Trade fears are all smoke

When the U.S. Congress reconvenes, committee leaders are expected to begin marking bills that are antagonistic toward U.S. trade partners or outright protectionist, inspired in large measure by the myth of American manufacturing decline, says Daniel Ikenson, associate director of the Center for Trade Policy Studies at the Cato Institute.

But U.S. manufacturing is not in decline; it is thriving. By historic standards and relative to other countries' manufacturing sectors, U.S. manufacturing is firing on all cylinders:

In 2006, the sector achieved record output, record sales, record profits, record profit rates and record returns on investment.

U.S. factories remain the world's most prolific, accounting for more than 20 per cent of the world's added manufacturing value.

By comparison, Chinese plants account for about 8 per cent; thus, for every dollar of product made in China, U.S. factories produce $2.50 of output.

Those who speak of American deindustrialisation often cite the decline in manufacturing employment. But declining employment in a sector that is producing record output is hardly credible evidence of doom, says Ikenson. In fact, the two indicators taken together are evidence of soaring labour productivity, which is the source of long-term increases in living standards.

The much larger threat to manufacturing is the proclivity of meddling policymakers to fix what isn't broken. Spreading myths about the precariousness of U.S. manufacturing and laying the blame on trade policy may score political points with the unions, says Ikenson. But if Congress passes legislation that compromises the access of U.S. producers to international markets, there will be real problems to solve.

Source: Daniel Ikenson, Trade Fears are All Smoke, Cato Institute, August 29, 2007.

For text: \http://www.cato.org/pub_display.php?pub_id=8671

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

FMF Policy Bulletin/ 11 September 2007