America Manufactures More Than China?? On What Scale?

Submitted by: Jimmy Spann

I thought that this article was pretty interesting. Just some food for thought.

It basically gives a different look at global manufacturing compared to what I have been reading about through all of our Chindia readings. They have said that pretty much everything made today is “Made in China.” This leads me to believe that they would be the leading producer in quantity of goods made and exported.

However this article brought up a good point:

“For every $1 of value produced in China’s factories [in 2007], America generated $2.50.”

We are still producing the high-valued goods that China has not been trusted with yet. We exported $1.377 trillion worth of goods last year. Nearly half of the exports were capital goods: aircraft, computers, electric power machinery, office machines, and telecommunications equipment.

I thought that this was very interesting and would not have guessed it for the life of me. And I do realize that next year it might be more even, and in the years to come these types of products might go to China.

But I say that some stuff has to stay here. If we were to go War with China, or anyone that China supports, I believe that we would need to produce our own wartime supplies because I am sure that China would not be willing to keep servicing us during those times. And I know that this is not likely, but you can bet that there are analysts in Washington thinking of every worst case scenario and how they can be avoided.

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12 Responses to America Manufactures More Than China?? On What Scale?

  1. I’m pretty sure that most of our defense equipment is produced in-house. The comparison they make above makes sense to me when you look at it from a dollars-to-dollars point of view; however, if you think of it via volume, I think China has us beat hands down (their stuff just happens to sell for 1/1000 the cost of ours).

  2. Chris Carr says:

    This is China’s challenge … to move up the value chain higher and faster.

    No doubt the US still rocks and leads in a number of high value sectors.

    But … the gap is closing.

  3. Raquel Rusing says:

    I found a couple of accompanying Wall Street Journal articles regarding Chinese manufacturing and its growth. They’re a little older than I would like (early April), but here they are:

    China, Manufacturing Decline Deepens

    China, Manufacturing Sector Growing Again

    *When reading, you need to know what PMI is – Purchasing Manager’s Index – an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

    The decline in the economy hit China’s manufacturing sector because no new orders were streaming through, but the government implemented an infrastructure investment-led stimulus plan that seems to have upturned manufacturing activity. Although it has helped larger firms, apparently smaller firms are still feeling the recession because of their dominance in exports.

    This may be because the US is a huge purchaser of Chinese goods and if we are feeling the economy the worst, we are purchasing less. In economics this quarter we are learning about the Classical Model – Equilibrium, which describes that when there is an increase in government spending (such as that in the US), it increases the rate of interest, reduces investment expenditures, and reduces consumption expenditures. This might explain why there was a lull in Chinese manufacturing – the US isn’t helping. And maybe the gap is closing because the same decline is occurring in US manufacturing, but since we charge more for our products, China is just beating us with prices and therefore manufacturing more.

    Of course, it seems that economists just argue about models left and right, so there may be no truth to this conclusion, but I thought it was an interesting thing to consider.

  4. Oscar Merlin says:

    The article doesn’t surprise me because it seems that China is trying to balance profitability with job creation. I have no doubt in my mind that every Chinese entrepreneurs’ goal is to make money, but having said it seems that China is faced with a tricky situation. How to create profitability and at the same time create employment? The Chinese government has to deal with the enormous task of creating jobs for millions of people in their country, otherwise civil unrest starts boiling. I imagine that their hedgehog concept involves an approach that might not be as profitable but that employs millions of Chinese workers.

  5. Morgan O'Hara says:

    The manufacturing gap is closing, and will continue to close. I think that’s fine. We pride ourselves on being an open, competitive economy. Time to walk the walk. In his central blog post, Matt Eves shared an article that profiled a Chinese company which will soon be a leader in electric-vehicle technology and manufacturing. That’s good – American car manufacturers need as many serious wake up calls as they can get.

    The whole Big Three debacle brings up another issue which Jimmy touches on: national defense. A mad scramble for resources is – to my mind – the most likely root cause of a potential conflict with China. If we one day fight over the world’s remaining resources rather than innovate, we’re all screwed. But aside from saving face – and jobs – national security is one of the reasons I think the government feels compelled to bail out the car companies. Certain types of manufacturing capabilities give us a buffer. University of Washington professor Mark Thoma brings up a good point: “If we do not have the capacity to produce engines, cars, tractors, and other goods that can be quickly converted to building military vehicles and aircraft, and war breaks out and those supplies are cut off, where does that leave us?”

    That being said, we’ll need to continue to manufacture more new, high-value goods in order to combat much of the structural and cyclical unemployment we are now experiencing. A lot of that will probably revolve around “green” industries. Which will probably lead to a green bubble somewhere down the road. But that sounds good to me. Any thoughts?

  6. Scotty Hayes says:

    It simply makes sense to produce products where they can be made at the lowest cost, in today’s competitive marketplace. (All other factors being equal!)

    I am not a “woe is me” type person and I will not blame anyone but myself and fellow Americans for our trade deficit. Our demand for cheap goods drives today’s global marketplace. Until we drastically change our habits, outsourcing of low cost goods will continue to be the norm.

    It is good to hear that the U.S. is still known for quality and leads the way with capital goods such as aircraft, computers, electric power machinery, office machines, and telecommunications equipment. However, the U.S. has many challenges in its future to maintain its economic superpower status.

    Unfortunately, the United States has enormous wage and legacy costs that have made some companies less competitive and/or even aided towards bankruptcy. Chrysler’s biggest shareholder is now the UAW with a 55% stake. GM and Chrysler had huge labor cost disadvantages compared with Japanese automakers, mainly because they have far more retirees and had agreed to pay their health care bills. For GM, the health care tab is projected to total $46.7 billion over the lives of about 350,000 retirees and spouses. At Chrysler, it’s $10.9 billion for around 82,000 retirees. I am all for taking care of the people who helped build this country, but what is wrong with this picture? (Our Healthcare system is the root of the problem – but Obama will save us all)

    Also stated in the article is the fact that too few new factories are opening. The government should encourage companies to invest in new plants, equipment, and people. I believe we are moving in the wrong direction when we expect businesses to continue to pick up a larger and larger portion of the government’s debt.

    I have faith in the resilience of the United States economy and as much as I bad mouth the government it is the best design on this planet. I am glad to be studying business at such a pivotal moment in our economy and in our history. It won’t be long before we are able to get our hands a little dirty.

  7. Jamie Hastings says:

    Thanks Jimmy for your post. It does bring a bit of light to the current situation and the recurring depressing theme that we are constantly bombarded with. Throughout a lot of our readings, we constantly hear the negatives to protectionism and how open economies are the end all. While economically this may be true, where does this leave you when conflicts occur. In many cases that have been mentioned, it leaves you up a creek without a paddle. There have been many instances of economies that have gone into conflict and are left out to dry without a strong domestic suppliers.

    I have a couple of questions for thought. How do you promote domestic production without being labeled a “protectionist”? If you support domestic production (of anything) over outsourcing through government support (be it subsidies or tax incentives) are the costs offset when conflicts do arise and a stable and reliable domestic supply is available? I often wonder about this as we talk a lot about subsidies in agriculture and while they seem like a handout (and they are) they do sometimes serve a purpose that is not realized until something hits the fan.

    Perhaps our government needs to make incentives to promote American Manufacturing here in the States. Perhaps they need to make it easier or less of a burden for companies to operate within our borders. Lower taxes, less stringent regulations, and fewer hoops to jump through are all reasons why many companies have found it easier to go elsewhere.

  8. Eric White says:

    In reference to China not being able to produce high valued goods – I’d have to disagree with respect to our normal view of ‘China manufacturing’ comprised solely of Happy Meal toys. Though China may currently lack the ability to innovate new technologies, they are REALLY good at copying them. So when an American company spends a couple billion researching new designs for cars, trains, manufacturing equipment etc. how long will that new design be a source of competitive advantage for the American company? Will innovation continue to pay dividends if Chinese companies can copy your design in six months without having to pay all those up front R&D costs?

  9. James McMillan says:

    Jimmy does bring up a good point that I never really considered. What if China goes A-wall and calls on our debt and demands repayment. What if we really do go to war with them one day? Will the US be too vulnerable because of all the manufacturing operations and outsourcing that goes on in China? Do we have too many of our eggs in one basket? If so, will the government try to intervene to slow down this trend? While China has made some big strides in recent years they are still a communist country that operates very differently than ours. Their government has proven itself to run a very brutal and oppressive operation. Can and should we really expose ourselves this much to a country that has only recently decided to make some glaringly obvious changes to it governance over its people and foreign policies. While China is providing US companies a competitive advantage to competing in the global marketplace, I think it will be important to keep in mind how deeply dependant we become on China and make sure that we don’t go so far as to put our nations security at risk.

  10. Ashley Breneman says:

    Interesting post…like you, I would have also assumed China produces much more than we do. I would hope that all our defense equipment is made in the United States, otherwise, we are just asking for trouble if anything were to happen with China or anyone else.

    The insight about the closing of factories was a different way of looking at a situation that I always thought was negative. I never thought about any positive results that result from a factory closing. I just associated it with another company going across sees for manufacturing. It will be interesting to still believe the fact that we produce so much more after seeing all the factories while we are in China.

  11. Xiaofei Song says:

    Interest post! As what it says, American produce more high value product, and outsourcing those low value ones. The reason people concern about the manufacturing in China is because America outsousing more and more products to other contries. As what Dr. Carr says the gap is closing. I believe America has the ability to produce supplies and serve itself, but the international market really doesn’t care about that. It just locate the manufacturing plant wherever has the lowest cost. Therefore, China’s Challenge is how to catch up and move toward the higher value chain; and America’s challenge is how to maintain the advantage and leave something can be made in U.S.A.

  12. Chris K says:

    @ Morgan O’Hara, for every “green job” created there are 2.2 jobs lost. so 2.2 people lose their jobs just to create 1 “green job” not a good idea in the middle of a deep recession.

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