The cover story of this month’s The Atlantic is titled “Comeback: Why the Future of Industry is In America.” The lead article by Charles Fishman argues that the outsourcing wave is largely over and now U.S. companies, exemplified by GE’s appliance division doing more work in the U.S., are seeing the light and moving work back to the U.S. Given the decimation of U.S. manufacturing over the last decade, I sincerely hope Fishman is right.
But I fear he is not. If he’s right, one would expect to see the results show up in the trade statistics. But according the Bureau of Economic Analysis, the quarterly trade deficit in goods is 22 percent higher than it was in the first quarter of 2010. But maybe appliances are the exception and are indeed coming back. Not so. In fact, the trade deficit in appliances (Household and kitchen appliances and other household goods) has grown even faster, up over one-third (34 percent) over the same period. Hardly evidence of a mass return of manufacturing to American shores.
To be sure Chinese wages are rising somewhat, their undervalued currency is up a tad, and U.S. energy costs, principally natural gas, are down. But as we point out in Innovation Economics: The Race for Global Advantage, the U.S. still faces serious challenges. Our corporate tax rate is the highest in the world, we have not kept up in investments in R&D and worker training, and we invest little compared to other nations in policies to help U.S. manufacturers become more competitive. This points to the biggest challenge with Fishman’s argument: it breeds complacency. If the rebound is happening, Washington can continue to ignore manufacturing and not put in place needed policies like the President’s proposal for a National Network of Manufacturing Innovation or lower effective corporate taxes. Let’s hope Fishman is right and that Washington takes the action needed to drive a real manufacturing renaissance.