Share |

Focus: Manufacturing

Feature Article from Our Supply Chain Trends and Issues Subject Area - See All

From SCDigest's On-Target E-Magazine

Aug. 22, 2012

Supply Chain News: More of the Same, as US Manufacturing Trade Deficit, especially with China, Continues to Grow

Situation becoming Increasingly Dire, Impacting Jobs, the Economy, Competitiveness, MAPI Expert Says

SCDigest Editorial Staff

While the US trade deficit in terms of manufacturing has slowed a bit in 2012 versus 2011, on the back of strong export performance, overall the trends of recent years (growing US trade deficit in manufactured goods, rising Chinese surpluses) continue on - with big ramifications for the US economy.

SCDigest Says:

In 2000, US manufactured exports were almost three times larger than Chinese exports. In 2012, Chinese exports are projected to be 58% larger than U.S. exports.

What Do You Say?

Click Here to Send Us Your Comments

Click Here to See Reader Feedback

So says Dr. Ernest Preeg, Advisor for International Trade and Finance at research organization MAPI -The Manufacturing Alliance, in a powerful August research note.

Preeg says the US trade deficit in manufactures rose by 7% in the first half of 2012 compared with 2011, continuing the upward trend since the 2009 global recession. That, however, was at a slower pace than the 12% increase in 2011 and the amazing 24% rise in 2010.

While China's overall trade surplus has been shrinking, that is largely due to the high levels of imports the country has been having for oil, iron ore and other commodities.

For manufactured goods only, the Chinese trade surplus rose a sharp 24% in the first half of 2012, following gains of 23% in 2011 and 27% in 2010.

The above numbers for the US and China were total figures, across all trading partners. When looking at just the US and China, US manufactured imports are more than six times larger than US exports to China.

Preeg says that "The US bilateral deficit with China equates to 71% of the [US] global deficit, and is growing faster than the deficit with the rest of the world."

We have been similarly tracking many of these numbers here at SCDigest, including the cumulative trade deficit for the full year from 1999 through 2011.

As can be seen in the chart below, over that period the cumulative deficit in manufactured goods has risen from the starting point of $68.6 billion in 1999 to a cumulative $2.43 trillion through the end of last year.

With a deficit in goods of $296 billion in 2011, that means the cumulative average growth rate of the trade deficit with China since 1999 is 12.95%, meaning it is doubling about every five and half years.

(Manufacturing article continued below)

CATEGORY SPONSOR: SOFTEON

The implications of all this for jobs, the burning issue of the day, are huge.

Preeg says that "The $169 billion three-year increase in the global US deficit, from $326 billion in calendar year 2009 to a projected $495 billion in 2012, has resulted in a trade-related loss of 700,000 to 1.4 million U.S. manufacturing jobs, or almost 10 percent of total manufacturing employment. This includes 130,000-260,000 jobs in 2012."

Not stated by Preen, but each manufacturing job is said to create as many as seven another seven jobs at suppliers, service providers, restaurants, etc.

US exports in the 1H of 2012 were up $48 billion or 9%, slowing the rate of trade deficit growth. But that export surge far from eliminated the deficit, as imports of manufactured goods rose by even more, increasing $68 billion.

In contrast, Chinese manufactured exports in the first half of 2012 rose by $80 billion (11%), imports rose by $13 billion (only 2%), and the surplus thus soared by $67 billion (24%).

It's similar story when looking at just the US and China, In the first half of 2012, US manufactured imports from China were up by $14 billion (9%), while U.S. exports to China were up by less than $1 billion (3%). The resulting bilateral trade deficit with China consequently rose by $13 billion (9%), which amazingly represents nearly three-quarters of the US overall trade deficit and almost half the China surplus.

Dramatic Change over the Last 12 Years

The change since 2000 has been dramatic, Preeg says. Then, US manufactured exports were almost three times larger than Chinese exports. In 2012, Chinese exports are projected to be 58% larger than U.S. exports, and on track to double US exports by mid-decade.

Also startling, Preeg found that of the five largest exporters of manufactured goods (China, the EU as a whole, the US, Japan, and South Korea), only the US has a trade deficit (large and growing). The other four have large and growing surpluses.

US import mania is driving the manufacturing success of the rest of the world.

To Preeg, this all paints a very dour picture for US manufacturing and the rest of the economy. He says that while "The most direct economic consequence from the growing trade imbalances in manufactures is on domestic manufacturing output and jobs," it must also be noted that "the manufacturing sector is central to achieving technology- driven economic growth, defense modernization, and export competitiveness."

70% of US domestic civilian R&D - innovation - is conducted by manufacturing firms. As manufacturing capabilities are lost, so too will that investment in innovation seen as the key to company and overall economic success.

Preeg concludes by saying that with regard to this overall situation and what he says is blatant currency manipulation by China to keep its export prices low, the current "American policy of head-in-the-sand denial needs to end, and the policy challenge then becomes what to do next."

Are you surprised at all by this data? How dire is this trend on the US economy - or not at all? Let us know your thoughts at the Feedback section below.

Recent Feedback

No Feedback on this article yet