Everyone, no matter what their views on trade and related economic issues, agrees that reviving the U.S. domestic manufacturing sector represents a major challenge. What everyone needs to agree on is that the goal will never be reached as long as the Mainstream Media keeps presenting views on the subject that are as silly as they are downright ignorant. If you think I’m exaggerating, consider these two recent examples.
The first came in a piece by a team of New York Times reporters earlier this month. According to headline on the December 2 article, “Trump’s Tough Trade Talk Could Damage American Factories.” The reason?
“[M]any existing American manufacturing jobs depend heavily on access to a broad array of goods drawn from a global supply chain — fabrics, chemicals, electronics and other parts. …Mr. Trump’s signature trade promise [steep tariff hikes], one ostensibly aimed at protecting American jobs, may well deliver the reverse: It risks making successful American manufacturers more vulnerable by raising their costs. It would unleash havoc on the global supply chain, prompting some multinationals to leave the United States and shift manufacturing to countries where they can be assured of buying components at the lowest prices.”
To be sure, this article suffers numerous flaws. For instance, what’s the “U.S.-made product” it uses as its signature example of globalization-related trends that (one must logically assume) are being portrayed as beneficial for American industry? A movie seat chair comprised of two-thirds imported parts by value. Talk about a formula for a hollowed out manufacturing base!
But the main problem is with the authors’ apparent belief that these parts and components and materials (often called intermediate or producer goods) must be imported because they’re either not made in America, or can’t be made in America at all, or at competitive prices.
Nothing could be further from the truth. In fact, a huge percentage of American manufacturing output consists precisely of these products. It’s hard to know exactly how big because of shortcomings in U.S. data collection. But the U.S. Census Bureau’s monthly trade figures show that, on a pre-inflation basis, America’s goods exports for the first 10 months of this year have totaled just over $1.2 trillion. Of those, nearly 62.5 percent consisted of “capital goods” and “industrial supplies” – i.e., intermediate goods. (See Exhibit 6 in this release.)
But such exports are surely far greater, because the Census figures don’t break out the numbers for auto parts.
Similar problems plague American manufacturing output numbers, but also leave no doubt about the prominence of intermediate goods in the U.S. industrial complex. They show that, in 2014 (the last year for which detailed data are available), American manufacturing’s pre-inflation production was slightly more than $2 trillion. Of this amount, nearly 37.5 percent consists of products clearly identifiable as intermediate goods (like machinery, metals, and chemicals).
But again, due to data shortcomings, it’s difficult to tease out other leading intermediates – including not only auto parts but semiconductors and other electronics components and electrical equipment. (These figures are calculated from the “GDP by State” interactive tables in this section of the Commerce Department Bureau of Economic Affairs website, which includes national totals.)
So the claim that Trump-ian tariffs would eviscerate domestic manufacturing by cutting off American industry’s access to imported producer goods completely ignores the potentially greatly positive impact of stimulating demand for the nation’s immense (remaining) domestic producer goods complex.
The second example is even nuttier. In a December 12 piece, Los Angeles Times reporter Don Lee quoted an attack on tariffs from William Reinsch, identified as a “distinguished fellow at the nonpartisan Stimson Center.” That’s a big problem right there, as what Lee didn’t mention is that for 15 years, Reinsch was president of the National Foreign Trade Council, a pillar of Washington’s corporate offshoring lobby.
Yet it was Reinsch’s actual statement – and Lee’s apparent failure to see its fatal flaw – that was the real eye-opener. According to Lee, one of Reinsch’s main objections to tariffs broadly is that “We may assemble more stuff here, but we’ll export less because they’ll be more expensive. We’re going to be losing market share. Ultimately, the cost is jobs.”
Of course, as shown by that aforementioned New York Times article, too much American manufacturing already consist of “assembly.” More important, however, is that it seemingly hasn’t occurred to Reinsch or to Lee that the United States is running immense trade deficits overall, and especially in manufacturing. In other words, all else equal, the potential gains of producing “more stuff here” (and Reinsch never explains why it would be restricted to assembly) vastly outweigh the losses from exporting less.
Outsized domestic gains are even likelier because the United States has much more control over its own market and access to it than over foreign markets. Nor do Reinsch and Lee seem to know that the nation has been losing major market share even in advanced manufacturing industries for many years, as documented by several reports of mine issued by the U.S. Business and Industry Council. Here’s the latest.
President-elect Trump’s trade policy proposals are anything beyond controversy, and a thoroughgoing debate over the best globalization approach for the U.S. economy would be a long overdue and welcome development. Sadly, these two articles make clear that too much of the Mainstream Media remain far from making valuable contributions.