means a focus on much of the economy’s capacity to continue creating genuine wealth – and sustainable prosperity.

Further, for all of its competitiveness issues, manufacturing still dominates American export flows. If free-trade-oriented analysts are right, and main purpose of exporting is earning the income to buy imports, how can sufficient income keep getting created if domestic manufacturing production keeps stagnating or shrinking – which has clearly been the case in real terms since the last recession began?

As indicated by some of the preceding paragraphs, however, much uncertainty – in my view, way too much – is still left by the official data analysts are forced to use to study the vital Who, What, Where, When, Why, and How Much issues raised by globalization. Nor does the information reported sporadically in the business press or reported (often partially and self-servingly) by the companies themselves add more than fragments to the existing picture.

Many of these uncertainties could be cleared up if offshoring companies were required by Washington to disclose much more information than at present about how their domestic and foreign operations compare, and how these comparisons have changed over time. After all, knowing the crucial details is critical to their success. And if the disclosure mandate was universal, no individual firm would gain competitive advantage from this new flood of proprietary facts and figures.

So I hope Baldwin – and others sharing his views – will join me in demanding such disclosure. We have nothing to lose but our (relative) ignorance.

Im-Politic: Meet the Real Trade and Jobs Know-Nothings

Tags

2016 election, Bernie Sanders, Clyde V. Prestowitz, Donald Trump, Im-Politic, Jr., manufacturing, manufacturing jobs, Morris Chang, Ronald Reagan, Taiwan Semiconductor Manufacturing Company, The Race to the Bottom, Trade, transplants

Nothing during this wildly unconventional presidential campaign has anchored the economic conventional wisdom more strongly than the claim that only know-nothings like presidential candidates Donald Trump and Bernie Sanders could possibly think that better U.S. trade policies can bring back lots of high-paying manufacturing jobs from countries like China to the United States. And nothing during this same campaign has revealed more Establishment ignorance than this attack on these White House hopefuls.

An excellent recent op-ed in USA Today by former U.S. trade negotiator Clyde V. Prestowitz, Jr. explains why. As Prestowitz (with whom I worked in the early 1990s at the Economic Strategy Institute think tank he founded) writes, anyone thinking that free market forces have turned China, for example, into a major producer of advanced manufactured goods needs to get a clue. China’s natural manufacturing advantage lies in labor-intensive products like apparel and toys, because its workforce is so gargantuan and its technological development still has a long way to go.

But Beijing wasn’t content to keep making such low-value products an instant longer than necessary. So it’s used a raft of active policy carrots and sticks to lure even information technology manufacturing to its shores. My book on globalization, The Race to the Bottom, has exhaustively documented how these policies have long been standard operating procedure for governments all over the world – except America’s. And the supposedly all-powerful multinational companies they’ve mainly targeted? Instead of standing on their high horses, and refusing to jump, they’ve simply asked “How high?”

If you still doubt any of this, forget about what Prestowitz and I have reported. Listen to Morris Chang. He started up and still chairs the Taiwan Semiconductor Manufacturing Company (TSMC), which is the world’s largest contract manufacturer of computer chips, and in fact, pioneered the “foundry” model for the industry.

Chang’s company just announced that it’s building a $3 billion semiconductor fab in China, where it will produce advanced (if not leading-edge) semiconductors. How come? There’s no question that part of the reason is that so many of TSMC’s customers – in the information technology products industry – now manufacture so many of their goods in China. But as Chang also admitted, “We say that with some degree of assurance from the authorities, some degree of assurance that building a plant there will indeed enhance our access to the Chinese market. And reversely, not building a plant there will not enhance.”

That is, China’s policy is “Pay to play” – because it wants to develop its own semiconductor sector, regardless of what economic theory says it should be doing. And Chang doesn’t think he can afford to Just Say No.

Revealingly, no one is more aware than the Chinese that the United States is capable of playing this game effectively, too. As a Chinese company told Bloomberg last year, it chose Alabama as the site of a new factory both “to bring it closer to clients in the South and avoid anti-dumping tariffs on copper products.”

Also revealingly, American leaders haven’t always been brain-dead on this score. In 1981, for example, President Ronald Reagan successfully pressed Japan’s auto makers to curb their exports to the United States “voluntarily.” The following year, Honda began assembling cars in Ohio. By 1990, all the major Japanese auto makers had gone the transplant route.

Can using America’s market power bring back all production and jobs lost to trade? Of course not. Can it bring back or create lots? Of course it can, especially in high-value sectors where a technologically advanced country with well developed capital markets like the United States should be fully competitive. The actual trade know-nothings are those unfamiliar with the historic record and current global realities. Assuming of course that any of them really want to know.

Im-Politic: Why Sanders Really Isn’t Bernie-One-Note

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African Americans, Bernie Sanders, Bill Clinton, Bureau of Labor Statistics, campaign finance reform, Center for Economic Policy Research, China, free trade agreements, George W. Bush, Hillary Clinton, Im-Politic, manufacturing jobs, offshoring, poverty, race relations, sexism, trade policy, World Trade Organization

Truth in advertising: I have a lot of respect for Bernie Sanders and very little for Hillary Clinton. Still, here’s some data that I believe even many Clinton supporters will agree undermines her claim that her rival for the Democratic presidential nomination is a “single-issue candidate”whose obsessive focus on economic inequality and its roots in a money-drenched political system is ignoring crucial issues of racial and gender discrimination.

The data come from the government’s Bureau of Labor Statistics (BLS) and the private Center for Economic Policy Research (CEPR), and they make clear the harm done to African Americans by decades-long American trade policies that the former Secretary of State has strongly backed for most of her career, and the Democratic Socialist Senator from Vermont has consistently opposed.

According to a 2008 CEPR report, in 1979, blacks made up 23.9 percent of the workforce in American manufacturing, which is the part of the economy most extensively exposed to foreign competition. By 2007, this figure had sunk to 9.8 percent. And BLS data place this share at 9.7 percent as of last year.

Although there’s still by no means a consensus among economists concerning trade policy’s responsibility for manufacturing job loss, even this historically free trade-worshiping group of scholars keeps producing more and more evidence indicating that its share is considerable. So the above statistics make clear that African-Americans have taken an outsized hit both from Washington’s longstanding pursuit of trade agreements that have inevitably fostered production- and job offshoring, and from its equally longstanding failure to combat predatory foreign trade policies effectively.

The price paid by African Americans becomes even clearer when these percentages are translated into raw numbers. Based on the CEPR and BLS data, in 1979, 4.61 million blacks worked in U.S.-based manufacturing. Last year, this number had plunged to 1.49 million.

It’s important to note that some uncertainty surrounds this 2015 figure, because it’s based on one set of BLS data that peg the domestic manufacturing workforce at just under 15.34 million. These numbers come from the Census Bureau’s Current Population Survey (CPS), which uses answers from American households. My figure for 1979 comes from CEPR’s number of blacks’ percent of the manufacturing workforce, and from BLS total manufacturing workforce figures based on BLS’ own Current Employment Statistics. These use answers from American employers. The CES numbers peg the domestic manufacturing workforce at just over 12.30 million for 2015 – considerably lower than the CPS figure.

I wasn’t able to find an absolute number of 1979 manufacturing workers per the CPS methodology (crowd-sourcing hint!) but it’s difficult to imagine that the overall trend of disproportionate black manufacturing job loss would change significantly. And if something like three-plus million African Americans lost manufacturing jobs over the last four decades, does anyone – including Ms. Clinton’s supporters – believe that the impact on black employment and wage levels – wasn’t devastating? Does anyone believe that these policy failures didn’t play a huge role in turning Rust Belt cities with big African American populations – like Flint, Michigan – from centers of industry into centers of poverty? And that family break-up and related social ills in the black community weren’t greatly aggravated by the employment crisis suffered by the only sector of the economy with an historical record of enabling millions of working class Americans to lead middle-class lives?  

Starting this exercise in the late 1970s, moreover, is important because that’s when the American economy began opening wide to foreign competition. It also makes possible showing how blacks in manufacturing fared during the 1990s, a period lauded by Ms. Clinton as an economic golden age flowered under her husband, President Bill Clinton. But it was also a time when President Clinton spearheaded the first great wave of post-Cold War American free trade agreements.

Between the first year of Clinton’s presidency, in 1993, and the last, in 2000, the black share of American manufacturing workers fell from 16.5 percent to 13.6 percent. That’s a 17.58 percent fall-off. During the same period, the share of the overall U.S. workforce employed in manufacturing declined from 17 percent to 15.1 percent. That decrease was a much smaller 11.18 percent. Moreover, these data are all from the CEPR report, so it’s apples-to-apples.

During the ensuing administration of George W. Bush, black manufacturing job loss was even worse (21.6 percent), though this performance in part represented the hammering the entire manufacturing workforce suffered between 2001 and 2007 (19.44 percent of jobs eliminated). But even these numbers reflect poorly on the Clinton record. For it’s increasingly agreed that much of this manufacturing jobs massacre resulted from Mr. Clinton’s late-1990s decision to back admitting China into the World Trade Organization. It signaled to offshoring-happy American multinational companies that they could send floods of factories and jobs to the People’s Republic without fear of new U.S. tariffs on their U.S.-bound exports if the volumes became overwhelming.

Nothing in this post should be taken for agreement with the fundamental Clinton camp portrayal of Sanders as a Bernie-One-Note. But even if they were right, economic inequality – and its roots in the dangerously large role of money in American politics that’s produced a wide range of shortsighted and downright destructive policies, including on the trade front – is one heck of a big, loud note.

For although there’s no legitimate doubt that racial and ethnic minorities, and women, face their own distinctive problems in American society and the U.S. economy today, it’s equally clear that Sanders’ priorities, if executed well, would go far toward solving the most serious problems facing all these groups – not to mention the entire population. Ironically, during his first run for the White House, in 1992, Ms. Clinton’s husband recognized the need to focus “like a laser beam” on the economy – when it was in much better shape. There’s a strong case that her own campaign this year could benefit from taking that advice.

Im-Politic: Contra the Media, Trump’s Trade Message is Perfect for South Carolina

Tags

Donald Trump, foreign direct investment, free trade agreements, Im-Politic, inflation-adjusted growth, inflation-adjusted wages, James Oliphant, Jobs, Mainstream Media, manufacturing, manufacturing jobs, offshoring, Reagan Democrats, Reuters, South Carolina, Trade, trade policy, wages

I give credit to Reuters reporter James Oliphant for recognizing Republican presidential candidate Donald Trump’s potential to use attacks on U.S. trade policy to court so-called Reagan Democrats – working and middle class whites who have absorbed big job and wage hits from the offshoring friendly trade deals pushed in recent decades by the mainstreams of both major political parties, and especially by their presidents. After all, last month, I recognized how appealing Trump’s campaign would naturally find this strategy, which during the 1980s enabled former President Ronald Reagan to make deep inroads into traditionally Democratic voting blocs.

I give Oliphant less credit for falling into the standard, often mindless, journalistic habit of assuming that there are (at least) two respectable sides to every story, rather than making clear that, at least in the state he examined closely, Trump’s strategy is a complete slam dunk.

Oliphant notes that “there are signs that Trump’s strategy is working,” and cites some data showing that the pool of voters receptive to a critical message on trade could be “vast.” But he also strongly suggests that the South Carolina electorate, where the Republican hopeful is emphasizing these points, and which holds a crucial early Republican primary next year, is anything but the most promising. According to Oliphant:

“Critics say that Trump is proffering an outdated, simplistic, and overly pessimistic view of the U.S. economy, one that fails to grasp the multi-national complexity of global manufacturing. Nowhere is that more apparent than in South Carolina where 700 international firms employ 115,900 people, according to State Department of Commerce data. That makes for the highest percentage of private-industry workforce employed by foreign-owned firms.”

There’s no doubt that South Carolina has attracted a great deal of foreign direct investment. It’s also attracted much new domestic manufacturing investment, notably Boeing aerospace production. But the big question is whether this success has offset the losses inflicted on the state’s industrial economy by America’s longstanding offshoring-friendly trade policies? The (easily research-able) answer is a resounding “No.”

Oliphant presents one statistic pointing to this failure: The state has recovered only 40 percent of the manufacturing jobs it lost during the last recession. That’s actually better than the national average so far (38.60 percent). But the difference is peanuts. And there’s so much more data indicating major, trade-related weakness in South Carolina’s performance.

For example, the state is doing pretty well as a manufacturing jobs and investment magnet because it keeps pursuing a so-called low-road strategy. The average hourly production occupation wage in the Palmetto State is less ($16.93) than the overall U.S. average ($17.06). The state’s performance looks even worse by a related measure – its average hourly wage for the entire manufacturing sector ranks only 31^st out of the 50 states.

But again, maybe this low-road strategy has helped lure an amazing amount of manufacturing production to the state? Enough to offset trade-related losses in industries like textiles and apparel? And maybe this new production is higher quality than that it’s replaced? So maybe South Carolina is better positioned than the rest of the country to be a manufacturing powerhouse over the long run?

Maybe some day. But there’s no evidence that this is the case so far. After inflation, South Carolina’s manufacturing output has indeed gone up faster during the current recovery so far (14.59 percent) than it has nationally (11.44 percent). But at least some of that edge owes to the state’s real manufacturing production falling faster during the last recession (by 13.29 percent) than the nation’s output (10.29 percent).

(For data geeks, the state-level manufacturing output figures compiled by the Commerce Department are only annual, so they only show us the results for 2007-2009, and 2009-2014. The recession began at the end of 2007, and the recovery began in the middle of 2009. But this is close enough.)

Look back further, and South Carolina manufacturing has been even less impressive. Those aforementioned Commerce Department data provide apples-to-apples figures going back to 1997 – about the time lots of trade-induced offshored American manufacturing production began sending its output back into the nation. Since then, U.S. after-inflation manufacturing production is up 40.97 percent. South Carolina’s? Just about a third of that (13.47 percent).

No one’s saying here that the story of American domestic manufacturing lately has been all gloom and doom, that U.S. trade policy should be blamed for all its shortcomings, and that Donald Trump (and other trade policy critics) have all the answers for spurring a real renaissance in the sector. But if trade policy supporters, and journalists, want to hold up a poster-state, they clearly should forget about South Carolina.

(What’s Left of) Our Economy: Media Coverage of Trade and Jobs Issues Again Fails the Nation

Tags

Alana Semuels, CNBC, currency manipulation, free trade agreements, GDP, Gerald F. Seib, gross domestic product, Korea, KORUS, Mainstream Media, manufacturing, manufacturing jobs, manufacturing trade deficit, Michael Froman, Obama, Phil LeBeau, The Atlantic, TPP, trade policy, Trans-Pacific Partnership, U.S. Trade Representative, wages, Wall Street Journal, {What's Left of) Our Economy

Silly me. Here we are in an election season practically defined by boiling working class economic anger at America’s political leaders. So I thought improved press coverage might be in store of the trade policy failings behind so much blue collar job loss and (at best) wage stagnation. Yet the last week alone has once again indicated that such hopes are in vain.

Example one was the October 20 Wall Street Journal post from Gerald F. Seib detailing the Obama administration’s efforts to sell Congress on the recently concluded Trans-Pacific Partnership (TPP) trade deal by touting its supposed benefits to individual states. Although that’s become a standard practice for such campaigns, Seib was right to report on the latest iteration.

But what Seib should have also reported on was all the evidence belying the sales pitch being made by U.S. Trade Representative Michael Froman. As usual, Froman’s case for the TPP relied exclusively on state-level exports. Apparently Seib forgot that trade flows also consist of imports, and thus their net effects can’t be determined without identifying trade balances and how they’ve changed.

Even worse, Seib was not only reminded of this potential half-truth, but actually given the data exposing the administration line as fraudulent. This came the following day, when I sent him an email pointing him to the government figures showing that in recent years, the great majority of states have seen their merchandise trade balances worsen, meaning that trade flows on balance have weakened their growth – and surely employment. The email also noted that the administration used its 2012 Korea trade agreement (KORUS) as the TPP’s model – and that since under this previous agreement, America’s bilateral trade shortfall has exploded, similarly dismal results seemed likeliest for TPP.

I’m still waiting for the courtesy of a reply.  More important, Seib has still failed to correct the record. So the odds have just improved that the Obama administration succeeds in hoodwinking the nation and its elected representatives.

Example two concerns the conventional wisdom that it’s completely naive to believe that American politicians can do anything to bring significant numbers of manufacturing jobs back to the United States, and that those that do return generally won’t pay like their predecessors. The Atlantic‘s Alana Semuels (in a post yesterday) and CNBC’s Phil LeBeau (in a tweet today), have been the latest to repeat this contention.

There’s no doubt that, largely because of the sector’s impressive (though apparently slowing) productivity gains, domestic manufacturing’s job-creation potential isn’t what it used to be, and that’s ultimately good for the economy, all else equal. But there’s also no doubt that for decades, a major manufacturing job (and wage) killer has been the mammoth trade deficit run by the sector – a gap that owes at least in part to the long string of offshoring-friendly trade deals signed and trade policy decisions (e.g., long-time acquiescence in China’s currency manipulation) made since the negotiation of the North American Free Trade Agreement.

Although it’s not explicitly reported in the U.S. government’s monthly trade reports, the dimensions of the shortfall have become truly jaw-dropping. Last year it hit $734 billion. This year, (as of August) it’s running nearly 16 percent ahead of that rate. Which means that a trillion dollar annual shortfall is within sight. According to the standard methodology for measuring the economy’s size and growth, the more than $850 billion trade deficit that could be registered this year translates directly into lost output. In fact, the 2014 manufacturing trade deficit represented 4.23 percent of gross domestic product in current dollar terms. Even simply narrowing the gap would boost production, and therefore employment and wages, dramatically.

Further, much of the current manufacturing trade deficit has nothing to do with the labor-intensive goods in which high income countries like the United States genuinely and naturally struggle to compete. Nearly $116 billion is in the automotive sector. Nearly $42.5 billion is in communications equipment. More than $33 billion is in pharmaceutical and medicines. More than $15 billion is in iron, steel, and similar metals. More than $5.9 billion is in machine tools and other metalworking machinery. More than $4.2 billion is in industrial heating and cooling equipment. Nearly $2.9 billion is in navigational, electro-medical, and other advanced instruments. Dig deeper into the numbers and you’ll see big deficits in construction equipment, relays and industrial controls, ball bearings, and the like. Can even most of these results be explained simply by market forces?

It’s understandable that many politicians would swallow easily debunked falsehoods or excessively defeatist memes about U.S. trade policy and its economic effects. That’s to be expected from a system that fosters corruption and rewards inertia and simple laziness. Why, however, has it become so common to see the same behavior from journalists?

(What’s Left of) Our Economy: Manufacturing Renaissance, RIP

Tags

aerospace, Boston Consulting Group, defense manufacturing, durable goods, Federal Reserve, industrial production, inflation-adjusted growth, Jim Tankersley, manufacturing, manufacturing jobs, manufacturing renaissance, non-durable goods, Washington Post, {What's Left of) Our Economy

I’m pleased to announce that the Washington Post has just reported on a major recent finding of mine about America’s supposed manufacturing renaissance: In terms of the supremely important measure of inflation-adjusted output, it never happened.

As summarized in a new piece by correspondent Jim Tankersley, revisions last month to Federal Reserve data show that instead of surpassing the highs it reached on the eve of the last recession, more than seven years ago, manufacturing production in real terms still hasn’t recovered the ground it lost. By contrast, in the two previous economic recoveries, manufacturing took much less time to exceed its previous output peak

Shortly after discovering this change, I shared the information with Tankersley and, gratifyingly, he considered it newsworthy.

His write-up adds an angle I wasn’t aware of – much of the shortfall has taken place in defense and aerospace manufacturing. At the same time, the picture can be usefully fleshed out with these details:

>The timing of the revisions couldn’t have been stranger. They came out just a six days after the Federal Reserve released its report on June industrial production. How much easier these results would have been to report on had the Fed either included them in that release, or waited to issue them for incorporation into last week’s July figures!

>Although much of the manufacturing renaissance coverage and commentary has focused on the sector’s job levels (in fairness, the holders of jobs do things like vote), I’ve closely monitored production because it ultimately matters much more. After all, how can robust employment be generated and maintained over any period of time without robust output? This relationship is especially important to keep in mind given manufacturing’s historically strong productivity performance. Even though efficiency has been growing more slowly as of late, the sector has a proven knack for using technology and other innovations to turn out more stuff with fewer workers.

>The revisions were anything but trivial. The last pre-revision figures showed that the sector’s output was 2.68 percent greater after inflation than the level it reached at the last recession’s December, 2007 onset. According to the new data, from December, 2007 through June, 2015, real manufacturing production had actually shrunk — by 2.28 percent.

The subsequent July industrial production figures actually reported a December, 2007-June, 2015 manufacturing output decline that was even greater — 2.50 percent. That’s because the June, 2015 real output level was less than originally reported. Happily, the initial July reading showed a monthly increase big enough to bring domestic industry to within 1.67 percent of its pre-recession high.

>Consistent with Tankersley’s finding of outsized downward revisions in defense-related industries, the worst newly revealed manufacturing losses came in durable goods industries. Previously, their inflation-adjusted output was judged to be up 9.52 percent since its December, 2007 pre-recession peak. Now the improvement is pegged at only 2.27 percent.

>Since its own pre-recession peak (July, 2007), non-durable goods output has been even worse than originally thought, but by only 7.88 percent versus 5.20 percent.

>These revisions themselves will be revised further down the road (as will the latest June and July data).  It’s possible, in fact, that these changes will soon incorporate research strongly indicating that manufacturing output has been considerably over-counted in recent years. Why? Because there’s abundant evidence that government statisticians haven’t done well at assessing the rapidly falling prices – and therefore the prevalence in manufactured goods – of parts, components, and other inputs that are imported. If these price changes indeed haven’t been fully captured, then many final manufactures – especially in information technology hardware – contain higher levels of foreign content, and thus lower levels of U.S.-made content, than we currently think.

>What we know for sure now, though, is that by the most meaningful measure, there never was a U.S. manufacturing renaissance, and that those who have been singing its praises – ranging from President Obama to the Boston Consulting Group – have simply been manufacturing and selling snake oil.