An output crisis: Manufacturing lags all major economic sectors in growth
Frank O Smith, senior contributing editor (fosmith@thewritinggroup.com) -- Manufacturing Business Technology, 10/21/2008 10:01:00 AM
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A recent study of the performance of economies of eight industrial “battleground” states in the 2008 elections reveals those business sectors most affected by U.S. trade policies grew the slowest over the last 10 years. Manufacturing—commonly thought to be central to the formulation of trade policy—was in fact the loss leader, according to the U.S. Business and Industry Council’s (USBIC) report, released in September.
The eight states studied were Illinois, Indiana, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, and Wisconsin.
“U.S. domestic manufacturing has not only been suffering from an employment crisis that gained so much publicity in the campaign, but also from an output crisis,” says Alan Tonelson, USBIC research fellow and author of the report, Globalization and the 2008 Battlegrounds: How U.S. Trade Policies are Weakening the Economies of Key Industrial States.
Say Tonelson, “Though manufacturing output has gone up—26 percent cumulative growth over the 10-year period—that’s pretty miserable compared with overall GDP grow in all sectors of 66 percent.”
During the period, manufacturing’s contribution to economies of all eight states—as well as to the nation’s—shrank as a percentage of the total economy.
“In our view the key change followed the passing of NAFTA in the 1990s—the first U.S. trade agreement that was an outsourcing deal,” says Tonelson. “Following that, it was China being admitted to the World Trade Organization—which gave them protection from U.S. unilateral action against their predatory trade practices. Washington’s response has been very ineffectual against those practices.”
According to the report, “Trade is widely considered to be a major plus for the U.S. economy and especially for economic growth… but it seems clear that current U.S. trade policies are failing the economies of these politically critical, manufacturing-heavy states—and the U.S. economy as a whole.”
Illinois, cited as a “typical example of a state where growth has been undermined by trade and globalization policies,” saw its share of contribution from manufacturing shrink from 16.10 percent to 12.57 percent.
“The affect of U.S. trade policy on manufacturing in Illinois—in a word—has been devastating. We lost several important customers within months of NAFTA being signed,” says Alan Petrucci, founder of BA Die Mold Inc., a small manufacturer of injection molds based in Aurora, Ill. “Our sales are a third of what they were.”
The mainstay of BA Die Mold’s business used to be automotive and telecommunications, but Petrucci has retooled his business due to diminished business from those industries. “We switched gears and started focusing on specialty products—especially threaded parts for water filtration connections, medical products, and fiber optic connectors.”
Petrucci lost a major customer that moved its entire operation to Mexico immediately after NAFTA was signed.
“It was a bitter pill to swallow," he says. “We probably did a million dollars a year in business with them. We went through some trying times.”
Though several other small manufacturers in the area have since closed shop, Petrucci invested in new automation that enabled him to run 24/7 with significantly reduced labor, enabling him to stay competitive and stay in business.
The report grouped national and state economies into three super categories: 1) most heavily exposed to global challenges and opportunities (manufacturing, agriculture, and mining); 2) partly exposed (finance, retail trade, professional and technical services, hospitality, and IT services); and 3) virtually unexposed (government, health and welfare, construction, real estate, and corporate management services).
Based on data from the U.S. Commerce Department’s Bureau of Economic Analysis, manufacturing saw the least growth by far, lagging agriculture, the second-worst performing sector by nearly 20 percentage points.
