Conventional Wisdom
The U.S. has almost completely lost its manufacturing base to foreign countries. We've become just a "service economy."
Facts
Contrary to the common view, the U.S. is still the largest producer of industrial goods in the world. The U.S.'s $2.73 trillion in industrial output is double that of number two Japan's $1.36 trillion. The U.S. has a manufacturing output of $1.73 trillion, compared to Japan's $953 billion and China's $760 billion. If agriculture, services, and government are included, total U.S. production is $12.4 trillion, and no other nation comes close.8 The U.S. exports to many countries, most notably Canada and Mexico, both of which are partners in the North American Free Trade Agreement (NAFTA).
Reality Check shows the industries in which the U.S. has a strong manufacturing presence. In many of these sectors, the U.S. is dominant. The book also shows how the balance of trade is trending quite differently with its various trading partner blocks.
Assessment
Yes, the number of manufacturing jobs has declined. But the value of U.S. manufactured goods has increased--significantly. We've produced more goods with fewer laborers (thus increased productivity), and the resulting money has gone into the economy to hire people in other jobs which are more interesting and create even more value. We know this is true since unemployment has been near historic lows. And you might find a few people who would rather be working on an assembly line all day than what they currently do, but that would be an isolated exception, not the rule. The aggregate view is most important as we consider the overall direction of the country. This positive scenario is VERY different from the one often portrayed by gloom and doomers who want to paint the economy as a failure by pointing to losses in manufacturing jobs. The cycle explained here is closely related to the concept explained in the next section about why outsourcing is good for America.
Key Terms
Manufacturing Output: Manufacturing output is the money value of goods produced in factories
Industrial Output: Industrial output is the money value of goods produced in factories plus mining, including oil and gas.
Balance of Trade: The balance of trade is the difference between the money value of exports and the money value of imports in the economy over a specific period of time. Trade deficit is a negative balance which results from a country's importing more goods and services than it exports. Trade surplus is the reverse. The surplus is the result of a country's exporting more goods and services than it imports.
Balance of Payments: The balance of payments is the overall sum of the flow of payments from an individual country with the rest of the world. In simpler terms, if an individual buys more goods and services than he can sell and accumulates a trade deficit, he will have to balance the deficit with a capital inflow. In balance of payments, the capital inflow is known as the "current account" or "capital account surplus"--which would be the equivalent of covering your deficit by borrowing from the bank or running up your credit card balance. The only other alternative is to spend money from your savings. For national accounts, the equivalent of running down savings is drawing on official central bank reserves.
Capital Account: The capital account is one of the two major components of the "balance of payments." It includes all transactions between a country and other countries. It deals with both direct investment, such as the purchasing of real estate or goods, or the changes in investment in stocks, bonds, and the like. A foreign investor buying assets domestically is considered a capital inflow, and the opposite is a capital outflow.
Current Account (Financial Account): A nation's current account is the difference between a nation's total exports of goods, services, and transfers, and its imports of the same things. Current account balances depend on the net foreign assets of a country, positive or negative, determining the balance.
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