Should We Be Concerned with American Manufacturing?

Earlier this month Jagdish Bhagwati, a professor of economics and law at Columbia University, published a piece in the Financial Times titled “‘Made in America’ is not the way out.”  Bhagwati writes, “With no good argument in its favour, a preoccupation with manufacturing industries threatens yet one more example of such a perverse outcome. By promoting manufacturing of all kinds (as can be expected as the sector’s lobbies get down to work) at the expense of more innovative and dynamic service sectors, precisely when America is faltering in its recovery from the crisis, this unhelpful fascination promises to inflict gratuitous damage on an economy that can ill afford new wounds.”

Our “America Competes” moderator Clyde Prestowitz wrote this response to Professor Bhagwati’s op-ed:

There is a great conundrum here. Jagdish says, along with nearly all economists that “Made in America is Not the Way Out” and that we should have no special concern about the fate of U.S. manufacturing. On the other hand, virtually all economists also regularly call for global rebalancing in which the U.S. would consume less and export more while China, Japan, Germany, and others would consume more and export less. But it is difficult to see how this could happen unless the U.S. produces more. Of course, it could provide more services like Fedex and in fact it is doing so.

But the underlying cause of the emphasis on rebalancing is the enormous U.S. trade deficit and that is overwhelmingly a deficit in goods. The overall trade deficit this year will be about $600 billion. That will arise as the result of a deficit in manufactured and other goods of about $800 billion coupled with a surplus in services trade of about $200 billion.

No one I know believes there is any way that the trade deficit can be rebalanced without a large decline in U.S. imports of manufactured goods and a large increase in U.S. exports of manufactured goods. But, of course, neither movement can occur unless the U.S. actually begins producing more manufactured goods. So, in fact, it seems that we must after all have some special concern for the fate of U.S. manufacturing.

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