Trade Data Pours Cold Water on ‘Rising Star’ Outlook for American Manufacturing

By Matthew McMullan
Aug 22 2014 |

Tuesday brought the release of a Boston Consulting Group (BCG) study that determined America was among the “rising stars” of global manufacturing. It cited low wage growth, sustained productivity gains, stable exchange rates and energy cost advantages as being among the reasons countries such as the U.S. and Mexico would catch up with current powers like China in the manufacturing game.  

There’s plenty enough cold water that can be poured over that claim — as we pointed out yesterday, manufacturing employment is still dragging along, and we shouldn’t be cheering for a low-wage recovery.

But someone else has shown up to BCG's discussion with a 60-gallon drum full of ice cold reality.


According to Ernest H. Preeg, PhD, at the Manufacturers Alliance for Productivity and Innovation, the data for the second quarter of 2014 reveals America’s trade deficits have increased significantly since last year.

Writes Preeg:

The U.S. trade deficit in manufactures surged by $21.6 billion, or 19%, in the second quarter, compared with 2013, following an 8% increase in the first quarter. In the opposite direction, the Chinese surplus increased in the second quarter by $20.0 billion, or 9%.

Why? Explains Preeg:

China is clearly pursuing an export-led growth strategy to stimulate lagging GDP growth, including very large official foreign currency purchases to lower the exchange rate, and is achieving robust industrial growth, much if not most of which is for export.

Preeg digs into the data some more, and finds that U.S. bilateral deficits with the three largest Asian export competitors — China, Japan, and South Korea — and the three largest European competitors — Germany, France, and Italy — have actually increased over the last year in five of six cases.

His conclusions:

The deficit is heading toward $600 billion this year, or about half the size of domestic production, while most major Asian and European competitors are pursuing an export-led growth strategy centered on the technology-intensive manufacturing sector, with the United States playing a largely passive role as importer of last resort. An effective U.S. response would have to be comprehensive, including trade, exchange rate, domestic economic, and foreign policies, but there is no apparent serious analysis underway, in or out of government, to develop such a strategy.

More immediate in this election year, the U.S. deficit in manufactures is on track to increase by $60 billion in 2014, which equates to a net loss of about 400,000 American manufacturing jobs in just one year. Should this not be an issue of serious concern and debate for candidates on both sides of the political aisle?

Great questions, all of them. It could be that BCG’s “rising star” outlook takes a longer view of America’s share in global manufacturing … but here’s what’s happening right now: The U.S. is competing without a manufacturing strategy, and the trade numbers show that we’re getting our butts kicked.

Read Preeg's full analysis here.