Missing image

Is the Manufacturing Renaissance Real?

Is American manufacturing back?  The hype says that costs in China are rising rapidly, companies who bought into outsourcing are belatedly realizing that it was oversold, and U.S. manufacturers are in the process of in-sourcing.  Other analysts are deeply skeptical, my friend Alan Tonelson in particular.  He argues that although manufacturing has been expanding, its growth pales in comparison to growth in prior recoveries.  Moreover, many of the policies believed to harm U.S. manufacturers (i.e., foreign currency manipulation, non-tariff barriers against U.S. exports, and weak environmental regulations in developing countries) persist.

What do the trade data tell us about the manufacturing renaissance?  The graphs below show the ratio of U.S. imports to exports for manufacturing goods (twelve-month moving averages).  This measure is only broadly indicative of competitiveness because the ratio is influenced by differences in country growth rates and other factors.  But if the renaissance story were true, one would expect the U.S. ratio to be trending down toward unity.

Interestingly, there is support for both sides.  There was a pronounced decline in the ratio from mid-2005 until late 2009 before jumping during 2010.  Since then, the ratio has been stable, which does not support the renaissance hype.Manufacturing Export-Import Ratio

To be fair, the EU economy has been weak over the past two years, and China is starting to wobble.  Both of these would mask any underlying improvement in U.S. manufacturing competitiveness.  Also, the use of aggregate data could be masking improvements taking place in particular sectors or vis-à-vis particular countries.  At any rate, recent predictions suggest that the impact of in-sourcing will not become noticeable in the data until 2014.  So maybe we will have to wait another year or two before we can tell if this renaissance is real.

Leave a Comment