U.S. is Losing All Its Manufacturing to China – Or Is It?

We’ve all heard the bleak news that the United States is no longer a manufacturing power and that most of our products (and especially electronics) are made overseas. Many people also believe that the outsourcing of manufacturing is the primary reason behind the current recession.

But what are the facts?

  • U.S Manufacturing is still on top – the United States manufactures the most “stuff” in the world – more than China (which is a close second), and more than Japan and Germany combined. China is the largest exporter, but that is partly because they don’t have as much internal demand (or wealth to purchase) as the United States does. Surprisingly, Germany is the second largest exporter - mainly due to their production of luxury cars (Nationmaster, Seeking Alpha)

  • Manufacturing grew in February 2011 at its fastest rate in seven years. In fact, U.S. manufacturing has increased for nineteen consecutive months (Reuters, February 2011)

  • Factory growth in China is at a six month low (Reuters, February 2011).

  • Manufacturing has not been the biggest sector of the American “output” for over half a century. Services became a larger sector than goods in 1943 (For a refresher on goods and services, think of it this way -- a pencil would be considered more of a pure good; where as, babysitting would be considered more of a pure service. Restaurants offer a combination of both a goods and services). And though goods took over again during World War II, the service sector took a permanent lead in 1958. So outsourcing of manufacturing jobs has not had nearly the impact as the outsourcing of service jobs. (Manufacturing Surprise: The U.S. Still Leads the World in Making Things)

  • The United States isn’t the only country that has lost manufacturing market share - the list actually includes Japan, Germany, China and Mexico (Nationmaster).

  • Approximately 2.4 million jobs were lost to outsourcing between 2001 and 2008, but most were IT jobs (information & technology: i.e. engineering, programming, technical service), not manufacturing jobs. (The China Job Drain)

  • Despite predictions to the contrary, IT outsourcing has contracted rather than expanded in the years since we entered the Great Recession, and analysts forecast that IT outsourcing growth will remain slow for some time to come (IT outsourcing trends)

  • Here are the things that the U.S. leads the world in making – farming equipment (and equipment of all kinds), chemicals/fertilizers, engines, airplanes, defense, telecom, tech and media. (Manufacturing Surprise: The U.S. Still Leads the World in Making Things)

  • As a result of ever-rising productivity, American industries make more with less. “Less” includes fewer workers. So even if no jobs were moved to China, the number of manufacturing jobs in the U.S. would be expected to go down each year.

What about the electronics industry?

  • From January 2001 to January 2010, the number of U.S. jobs in the electronics sector (electrical equipment, appliance, and component manufacturing) fell steadily from 582.6 million to 354.2 million. In 2010, that number showed an increase for the first time in 10 years – in January 2011, approximately 367.7 million people are employed in the electronics industry. (Bureau of Labor Statistics)

  • The unemployment rate is now 5.8% in the electronics sector compared to approximately 9.8 % overall. (Bureau of Labor Statistics)

  • Of the manufacturing jobs that moved to China in the last decade, approximately 2.7% were in the electronics sector (which includes electrical equipment, appliances, and components). By comparison, the IT sector accounted for 26% of the total outsourcing job loss. (The China Job Drain)

Even though the manufacturing sector has shrunk in the past ten years, data now shows a slight increase in manufacturing – this should at least indicate that the situation is leveling off with regard to outsourcing. There has also been a decreasing in all outsourcing (both manufacturing and IT) since 2008.

So, yes, the United States is still a manufacturing powerhouse and is likely to be so in the future. And while outsourcing is related to job loss in the United States, these jobs lost were not primarily in the manufacturing sector. And of those manufacturing jobs that were lost due to outsourcing, the majority were not in the electronics sector.

Most economists agree that the biggest cause of the latest recession lies in the banking policies that led to the collapse of large financial institutions in the United States, not to outsourcing of manufacturing jobs.

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