# Can an Economic Recovery Occur Without a Robust Manufacturing Sector? **URL:** \ **Category:** Great Debates\ **Created:** [January 23, 2010, 11:58pm UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175 "2010-01-23T23:58:28Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![sleeping](https://avatars.discourse-cdn.com/v4/letter/s/839c29/32.png) [@sleeping](https://boards.straightdope.com/u/sleeping)\ **Post date:** [January 23, 2010, 11:58pm UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/1 "2010-01-23T23:58:28Z")
From Alan Tonelson in the [Jan 2010 issue of Harpers](http://www.harpers.org/archive/2010/01/0082768): > [@](#): > > …a major manufacturing resurgence is key to overcoming America’s debt-fueled economic crisis and to re-establishing prosperity based on wealth creation and earnings. **Despite a mainly recession-induced fall in imports, manufacturing still accounts for every bit of America’s trade deficit—the huge, chronic shortfall between America’s purchases from abroad and its overseas sales. Meaningfully reducing the biggest source of excessive U.S. foreign debt requires a massive commitment to boosting manufacturing, both to expand exports and to replace much of the vastly greater import flow with domestically produced goods**. > > Unfortunately, exactly the opposite has been happening. The enormous job loss within American industry has been widely noted: manufacturing represented a little over 14 percent of real GDP in 2007, but since the recession’s onset, through October 2009, it has suffered nearly 29 percent of total job losses, about twice its share. (And the Obama Administration’s own questionable data indicates that the 640,000 jobs it claims were created or saved by the stimulus bill included only 2,500 in manufacturing.) Yet even less attention has been paid to the far more important trends in manufacturing output. After all, unless their output is growing vigorously, highly productive industries—in which technology is substituted for labor all the time—will never see any real job growth. > > And **manufacturing is still shrinking as a share of the U.S. economy**. In 2008, for example, the overall U.S. economy logged only 0.74 percent growth after inflation. But real manufacturing output fell by 2.74 percent. That’s better than the 5.61 percent nosedive in construction or the 3.03 percent plunge in finance and insurance, but unlike those two sectors, manufacturing was never the subject of a speculative bubble. Worse, since the recession began in December 2007, inflation-adjusted manufacturing output has plummeted nearly five times faster than total economic output. > > Nor is the problem limited principally to the decimated automotive sector. **Real output in manufacturing generally today (as of October) is no higher than it was a decade ago, and production in numerous individual industries is currently at multi-year and even multi-decade lows**. According to the Federal Reserve, inflation-adjusted American production of steel and other primary metals—down more than 34 percent since the recession began—is back to levels first hit in October 1982. Paper output is back to late-1983 levels. Machinery production is down to levels hit in early 1974, electrical equipment and appliance production has fallen to where it stood in February 1988, and plastics and rubber-goods production is down to October 1994 levels. > > American manufacturing has big global competitiveness problems too. Our tremendous trade deficits are one key measure, but they may not be the most important. Over the past decade, domestic manufacturers have also been losing big, rapidly expanding chunks of their own home market in the United States to foreign competition. In other words, **U.S.-based producers of manufactures (whether U.S.- or foreign-owned) have been losing out head to head against overseas-based rivals (whether U.S.- or foreign-owned) in the market they should know best, and where they face no trade barriers whatever.** Worse, imports not only dominate U.S. markets for garments and toys and consumer electronics; they are becoming pervasive in a wide variety of more sophisticated manufactures where American producers are supposed to be doing much better. For example, as of 2007 (the latest available data), imports had taken over 90 percent of the U.S. market in plastics production machinery and in metal-forming machine tools. They represented between 60 and 70 percent of Americans’ purchases of goods like turbines and turbine-generator sets, computer storage devices, and miscellaneous electric components. > … > What specific policies would make up this new strategy and achieve these goals? Here are just a few. **The administration and Congress already have moved to take advantage of the government’s huge purchases of goods and services by including Buy American provisions in the $787 billion stimulus bill**. Mandatory purchases of U.S.-made goods for building or repairing infrastructure systems and government facilities should boost manufacturing output. Specifically, the policy would ensure new orders for American production of everything from steel to sensors (for so-called smart bridges and roads) to heating and cooling apparatus. But the full potential of the Buy American approach has been limited by U.S. treaty obligations under NAFTA, and by our membership in the World Trade Organization. Hence, at the very least, \*\*the United States should declare these obligations suspended until the economic crisis has been vanquished. Buy American measures also should govern all federal support programs for specific companies and industries (e.g., the auto rescue), and industries-to-be slated for subsidies \*\*(e.g., alternative energy systems and other “green” manufactures). In addition, strategies are needed for attracting advanced production to the United States in areas where Buying American is no longer possible. Meekly accepting the existing global manufacturing landscape will ensure American economic failure. > … > **Currency manipulation by China and other countries—mainly in East Asia—has also harmed domestic manufacturers and workers by creating wholly artificial price advantages for the manipulating countries’ goods in markets around the world.** The precise extent of these unquestionably protectionist price breaks is unknowable, but most estimates range from 25 percent to 50 percent. Legislation before Congress, and endorsed last year by candidate Obama, could effectively fight such manipulation. It should be passed and signed immediately. **Another gigantic but barely recognized barrier to balancing America’s manufacturing–dominated trade flows is the use of value-added taxes (VATs) by virtually all U.S. trade partners.** VATs are applied only to goods consumed domestically, and since the United States lacks such measures, foreign VATs clandestinely subsidize exports to the United States by subtracting the cost of foreign governments for everything that is not consumed locally. In addition, they hamper products entering these countries from the United States, because those costs are imposed on any item consumed in that country. Of course, America’s VAT-less tax system requires all goods produced in the United States, wherever sold, to carry the costs of the U.S. government. The global VAT discrepancy may account for up to half the U.S. trade deficit in goods. Congress should respond by passing a new bill that would counter the VAT effect with a border adjustment tax on imports from VAT-using countries. > > Two critical “do no harm” steps can further reduce American multinationals’ strong incentives to move production and jobs offshore. First, Washington should declare a moratorium on all new trade agreements until it figures out how to ensure that they promote more domestic production and employment. Second,\*\* if Congress does pass a climate-change bill, it must include stiff carbon tariffs. Otherwise, more and more American manufacturers will relocate to countries that lack complicated cap-and-trade programs or other limits on greenhouse-gas emissions.\*\* So, Tonelson identifies a number of ways in which American manufacturers are at a very real disadvantage compared to foreign firms, and suggests that because of the manufacturing sector’s large share of the trade deficit, and the increasing domination by foreign businesses of what are supposed to be the U.S.'s strongest sub-fields, no recovery can occur without radically altering the course of domestic and trade policies. The trade that is occurring between the U.S. and other countries is not on a level playing field because of price controls, VATs, and the general lower labor costs and absence of regulation in developing countries. To be succinct, the service sector is too easy to outsource, so it can’t be the major component of the U.S. economy if we want a real recovery. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [January 24, 2010, 12:04am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/2 "2010-01-24T00:04:29Z")
I was going to say that the internal economy can be based in services & refurbishing of old goods, while the nation’s international role could be based in shipping & agriculture. But you’re right, so long as we are consumers of new manufactured goods we need domestic manufacturing. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [January 24, 2010, 12:18am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/3 "2010-01-24T00:18:23Z")
That guy seems to be ignoring the elephant in the room, which is the fact that our labor costs are just staggeringly higher than in other countries, like say China, Mexico or even Eastern Europe. That puts US manufacturers at a pretty serious disadvantage for commodity-type items like televisions, shoes, clothing, textiles, etc… where the cost of labor is a major piece of the total cost of the item. Sure, we could make our manufacturing more competitive, but it’s not like it would create a bunch more jobs and bring back the 1950s and 60s type of blue collar manufacturing work. What it would do is mean more automated factories, which wouldn’t employ very many more people, although it would work from the wealth creation perspective. On an aside, that’s what spooks me about China; their government has no problem with stacking the deck in their own favor on anything, which screws us to their favor. ---
**Author:** ![FoieGrasIsEvil](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foiegrasisevil/32/16638_2.png) [@FoieGrasIsEvil](https://boards.straightdope.com/u/FoieGrasIsEvil)\ **Post date:** [January 24, 2010, 12:52am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/4 "2010-01-24T00:52:45Z")
> [@bump](#): > > That guy seems to be ignoring the elephant in the room, which is the fact that our labor costs are just staggeringly higher than in other countries, like say China, Mexico or even Eastern Europe. > > That puts US manufacturers at a pretty serious disadvantage for commodity-type items like televisions, shoes, clothing, textiles, etc… where the cost of labor is a major piece of the total cost of the item. > > Sure, we could make our manufacturing more competitive, but it’s not like it would create a bunch more jobs and bring back the 1950s and 60s type of blue collar manufacturing work. What it would do is mean more automated factories, which wouldn’t employ very many more people, although it would work from the wealth creation perspective. > > On an aside, that’s what spooks me about China; their government has no problem with stacking the deck in their own favor on anything, which screws us to their favor. Unions. ---
**Author:** ![sleeping](https://avatars.discourse-cdn.com/v4/letter/s/839c29/32.png) [@sleeping](https://boards.straightdope.com/u/sleeping)\ **Post date:** [January 24, 2010, 12:58am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/5 "2010-01-24T00:58:15Z")
> [@bump](#): > > That guy seems to be ignoring the elephant in the room, which is the fact that our labor costs are just staggeringly higher than in other countries, like say China, Mexico or even Eastern Europe. No, no,\*\* bump\*\*. I think he fully acknowledges that. He certainly understands that the labor cost differential is key here. The logical conclusion is to create a trade policy that takes those differences (and the need for well-paying jobs in the U.S.) into account. Hence, no more unfettered “free trade.” > [@](#): > > Sure, we could make our manufacturing more competitive, but it’s not like it would create a bunch more jobs and bring back the 1950s and 60s type of blue collar manufacturing work. What it would do is mean more automated factories, which wouldn’t employ very many more people, although it would work from the wealth creation perspective. But it _would_ create jobs. Also, there are still many fields in which not everything can be automated. The key comparison with China, though, is that it attract foreign investment, but then “presses … foreign businesses to transfer their capital and best technology to domestic firms, thus ensuring that advanced (and especially export-oriented) innovation and production develop and expand _in China_.” As the world’s reigning consumer nation, the U.S. has enormous market power to pull this off. > [@](#): > > On an aside, that’s what spooks me about China; their government has no problem with stacking the deck in their own favor on anything, which screws us to their favor. Yeah, but isn’t that what a government is supposed to do? ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [January 24, 2010, 1:37am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/6 "2010-01-24T01:37:20Z")
> [@bump](#): > > That guy seems to be ignoring the elephant in the room, which is the fact that our labor costs are just staggeringly higher than in other countries, like say China, Mexico or even Eastern Europe. > > That puts US manufacturers at a pretty serious disadvantage for commodity-type items like televisions, shoes, clothing, textiles, etc… where the cost of labor is a major piece of the total cost of the item. OTOH, they need a well-paid American workforce before they can **sell** anything in America. I recall a story from the 1950s or '60s: A Ford exec was showing a UAW leader a Ford plant’s new automation, and, gesturing triumphantly at the machines, smirked, “So, how are you going to organize them?” The labor leader responded, 'How are you going to sell them Fords?" ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [January 24, 2010, 2:53am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/7 "2010-01-24T02:53:25Z")
The destruction of the middle class is due much to our shipping our industry out ,lock, stock and intellectual property. It won’t come back. We are educating them to do American jobs. They don’t do it as well as we do yet, but they will. They will do it cheaper. That will also end. But since they have new factories and equipment and their workers are more up to date, we will not be able to compete. When we sent our industry packing, we dealt a huge blow to the middle class and our national purchasing power. It did make some industrial leaders filthy rich though. ---
**Author:** ![sleeping](https://avatars.discourse-cdn.com/v4/letter/s/839c29/32.png) [@sleeping](https://boards.straightdope.com/u/sleeping)\ **Post date:** [January 24, 2010, 3:04am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/8 "2010-01-24T03:04:07Z")
> [@gonzomax](#): > > The destruction of the middle class is due much to our shipping our industry out ,lock, stock and intellectual property. It won’t come back. We are educating them to do American jobs. They don’t do it as well as we do yet, but they will. They will do it cheaper. That will also end. But since they have new factories and equipment and their workers are more up to date, we will not be able to compete. When we sent our industry packing, we dealt a huge blow to the middle class and our national purchasing power. It did make some industrial leaders filthy rich though. And they continue to profit from this situation. But why do you think we can’t change it? I’m not talking about the practical difficulties that are inherent in any policy shift, but the nascent structural problems. If we implement protectionist trade policies to offset the labor cost differential, why do you think the U.S. still won’t be able to compete? I do wonder about one thing, though: This might help the U.S., but would it really end the economic crisis both within the U.S. and worldwide? I remember reading somewhere (will look for a cite) that the U.S. credit glut (and resultant trade deficit with China) can only be fully addressed if the Chinese (and lesser developed countries) become more active consumers. IOW, the world economy grew with the expectation that there would be enough consumers buying stuff. But the concurrent stagnation in the growth of a middle class in LDCs resulted in overproduction. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [January 24, 2010, 3:08am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/9 "2010-01-24T03:08:15Z")
[QUOTE=sleeping] No, no, bump. I think he fully acknowledges that. He certainly understands that the labor cost differential is key here. The logical conclusion is to create a trade policy that takes those differences (and the need for well-paying jobs in the U.S.) into account. Hence, no more unfettered "free trade [/QUOTE] Then the guy doesn’t know what he’s talking about and you should basically ignore him. If what you are saying represents his stance, then he’s advocating trade protectionism, which is a Bad Thing™. One has but to look at the history of such protectionist measures to see how they generally turn out. Pretend for a second that the US put such measure in place. Our workers would get to retain their high salaries, but our products would be protected through legislature so that the would be competitive with those manufactured by countries who’s workers make a 1/3 as much. What do you suppose other countries would do? What do you suppose this would do to prices here in the US? > [@](#): > > But it would create jobs. Also, there are still many fields in which not everything can be automated. The key comparison with China, though, is that it attract foreign investment, but then “presses … foreign businesses to transfer their capital and best technology to domestic firms, thus ensuring that advanced (and especially export-oriented) innovation and production develop and expand in China.” As the world’s reigning consumer nation, the U.S. has enormous market power to pull this off. How? If you put trade protectionist measures in place, then OTHER countries would do the same (stupid) thing…so, we still wouldn’t export any more goods or services than we do today. Everyone would simply be manufacturing goods and services for their own local market…which would give those manufactures a local monopoly. This would cause prices to rise, and consumer spending to drop, which would, in the end, cause MORE unemployment. This would be a Very Bad Thing™. -XT ---
**Author:** ![Dr.Love](https://avatars.discourse-cdn.com/v4/letter/d/e8c25b/32.png) [@Dr.Love](https://boards.straightdope.com/u/Dr.Love)\ **Post date:** [January 24, 2010, 3:26am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/10 "2010-01-24T03:26:11Z")
Below is a post that I made back in August detailing some of the damage done to the manufacturing sector in this recession. The Federal Reserve cite agrees with the numbers that Alan Tonelson cites. However, I think it is important to keep one thing in mind: when manufacturing was hit in this recession, it was knocked down from an **all time high** in output. Further, manufacturing has been in more-or-less steady recovery for the past six months. I bring these points up because there is a pervasive myth that US manufacturing has been disappearing since the '70s. This is not true. Further, all of the reasons given for fearing the demise of manufacturing have been true for much longer than the current recession. Given all this, why should I assume that manufacturing now has any real problems (besides those directly related to the recession)? > [@Paul Craig Roberts: The economy won't recover because there is no more economy left.](https://boards.straightdope.com/t/paul-craig-roberts-the-economy-wont-recover-because-there-is-no-more-economy-left/505785/7): > > [Industrial Production and Capacity Utilization](http://www.federalreserve.gov/releases/g17/Current/default.htm) in the US, compiled by the Federal Reserve. Look, especially, at [Chart 1](http://www.federalreserve.gov/releases/g17/Current/ipg1.gif), which shows the manufacturing output out the United States over the past 40 years. If you look at the chart\*, even after accounting for the damage done by the current recession, we’re still manufacturing roughly twice as much as was manufactured in 1970. The [population in 1970](http://en.wikipedia.org/wiki/1970_United_States_Census) was about 200 million, which means the US is now manufacturing roughly 33% more **per US citizen** than it did it 1970. > > The graphs are constructed from source data measuring physical output of each industry, then combined in a weighted average. The weights are “derived from their proportion in the total value-added output of all industries” (from the [explanatory notes](http://www.federalreserve.gov/releases/g17/ip_notes.htm)). Notice that neither the physical output, nor the weights are affected by inflation, and thus the graph itself automatically corrects for inflation. > > What is true is that manufacturing _employment_ is dropping. Part of this is probabily because other countries are increasing their manufacturing employment, but it is also because the manufacturing workers that remain are becoming increasingly more productive. Basically, we don’t need as many manufacturing workers because the ones we have are so damn good at what they do. > > \*The Federal Reserve should update the report to include data from July in about five days, so what I say will be a bit out of date soon… ---
**Author:** ![sleeping](https://avatars.discourse-cdn.com/v4/letter/s/839c29/32.png) [@sleeping](https://boards.straightdope.com/u/sleeping)\ **Post date:** [January 24, 2010, 3:37am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/11 "2010-01-24T03:37:16Z")
> [@xtisme](#): > > Then the guy doesn’t know what he’s talking about and you should basically ignore him. If what you are saying represents his stance, then he’s advocating trade protectionism, which is a Bad Thing™. It is precisely this kind dogmatism and blind faith in the free market that is the cause of so many of our current problems. > [@](#): > > Pretend for a second that the US put such measure in place. Our workers would get to retain their high salaries, but our products would be protected through legislature so that the would be competitive with those manufactured by countries who’s workers make a 1/3 as much. What do you suppose other countries would do? What do you suppose this would do to prices here in the US? Go back and read the article. Most other developed countries already have protectionist policies in one way or another. > [@](#): > > This would cause prices to rise, and consumer spending to drop, which would, in the end, cause MORE unemployment. This would be a Very Bad Thing™. And, as has been pointed out so many times on this board and elsewhere, if a majority of people are not paid decently, they won’t be able to buy the products that are made–thus leading to oversupply. ---
**Author:** ![sleeping](https://avatars.discourse-cdn.com/v4/letter/s/839c29/32.png) [@sleeping](https://boards.straightdope.com/u/sleeping)\ **Post date:** [January 24, 2010, 3:41am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/12 "2010-01-24T03:41:01Z")
> [@Dr.Love](#): > > […]when manufacturing was hit in this recession, it was knocked down from an **all time high** in output. Further, manufacturing has been in more-or-less steady recovery for the past six months. > > I bring these points up because there is a pervasive myth that US manufacturing has been disappearing since the '70s. This is not true. Further, all of the reasons given for fearing the demise of manufacturing have been true for much longer than the current recession. Given all this, why should I assume that manufacturing now has any real problems (besides those directly related to the recession)? Now, this is interesting. If this is the case, what do you think accounts for the discrepancy? Could it be merely a definitional issue (e.g., what kind of business is considered to be in the manufacturing category)? Thanks for this, **Dr. L**. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [January 24, 2010, 3:44am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/13 "2010-01-24T03:44:18Z")
[QUOTE=sleeping] It is precisely this kind dogmatism and blind faith in the free market that is the cause of so many of our current problems. [/QUOTE] It’s neither dogmatic or blind faith…in fact, I’d say that advocating protectionist trade measure is pretty much in those two categories, especially in light of their historical track record. > [@](#): > > Go back and read the article. Most other developed countries already have protectionist policies in one way or another. And so does the US. And they hurt us, as they hurt those other countries who implement them. However, what you are seemingly advocating would go beyond the level of protectionism the US has for, say, the agricultural industries, into whole new levels…which would go from being merely painful to, perhaps, total melt down. Some time, go back and see how the levels of protectionism you seem to be advocating worked out in the early 30’s. > [@](#): > > And, as has been pointed out so many times on this board and elsewhere, if a majority of people are not paid decently, they won’t be able to buy the products that are made–thus leading to oversupply. Yes, but many posters on this board are completely clueless about these issues. Myself, I’m only partially clueless about this stuff, but I know enough to realize what would happen if the US ramped up trade protectionism to try and protect our home grown manufacturing industries. It would be catastrophic to not only our economy but probably to the worlds economy as well. -XT ---
**Author:** ![sleeping](https://avatars.discourse-cdn.com/v4/letter/s/839c29/32.png) [@sleeping](https://boards.straightdope.com/u/sleeping)\ **Post date:** [January 24, 2010, 4:03am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/14 "2010-01-24T04:03:01Z")
> [@xtisme](#): > > It’s neither dogmatic or blind faith…in fact, I’d say that advocating protectionist trade measure is pretty much in those two categories, especially in light of their historical track record. > > And so does the US. And they hurt us, as they hurt those other countries who implement them. > > -XT Okay, question for ya, **XT** : Do you agree that the reason other, less developed countries can make products for less is primarily the relatively lower wages, and that these lower wages are due primarily to insufficient regulation (e.g., of carbon taxes, as stated in the article; or occupational safety measures, etc.) and anti-union policies that prevent collective action? Because they are basically doing the same work. If so, then enacting policies that level the playing field and take that net advantage from those countries would disincentivize outsourcing and lead to those jobs being created here, with the attendant higher wages. And if that advantage disappears, real competition (based on product innovation) would ensue. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [January 24, 2010, 4:29am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/15 "2010-01-24T04:29:49Z")
Which is just another way of protecting first world manufacturing and basically not giving developing nations any chance to compete. [QUOTE=sleeping] Do you agree that the reason other, less developed countries can make products for less is primarily the relatively lower wages, and that these lower wages are due primarily to insufficient regulation (e.g., of carbon taxes, as stated in the article; or occupational safety measures, etc.) and anti-union policies that prevent collective action? Because they are basically doing the same work. [/QUOTE] Sure, but so what? Occupational safety? When the choice is between subsistence level agriculture and attempting to develop industries that could one day bring their economies into higher spheres of economic development? Carbon taxes? All well and good, I guess, if you happen to have the capital to invest in the technology to do it. Sucks if you are trying to jump start and boot strap your economy from basically nothing, ehe? Again, look at the history. WE took decades to arrive at all those things…centuries in the case of the Euro’s (and us too, depending on which specific we are looking at). And what you want is to say, in essence, ‘Well, we got ours already. If you want to compete then you have to jump to our level to get in the game, or we are going to slap heavy tariffs on your ass until you do.’ This is just another way of ensuring that no one (besides another first world country) CAN get in the game. Convenient, no? And what will be the ACTUAL result? Well, products will cost more. After all, if US companies could compete on a price basis with China’s cloth manufacturing, say, then we’d ALREADY be doing it. So, since we can’t, what you propose is to make cloth, to use this example, cost more…for everyone in the US. And what if the we still can’t compete, or if we can’t ramp up fast enough and there are short falls? Or if, more likely, given the new semi-monopoly on the local market, US manufactures put in fully or mostly automated facilities? Well, that means that we still don’t get those supposed manufacturing jobs you seem to want, but that the goods and services still cost more, since now we’ve tacked on those tariffs, which will be passed on to the consumers. > [@](#): > > If so, then enacting policies that level the playing field and take that net advantage from those countries would disincentivize outsourcing and lead to those jobs being created here, with the attendant higher wages. No, I don’t see how any of the above would work out in the real world. Higher wages AND more jobs here? Plus cheaper products and a pony too? If it were this easy then EVERYONE would be doing this, no? The ironic thing is, that if WE did it, everyone probably WOULD do it…and the result would be to take us back to the wonderful roaring '30’s. Why do you suppose that only those without an economic clue would be advocating such a plan? Or, to put it another way, do you know of anyone who is a trade and economics expert who believes that ‘enacting policies that level the playing field’ (or, IOW, put in sever trade tariffs targeted at developing nations) are good and reasonable measures? -XT ---
**Author:** ![sleeping](https://avatars.discourse-cdn.com/v4/letter/s/839c29/32.png) [@sleeping](https://boards.straightdope.com/u/sleeping)\ **Post date:** [January 24, 2010, 5:01am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/16 "2010-01-24T05:01:33Z")
> [@xtisme](#): > > Which is just another way of protecting first world manufacturing and basically not giving developing nations any chance to compete. Not at all. In fact, if you look at what the people in those countries want, it tends to be a very anti-free trade position. > [@](#): > > Sure, but so what? Occupational safety? When the choice is between subsistence level agriculture and attempting to develop industries that could one day bring their economies into higher spheres of economic development? Carbon taxes? They don’t have to be mutually exclusive. And LDCs should not have to permit the destruction of their natural resources in order to prosper. > [@](#): > > WE took decades to arrive at all those things…centuries in the case of the Euro’s (and us too, depending on which specific we are looking at). And now those technologies have already been developed and readily available, so…what’s the problem? > [@](#): > > And what you want is to say, in essence, ‘Well, we got ours already. If you want to compete then you have to jump to our level to get in the game, or we are going to slap heavy tariffs on your ass until you do.’ This is just another way of ensuring that no one (besides another first world country) CAN get in the game. Convenient, no? On the contrary. As I said, most people in the “third world” want more government intervention, provided that the government does so to protect workers from corporations, rather than the other way around. The only beneficiaries of the current order are the very wealthy. The American middle class has diminished greatly, and the effect on the average third world citizen has been far worse. > [@](#): > > And what will be the ACTUAL result? Well, products will cost more. After all, if US companies could compete on a price basis with China’s cloth manufacturing, say, then we’d ALREADY be doing it. So, since we can’t, what you propose is to make cloth, to use this example, cost more…for everyone in the US. And what if the we still can’t compete, or if we can’t ramp up fast enough and there are short falls? Or if, more likely, given the new semi-monopoly on the local market, US manufactures put in fully or mostly automated facilities? Well, that means that we still don’t get those supposed manufacturing jobs you seem to want, but that the goods and services still cost more, since now we’ve tacked on those tariffs, which will be passed on to the consumers. If these factories can be automated, then they could just as easily be used anywhere in the world, so I don’t see how that changes the equation. > [@](#): > > No, I don’t see how any of the above would work out in the real world. Higher wages AND more jobs here? Yes. > [@](#): > > Plus cheaper products and a pony too? Nope. I never said the products would be cheaper. I would expect that the price would increase slightly. > [@](#): > > and the result would be to take us back to the wonderful roaring '30’s. How so? 😕 > [@](#): > > Why do you suppose that only those without an economic clue would be advocating such a plan? I never said that one would have to be economically uneducated in order to support free trade. Only that there is a number of different theories, and more than approach to these problems. > [@](#): > > Or, to put it another way, do you know of anyone who is a trade and economics expert who believes that ‘enacting policies that level the playing field’ (or, IOW, put in sever trade tariffs targeted at developing nations) are good and reasonable measures? Sure. I assume that by “expert” you mean someone with a university degree in economics, right? But it just seems strange to me to discount the opinions of this Tonelson simply because he’s coming from a different school of thought than you do. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [January 24, 2010, 6:33am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/17 "2010-01-24T06:33:46Z")
[QUOTE=sleeping] Not at all. In fact, if you look at what the people in those countries want, it tends to be a very anti-free trade position. [/QUOTE] No, what they want is economic development which will bring new opportunities to them…depending on which countries we are including here. The Chinese, for example (and I’m talking about the people here) are much more interested in economic development and a rising standard of living than they are in environmental issues, safety issues or unions. The people in India would feel remarkably similar. > [@](#): > > They don’t have to be mutually exclusive. And LDCs should not have to permit the destruction of their natural resources in order to prosper. True, and in a lot of cases being short sighted can have sever repercussions (Haiti, for example). However, most developing nations are starting off at such a sever disadvantage that they almost HAVE to play to their strengths, one of which is that their labor is simply cheaper and that they have less environmental regulations (or they selectively chose not to enforce those they do have, like in China) if they want to jump start their industries and draw in the venture capital necessary to build the infrastructure and bring in the manufacturing. > [@](#): > > And now those technologies have already been developed and readily available, so…what’s the problem? Well, I know the answer to this, but let me turn it around. What’s the problem? Why AREN’T nations like China, who surly have access to this type of technology, building all their new infrastructure using such technologies? Why aren’t other emerging nations going all out to build using these kinds of technologies? Hell, for that matter, why don’t companies in first world nations scrap all their old tech and build all new? What’s the problem, as you say? > [@](#): > > On the contrary. As I said, most people in the “third world” want more government intervention, provided that the government does so to protect workers from corporations, rather than the other way around. The only beneficiaries of the current order are the very wealthy. The American middle class has diminished greatly, and the effect on the average third world citizen has been far worse. Horseshit. If that’s the case, then why do so many people in, say, China, flock to the cities and the manufacturing jobs instead of staying in the country and eeking out a living on the farm? Are they being forced to move to work those jobs at gun point? And those in India? In the Pacific Rim? In Central and South America? This isn’t to say that the rich and the corporations AREN’T gaining huge benefits too, but it’s irrational to think that ONLY they derive benefits from these kinds of jobs. Hell, as exploited as the people of Haiti have been, they STILL are deriving tangible benefits from US companies who have built manufacturing facilities there. > [@](#): > > If these factories can be automated, then they could just as easily be used anywhere in the world, so I don’t see how that changes the equation. Why would you build a fully automated facility to produce goods and services in the US or Europe in some logistical backwater? You aren’t making sense. You build manufacturing facilities in developing countries to take advantage of cheaper labor. If you are going to directly compete by building automated facilities, you do it in countries with the logistics and infrastructure to take advantage of the huge investment you are putting out to BUILD such a facility. The bottom line though is that you aren’t going to develop a ton of new manufacturing jobs in the US to make shirts or manufacture all the other things that are currently being built in developing countries. Those days are past. You have to play to your own strengths, and in the US, that means we need to emphasize our technology, to build niche or cutting edge products and capture markets with those developing products before developing nations take the ideas in a year or 5 and figure out ways to make it cheaper, faster and more widely available. > [@](#): > > Yes. No > [@](#): > > Nope. I never said the products would be cheaper. I would expect that the price would increase slightly. I would expect that prices would increase substantially. > [@](#): > > How so? Because protectionist measures like those you seem to be advocating are what caused the world wide depression in the 30’s, of course. > [@](#): > > I never said that one would have to be economically uneducated in order to support free trade. Only that there is a number of different theories, and more than approach to these problems. But none of the serious one’s support the kinds of trade protectionism that, again, you seem to be advocating. Certainly there is real, meaningful debate about the causes and potential solutions to the current recession in the US, and economic policy and progress world wide but I don’t know of any expert who is seriously contemplating such a stance. > [@](#): > > Sure. I assume that by “expert” you mean someone with a university degree in economics, right? But it just seems strange to me to discount the opinions of this Tonelson simply because he’s coming from a different school of thought than you do. Well, a degree helps, to be sure. But when I say ‘expert’ I mean someone who has an in-depth understanding of the subject…something I don’t claim to have, btw. As for Tonelson, I don’t know him from adam, and I will fess up and say I haven’t really read through your cite (I’m writing this from a bar, to be honest), and am basing my own comments on what you’ve written in this thread. I’ll say that if this guy IS advocating trade protectionism, it’s not a matter of his being in a ‘different school of thought’ from me, it’s more along the lines of him being ignorant of the basics, and not really part of any serious debate on this subject. I might be being overly harsh, and perhaps trade protectionism has become a serious ‘school’ in economics and international trade circles when I wasn’t watching, but if so I’m unaware of the radical shift in thinking… -XT ---
**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\ **Post date:** [January 24, 2010, 8:08am UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/18 "2010-01-24T08:08:33Z")
> [@xtisme](#): > > It’s neither dogmatic or blind faith…in fact, I’d say that advocating protectionist trade measure is pretty much in those two categories, especially in light of their historical track record. > -XT I’m not an economist and like you said, I consider myself pretty clueless too considering how complex these issues are. But asking the US to engage in ‘free trade’ sounds like unilateral disarmament. That article says two major reasons the US is at such a disadvantage is our tax code doesn’t work too well because of the VAT, and because China manipulates their currency. Throw in energy independence because we spend hundreds of billions on foreign oil (which requires government intervention to get that field off the ground) and those 3 things play a major role in our trade deficit. If we could become energy independent, fix our tax code and get China to stop undervaluing their currency, our trade deficit would dramatically go down. But all 3 require government interventions. China’s economy has grown dramatically and they have saved a lot of money. One thing they did with that money was try to corner the market on rare earth metals, which are necessary to build 21st century energy and consumer goods. China’s goal with that rare earth metal monopoly is basically to start cutting exports to the rest of the world to give China a head start on R&D (since they will be the only ones with the raw materials to do the R&D). Also, by monopolizing the raw materials they will be able to force manufacturers to set up shop in China since manufacturers won’t be able to get the raw materials anywhere else. If new mines or refineries open up, China will use it’s clout to flood the market and drive them out of business. [http://www.theaustralian.com.au/business/news/china-builds-rare-earth-metal-monopoly/story-e6frg90f-1111119076188](http://www.theaustralian.com.au/business/news/china-builds-rare-earth-metal-monopoly/story-e6frg90f-1111119076188) > [@](#): > > Toyota and other big carmakers are hurrying to secure alternative supplies in Vietnam and Malaysia. Mines in the United States that were forced out of business by price wars may be brought back into use. Yet many industry observers believe that Beijing may engineer a global supply crunch before any serious rival sources become available. > > China’s strategy, said Yoichi Sato, head of the rare earth division of Mitsui, suggested a complex game being played between Beijing and the world’s rare earth consumers. The perceived idea behind China restricting its rare earth exports is twofold. First, it gives its own high-tech industries a chance to flourish and gain a huge competitive edge over rivals in Asia, Europe and the US - a politically useful gambit by a Government whose legitimacy lies in the provision of jobs and economic growth. Second, it may force foreign companies to move their high-tech factories and research centres to China to circumvent quotas, a move that Japanese companies will resist for fear of losing industrial secrets. > > Mr Sato also believes that China will seek to use its existing monopoly status to crush any competition that emerges. Although about 42 per cent of worldwide reserves of rare earth ores lie outside China, very few places have significant refinery capacity. > > Mr Sato said: “Of course many people are looking at establishing alternative refineries and sources outside China, but the investment is not necessarily a sound one because of the threat of price revenge by China. If new projects emerge, as they have recently in Malaysia and Australia, China could just drop its prices and force rivals out of business.” Many of us, having to live in the middle of a great recession due to poor decisions by a deregulated financial market, do not believe the arguments that free trade is superior. While we preach ‘free trade’ China is manipulating their currency and cornering the market on raw materials and using that leverage to maintain that monopoly. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [January 24, 2010, 5:06pm UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/19 "2010-01-24T17:06:30Z")
> [@sleeping](#): > > No, no,\*\* bump\*\*. I think he fully acknowledges that. He certainly understands that the labor cost differential is key here. The logical conclusion is to create a trade policy that takes those differences (and the need for well-paying jobs in the U.S.) into account. Hence, no more unfettered “free trade.” That’ll only raise prices domestically. It’s been pretty well proven that people prefer low prices over buying domestic. And all you’re doing when you enact anti competitive policies is to redress whatever problem at the expense of the consumer (i.e. they’re paying that extra salary cost). > [@](#): > > But it _would_ create jobs. Also, there are still many fields in which not everything can be automated. The key comparison with China, though, is that it attract foreign investment, but then “presses … foreign businesses to transfer their capital and best technology to domestic firms, thus ensuring that advanced (and especially export-oriented) innovation and production develop and expand _in China_.” As the world’s reigning consumer nation, the U.S. has enormous market power to pull this off. > > Yeah, but isn’t that what a government is supposed to do? You pretty much proved my point right there. The Chinese have no interest whatsoever in playing nice in the sandbox with the rest of the kids; even by the somewhat rough rules. Fair labor laws, minimum wages, not blatantly stealing technology, copyright enforcement, etc… are all things that most Western countries have, but that the Chinese pretty much ridicule. They don’t give a fuck that a US firm may have invested millions in some piece of equipment or technology; they’ll copy it and then produce goods with it at a fraction of what the US firm could, because they have extremely low cost labor by comparison. (the Chinese minimum wage is in the ballpark of $100-150 PER MONTH, while ours is more in the ballpark of $50 PER DAY). Personally, I tend to think that we should have free trade policies that open up to the extent that the other country opens up with us- i.e. with the UK and Canada, it would be open, but with China, it would only be as open as they are with us; i.e. not much. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [January 24, 2010, 5:19pm UTC](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175/20 "2010-01-24T17:19:17Z")
It is not just labor. It is environmental too. They will go where they can pollute because it costs money, to prevent and stop environmental harm. There are more lax rules for products too. Lots of sports equipment is made using child labor. It is not a moral decision. It is strictly financial . [Next page](https://boards.straightdope.com/t/can-an-economic-recovery-occur-without-a-robust-manufacturing-sector/526175.md?page=2)