Manufacturing

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A Welcome Expansion of the Information Technology Agreement Has Arrived

On July 1, the global production, trade, and usage of information and communications technology (ICT) products received a long-awaited boost when the expanded Information Technology Agreement (ITA)—a trade agreement that eliminates tariffs on hundreds of ICT products—came into force. The World Trade Organization (WTO) considers the initial ITA, concluded in 1996, as one of the most successful trade agreements ever. The expanded ITA is the biggest tariff-cutting deal in WTO history. It’s hoped that the deal will have similar success in driving ICT-based trade, productivity, and innovation as its successor.

The expanded ITA will build on the significant impact that the initial ITA exerted on growing global ICT trade. From 1996 to 2008, total global two-way trade in ICT products covered by the agreement increased by more than 10 percent annually, from $1.2 trillion to $4.0 trillion. The expanded ITA promotes affordability and accessibility to a new generation of ICT products by eliminating tariffs to trade on an updated list of 201 ICT products. The initial ITA cut tariffs on eight categories of ICT products, such as semiconductors, computers, and telecommunication products. The latest list includes scores of products

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How the Black and White Debate on Trade Hurts the United States

Nowhere is today’s highly polarized political climate more visible than in the debate on trade, which has been dominated by two polar opposite viewpoints. The first sees trade as a white knight capable of fixing all our woes, no matter the circumstances, and the second sees it as an evil tyrant that strips people of their wealth. Championed by supply-side economists and fearmongering protectionists, respectively, these rigid articles of faith have crowded out more rational and nuanced analyses. This is unfortunate, because both extremes are wrong, albeit in different ways, and the focus on absolutes makes it almost impossible to seriously discuss or address loss of American manufacturing strength.

Consider, for example, the claims of commentators such as Scott Lincicome and Michael Hicks, who echo the unabashedly pro-free-trade logic of conservative economists like Milton Friedman when they argue that all of our job losses have been lost because of productivity. Hicks writes, “Had we kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million.”

This assertion relies on a rigid, supply-side economic model that

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China’s Exaggerated Semiconductor Trade Deficit No Justification for Mercantilist Policies

As ITIF has long argued, China pursues an autarkic, indigenous economic growth and innovation development strategy, particularly with regard to high-tech products. For example, in the semiconductor sector, China has launched a $100 billion National IC (integrated circuits) Industry Development plan designed to significantly increase domestic IC production and to reduce China’s imports of semiconductors—by half in 10 years and entirely in 20 years. To justify its mercantilist industrial development policies China claims hardship: we import too many semiconductors. This argument has been broached again recently given the potential merger between two semiconductor companies, one of which, Western Digital, has a major Chinese stockholder. This simplistic analysis needs to be called out for what it is—false—and a façade for a policy which breaches rules China agreed to when joining the WTO.

One reason China has tried to give for its aggressive and mercantilist IC industry development plan is that it runs a “large” trade deficit in semiconductors—$232 billion in 2013—which supposedly justifies efforts to replace foreign imports with domestic production, but this rationale is wrong on several levels. First, this simplistic narrative fails to account for the fact that

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microchip

Time to Stop Blaming Manufacturing Job Losses on the (Nonexistent) Shift to Services

The U.S. lost more than 5 million manufacturing jobs since 2000 (roughly a 30 percent drop), while nonmanufacturing jobs have grown by 8 percent. Understanding why is critical to developing the right policy response.

Unfortunately, too many apologists for U.S. manufacturing decline argue that manufacturing employment loss is a natural trend. They blindly follow the assumption that as economies get richer they naturally consume a smaller share of manufactured goods and a larger share of services.  Therefore, we should expect manufacturing job losses.

New data from the St. Louis Federal Reserve Economic Data should hopefully put an end to these false claims. Recent analysis demonstrates that after adjusting for inflation, the share of real consumption of services has actually decreased slightly after reaching a peak in 1992. At the same time, durable goods manufacturing consumption is growing as a share of total consumption.

Accounting for inflation, services reached a peak of 70 percent of total consumption in the mid-1990s and have since declined to around 66 percent. This is not so different from the late 1950s when services made up 62 percent of total consumption. Meanwhile, the consumption of durable

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Don’t Blame ICT for Manufacturing Offshoring

During the 2000s, globalization took millions of jobs from the United States. Some have been quick to associate this job loss with the technology that ostensibly made it possible, chiefly the adoption of ICT that allowed for global connectivity. So, would the United States have been better off if it had simply never invested in ICT in the first place?

There are those who would love to somehow put the technology introduced by the ICT revolution back in the box. But a new study shows that doing so would have detrimental impact on the economy. Yes, in some cases ICT investment introduced the tools which allowed companies to outsource jobs. But, as new paper, Does ICT Investment Spur or Hamper Offshoring?, finds, the same ICT investment enabled productivity gains that kept companies at home.

Of course, it is difficult empirically to determine whether ICT investments increase the likeliness of offshoring, as causality is difficult to determine. To address this problem, authors Luigi Benfratello, Tiziano Razzolini, and Alessandro Sembenelli examined small and medium-sized Italian manufacturing firms with varying access to local broadband facilities, a random variable that was used

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Photograph by Chetan Karkhanis

Developing Countries Need Robots Too

Ask any economist why some countries are poor and some countries are rich, and they will probably answer, “productivity”. Essentially, this means that people in rich countries are rich because they are able to create more wealth with less effort. But how do they do this? One of the primary ways is through better technology.

Unfortunately, instead of being recognized for its contribution to wealth, better technology is all too often demonized as a threat to employment, particularly in low-income countries without social safety nets. Intuitively, people care more about the jobs and income streams that already exist than the potential future savings from automating their jobs–a bird in hand, as they say. But a new paper by Mehmet Ugur and Arup Mitra of the University of Greenwich shows that even in very poor countries, technology is far less threatening than it may appear.

We have argued here before that robots are not taking our jobs: in the long run on a macro level productivity increases have no relationship with either the total number of people employed or with the level of unemployment. This is because when automation or

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Robots

Reshoring optimism, but not much else

You’ve probably heard the good news. After a decade of being constantly bombarded with news of off-shoring, images of deserted factories, and heart-wrenching tales of laid-off American workers unable to find new employment now that their job is in China, jobs are streaming back into the country, factories are reopening, and we’re back to whistling while we work. We’ve even got a new word for the phenomenon- reshoring.

Just don’t look at actual data. Because funny enough, the numbers illustrate that reshoring is a myth.

True, off-shoring has slowed and has maybe even stabilized. But this respite does not mean that manufacturing jobs are reappearing. Yes, there are isolated instances which your local paper can emphatically cite. However, there is no evidence that America’s manufacturing woes have magically worked themselves out, or that a significant number of jobs that left for China and Mexico are being shipped back.

The truth is that even since the recession, more manufacturing firms have been lost than created in the United States. Manufacturing establishments (the number of factories or manufacturing sites), have followed the same trend. In 2011, the United States was home to

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Manufacturing

How America’s Manufacturing Job Loss Outpaces Other Leading Industrialized Countries

In July 2014, ITIF’s Stephen Ezell testified before the Senate Finance Committee regarding the importance of manufacturing to America’s economy and the role that U.S. trade and technology policy plays in supporting American manufacturing. As part of his testimony, Ezell cited data describing the rapid decline of U.S. manufacturing employment to demonstrate the severity of the challenges faced by America’s manufacturing industries. For the reality is that, particularly since 2000, America’s manufacturing sector has been in a steep decline, with job losses outpacing those in many peer countries.

Following the hearing, Marc Levinson, a Section Research Manager with the Congressional Research Service, produced a report countering some of the data in Ezell’s testimony, and suggesting that there is not a clear cause for alarm regarding employment losses in the American manufacturing sector. However, Levinson’s account does not fully present all of the facts and only succeeds in further muddying this important policy debate.

One critique Levinson makes is charging Ezell with bias in selecting base years, which can have a sizable impact on analytical results. Levinson presents data using the years 1991 to 2000 and then the years from 2001

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American Flag

RAMI Legislation Poised to Revitalize American Manufacturing

This Friday morning, July 25, the House Committee on Space, Science, and Technology will hold a full Committee markup of H.R. 2996, the Revitalize American Manufacturing and Innovation (RAMI) Act of 2013. This is the House’s companion legislation to Senate Bill 1468, which passed out of the Senate Commerce, Science, and Transportation Committee by voice vote in May.

The legislation would provide authorization, using existing funding of up to $300 million, for the Secretary of Commerce to establish up to 15 Institutes of Manufacturing Innovation (IMIs), public-private partnerships that would focus on developing advanced manufacturing product and process technologies, facilitating their commercialization, and developing workforce skills around advanced manufacturing technologies. As ITIF writes in Why America Needs a National Network for Manufacturing Innovation (NNMI) and How It Should Work, these Institutes would play a pivotal role in enhancing U.S. industrial competitiveness by supporting development of technologies that will enable U.S. manufacturers to compete in the global marketplace. The additional IMIs would join four already chartered focusing on additive manufacturing, next-generation power electronics, digital manufacturing and design innovation, and lightweight and modern metals manufacturing, all of

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Where Do New Products Come From? Insights from a new study of innovation in manufacturing

A recent NBER working paper offers up some interesting new survey data on innovation in U.S. manufacturing industries. Authors Ashish Arora, Wesley M. Cohen, and John P. Walsh surveyed more than 5000 U.S. manufacturing firms in 2010, asking whether or not they brought new products to market in the previous three years.

Most notably, the data shows that the number of truly innovative manufacturing firms is relatively small. In the aggregate, it finds that 43 percent of firms introduced new products in the past three years, but only 18 percent of firms introduced new products that were wholly new to their market. In other words, one quarter of firms, and more than half of firms introducing new products, introduced “imitation” products following the lead of other companies. The percent of firms introducing totally new products ranged significantly between industries, from just 10 percent of firms in the “Wood” and the “Metals” industries, to 44 percent in the “Instruments” industry.

The survey also breaks down the results in a number of interesting ways, including where the innovations originated. It finds that the most common source of innovation is customers. This is

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