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

18 Wednesday Apr 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

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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.) 

Quill Cloud

 

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: America’s TPP Partners are Mostly a Band of Laggards

12 Tuesday Apr 2016

Posted by Alan Tonelson in (What's Left of) Our Economy

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exports, growth, IMF, International Monetary Fund, Obama, TPP, Trade, Trans-Pacific Partnership, World Economic Outlook, {What's Left of) Our Economy

Not that it looks to be going anywhere – until possibly a lame-duck session of Congress – but it’s always good to be reminded how foolish the Pacific Rim trade deal negotiated by President Obama looks when you recall what measly export markets the other 11 members look like.

Of course, the president’s fundamental export-expanding case for the Trans-Pacific Partnership (TPP) has been fraudulent literally from the start. As I’ve demonstrated, the United States itself represents nearly 62 percent of the so-called new TPP free trade zone. Add Mexico and Canada – with which the United States has already reached a North American Free Trade Agreement (NAFTA) – and you get another ten percent of the supposed new market opportunities. Moreover, America has already signed other free trade deals with four other signatories: Australia, Chile, Peru, and Singapore.

I’ve also shown that when the projected growth performances of the TPP members are examined, the notion that America’s own growth will be fueled by the deal becomes positively comical. And more evidence for this proposition has just come from the International Monetary Fund and its latest World Economic Outlook (WEO).

The Fund is anything but a flawless forecaster. But who is? And it’s something of the official aggregate voice of all its members – a list which includes the United States and virtually every other country on earth. Below you’ll see the 2016 growth forecasts for the TPP countries the WECO made in its previous report (from last spring) and in the newest version:

Old IMF 2016 forecast                New IMF 2016 forecast

US         3.1 percent                                  2.4 percent

Japan     1.2 percent                                  0.5 percent

Canada  2.0 percent                                  1.5 percent

Australia 3.2 percent                                2.5 percent

Singapore 3.0 percent                               1.8 percent

New Zealand  2.7 percent                         2.0 percent

Malaysia  4.9 percent                                4.4 percent

Brunei     2.8 percent                                -2.0 percent

Vietnam  5.8 percent                                  6.3 percent

Mexico   3.3 percent                                  2.4 percent

Peru        5.0 percent                                 3.7 percent

Chile       3.3 percent                                 1.5 percent

What this table shows is that, as of last year, the Fund expected that six of the 11 other TPP members would grow faster than the United States. This year, those out-performers number only four. Moreover, as has consistently been the case, the two biggest out-performers in percentage terms are Vietnam and Malaysia – whose own growth is heavily dependent on racking up trade surpluses, not on importing.

Even more damning, although the IMF has downgraded its growth forecasts for the United States as well as ten of the other TPP countries (Vietnam is the exception), these downgrades are more pronounced for seven of these economies than for America. Here are the figures:

IMF 2016 Growth Revisions for TPP Countries in Percentage Terms

US -22.58 percent

Japan -58.33 percent

Canada -25.00 percent

Australia -21.88 percent

Singapore -40.00 percent

New Zealand -25.93 percent

Malaysia -10.20 percent

Brunei from 2.8 percent growth to 2.0 percent contraction

Vietnam +8.62 percent

Mexico -27.27 percent

Peru -26.00 percent

Chile -54.55 percent

Freeing up trade with big economies makes a lot of sense in principle. So does freeing up trade with fast-growing economies, with economies growing faster than the United States, and with economies displaying various combinations of these characteristics. Yet few of the TPP economies fit any of these descriptions, let alone two or all of them. When President Obama and his allies can convincingly explain why more U.S. growth will result from linking America’s economic fortunes even more tightly to so many laggards, they’ll deserve support for the TPP. But not one moment before.

(What’s Left of) Our Economy: TPP Means More U.S. Trade with Growth Laggards, Not Leaders

07 Wednesday Oct 2015

Posted by Alan Tonelson in (What's Left of) Our Economy

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export-led growth, growth, IMF, International Monetary Fund, Obama, TPP, Trade, Trans-Pacific Partnership, World Economic Outlook, {What's Left of) Our Economy

This can’t be good news for Americans: As they keep slogging through its weakest recovery on record, the Obama administration keeps on repeating the same talking points about the Trans-Pacific Partnership (TPP) trade agreement, and economic reality keeps proving these contentions wrong.

The latest instance is almost providential, at least for opponents of the Pacific rim agreement. The same week that negotiators announced that the TPP has been completed, the International Monetary Fund (IMF) came out with its latest projections for global economic growth. And they continue undermining the administration’s uber claim that the TPP will “create new opportunities to sell to the world’s fastest-growing markets.”

Not that the IMF has a perfect crystal ball. But it’s at least revealing that its new World Economic Outlook survey again shows that most TPP first-round members are actually on course to grow more slowly than the United States after inflation, including most of the biggest. Moreover, the Fund downgraded the 2016 and 2020 growth prospects for the majority of TPP members (including the United States) compared with its April forecasts.

The IMF’s April WEO reported that nine of the eleven foreign signatories of the TPP were growing more slowly this year that the 3.1 percent rate then estimated for the United States: Japan, Canada, Mexico, Australia, Chile, Peru, New Zealand, Singapore, and Brunei. The only outperformers were Malaysia and Vietnam – both of which are not only small, but unusually reliant on net exports for growth. This week, the rest of the TPP membership looked no better. Nine were still pegged by the IMF as growth laggards compared with the United States, even though the 2015 U.S. figure had been cut to 2.6 percent.

Prospects will brighten for the non-U.S. TPP area in 2016, according to the IMF. In April, the Fund predicted that the number of TPP members that would outgrow the United States next year would increase from two to five. The latest WEO foresees improvement on this score, raising the number of growth leaders to six. (Mexico’s 2016 growth will supposedly be the same as the United States’ 2.8 percent.) At the same time, the biggest non-U.S. TPP economies – Canada and Japan – are projected to underperform America, and the next biggest first-round member, Australia, will barely top the U.S. performance with 2.9 percent expansion.

Moreover, the fund’s new 2015, 2016, and 2020 growth forecasts for most of America’s TPP first-round partners are lower than those presented in April. Four TPP countries were downgraded for all four years – Mexico, Chile, Peru, and Japan. The latter is by far the largest TPP economy after the United States. Growth predictions for four more members were cut for two of those years – Australia (again, another one of the larger TPP economies), New Zealand, Malaysia, and Singapore.

And for all of these except New Zealand, growth predictions remained positive only in 2020 – five years from now. The only growth upgrades over April were earned by minor TPP economies Vietnam and Brunei. Also revealing – 2020 is the only year in which the IMF sees America’s growth trailing that of most TPP members’, with gigantic Japan being the exception.

The Obama administration is right in claiming that a trade deal linking America more tightly to the world’s biggest economic winners would argue strongly for TPP’s Congressional passage – especially if those foreign economies weren’t export-led. These IMF numbers, however, strongly indicate that the TPP isn’t that deal.

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The Snide World of Sports

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  • Golden Oldies
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  • Housekeeping
  • Im-Politic
  • In the News
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  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
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  • Our So-Called Foreign Policy
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Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

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