Manufacture This

The blog of the Alliance for American Manufacturing

New trade figures show we’re on track to break record deficits with China. Here’s why that matters.

If anybody is looking for a reason why U.S. manufacturing is suffering, this is it.

The United States is likely to surpass record trade deficits with China in 2015, according to new figures released by the Commerce Department on Wednesday morning.

The 2015 goods and services deficit with China through November is $337.8 billion, compared to $315 billion at the same time last year. Overall, the trade deficit in goods through November is $696.2 billion, compared to $676.7 billion during the same period last year.

The growing trade deficit isn’t exactly the sexiest topic around, but it is further evidence that U.S. manufacturing is indeed the weakest sector of the economy right now — and things aren’t likely to improve for quite some time.

That's bad news for the overall economy. Manufacturing makes up about 12 percent of America's GDP. When manufacturing is hurting, the rest of the economy hurts, too.

And it's just plain terrible news for America’s manufacturing workers. According to our own AAMeter, the sector gained just 88,000 new jobs through November 2015 (the December figures are scheduled to be released on Friday). But most of that growth happened earlier in the year; 27,000 manufacturing jobs were lost in August and September, and just 1,000 have been gained back since then.

And things would have been even more dire for manufacturing jobs if not for the strength of the U.S. auto industry, which had a solid year in 2015.

The current state of affairs for manufacturing jobs is a far cry from where we hoped to be back in 2012, when President Obama set a campaign goal to create 1 million new jobs in his second term. The sector needs to gain 629,000 jobs by January 2017 for Obama to hit his goal. Probably not going to happen.

There are a few reasons why manufacturing is in such bad shape. Overall trade was down month over month, indicating serious global weakness. The strong dollar also makes it tougher for American manufacturers to export their goods.

But at the heart of all this is China’s massive overcapacity problem.

Chinese factories continue to pump out more products than China can consume. All that excess stuff (most of which is subsidized by the Chinese government, by the way) is being sent to the United States, where it is offloaded at rock-bottom prices.

The steel industry, for example, has faced major layoffs and plant closures due to Chinese overcapacity. Construction also has been impacted; Illinois-based Caterpillar laid off 10,000 workers in September. Even appliance maker Whirlpool has been impacted.

American manufacturers are fighting back. Steelmakers filed several trade cases in June 2015 alleging that some products from China had been dumped in the United States. In December, the Commerce Department sided with the companies in one of these cases, announcing some steel imports will be taxed at 256 percent.

But trade cases alone won’t reverse this trend. If we don’t get serious about our lopsided trade deficit with China in 2016, we are likely to see additional job losses in the new year.