Tag Archives: manufacturing

Free trade is for idiots

For decades, globalists and libertarian free trade ideologues have been telling us that free trade has been “good” for America, that it’s a traditional conservative/Republican policy, and that any suggestion that America should protect its industry – i.e. protectionism – is a Big Government policy and a betray of “free market principles”. Free trade is the religion of the CATO Institute, the Mercatus Center, the Heritage Foundation, and the so-called Club for (Corporate Profits) Growth, which should call itself the Club for Corporate CEOs’ Greed).

But they are wrong. Protectionism, not free trade, has traditionally been the policy of conservatives and Republicans, and it is the policy on which nations ascend economically; they descend on free trade.

Every nation which ever became a great power – from England under the Acts of Navigation, to Colbert’s France, to the US from 1861 to 1945, to postwar Japan, to China today – became such because it protected its economy (especially its industry).

Unlike Hamilton, Clay, and Lincoln, the free trade ideologues at the forementioned organizations never built a great nation.

Republicans won their first presidential election in 1860 (while also capturing the Senate) running on a pledge to institute tariffs to protect the industry. And they did. This nearly insulated America’s (or rather, the North’s) growing industry, allowing it to become the envy of the world. Successive Republican Presidents and Congresses continued these policies, shielding American industries with protective tariffs, thus allowing these industries to grow and leading America to overtake Britain (and the rest of the world) by all measures of industrial production (including coal mining and steel production) by the 1890s.

Protectionist tariffs on foreign products also allowed Congress to keep the books balanced and pay Civil War debts quickly while keeping taxes on Americans and American companies low. Before 1913, there wasn’t even any federal income tax.

America thus became the greatest industrial power on Earth, the envy of the world.

I said “successive Republican Presidents and Congresses”, because a protectionist economic policy proved itself to be not only economically successful, but also politically popular. From 1860 to 1924, the GOP – then known as the Party of Protection – put 12 presidents in the White House, versus only 2 Democrats.

By 1945, America, partially thanks to its protectionist policies and partially due to the destruction that WW2 inflicted on Europe and Asia, accounted for 42% of the world’s industrial production.

But then, something happened.

American political elites (including, increasingly, Republicans) caught the free trade virus and indulged in suicidal “free trade” economic policies.

The US joined the WTO organization, where it doesn’t have a vote, signed the GATT, and signed free trade agreements with many countries, opening its markets to their products while they kept their markets firmly closed to American goods and services.

Thus, the US stopped posting trade surpluses and, starting in 1971, began to run trade deficits which, since 1971, have been growing almost nonstop.

Big corporations, always greedily lusting for more profits and bigger salaries for their CEOs, began shipping jobs overseas.

By the 1980s, the situation was so dire that Ronald Reagan recognized the problem and asked the Congress to institute protective tariffs.

Yet, America’s slide towards the abyss on the skis greased by free traders was only slowed down, not stopped. In 1992, the US, at President Bush’s behest, suicidally signed NAFTA, opening its market to cheap Mexican products. In 1993, Republicans saved NAFTA from defeat by voting for it together with the pro-free-trade wing of the Democratic Party. Republicans literally rescued NAFTA from the dustbin of history (where it belongs) by voting for it – and thus own it.

The result? Millions of good-paying industrial jobs were lost, as factories were shipped to Mexico. Before 1993, the US had a trade surplus with Mexico. Since 1993, it has had a trade deficit with that country every single year.

In 1994, China began, on a large scale, its campaign to maximize its exports while closing its market to imports, and thus to steal Western industries, by devaluing its currency by 45%. Simoultaneously, tariffs on foreign products were hiked, and export rebates to Chinese exporters began to be provided, similarly to how they are provided in Japan.

(Japan has a 15% VAT rate on products sold on its soil, but it provides a rebate to its exporters for every product they sell abroad. So cars exported to the US face no American tariffs and are even rebated by the Japanese government, while American cars exported to Japan are taxed 15% as soon as they arrive at the Yokohama docks).

Yet, despite Chinese cheating on trade, the Congress – dominated by Republicans – gave China Most Favored Nation trade status, thus absolving Chinese products of most tariffs (while China did not reciprocate). In 2001, the Congress gave China that status permanently. In 2002, a Republican President allowed China to join the WTO. Thus, Chinese products enter America almost free of any tariffs or duties, but American products shipped to China are subject to steep tariffs.

Yet, Republicans, instead of learning from their mistakes, doubled down on their “free trade” policies. They gave Vietnam Most Favored Nation status in 2007. They gave President Bush an unconstitutional unilateral “expedited” negotiation authority to negotiate even more one-sided, unfair free trade agreements for dupes. They supported the FTAs Bush signed with Panama, Colombia, and South Korea late in his term.

In the 2008 election, all leading Republican candidates – McCain, Romney, and Giuliani – ran on free trade platforms.

The eventual Republican nominee, John McCain, even scaremongered people about “the siren song of protectionism” and went to a closed Ohio factory (which was closed because its owner shifted production overseas).

It didn’t endear him any voters, however. In the 2008 election, proud free trader John McCain was crushed 373-165, by the biggest margin of any Republican candidate since Barry Goldwater, losing even longtime Republican states like North Carolina, Indiana, and Virginia.

The election of Barack Obama probably gave some Americans hope that he would uphold his campaign promise to withdraw the US from NAFTA and to protect the US industry. He didn’t. He has barely been willing to impose tariffs on imported tires to save the tire industry.

With their own free trade mistakes costing them politically and the country economically, Republicans should have had, by 2012, learned that they were wrong and should have proposed a better policy, right? Wrong. Most Republicans continued to cling to their free trade ideology, as did the 2012 Republican nominee, Mitt Romney, who lambasted Obama for not signing any new FTAs for dupes (as if that were a bad thing), pledged to negotiate new FTAs, and firmly embraced free trade ideology. And although he pledged to designate China a currency manipulator if elected, and to enforce intellectual property laws, he wasn’t willing to do anything more than that, and even these half-measures earned him the ire of free trade ideologues such as the think-tanks and organizations listed above.

So, as the year 2012 begins to draw to an end, let us take inventory of 67 years of “free trade policies”.

They have destroyed the greatest industrial base the world has ever seen.

They have caused 55,000 factories to be closed and production to be shifted to countries where people work for slave wages and where there are no real environmental protection laws.

They have caused tens of millions of Americans to lose their well-paying manufacturing jobs and middle class worker wages to stagnate, in real terms, for over 2 decades.

They have brought about disastrous consequences for national security, as America is now dependent on foreign countries for essential things, even things essential for defense, such as Rare Earth Elements and the products made from them.

They have cost the Republican Party successive Congressional and Presidential elections, as former industrial powerhouses such as Ohio, Michigan, North Carolina, and Virginia – formerly red states – have turned against the GOP and become blue or purple states. Republicans have not win Michigan since 1984 and have lost both Ohio and Virginia in both of the last 2 presidential elections.

The GOP’s reputation as the Party of Protection has been tarnished and replaced by the reputation of a party that kowtows to big businesses and outsources jobs overseas.

America, formerly self-sufficient and producing everything in the world, now imports virtually everything it needs, from textiles and simple products to cars and Advanced Technology Products like computers and cell phones.

America lost her crown as the biggest exporter in the world to Germany in 2003, which itself was overtaken by China around 2010.

America’s trade deficits with Mexico, Japan, the EU, and the world at large are the highest they have ever been.

America’s trade deficit with China is the highest ever between any two countries.

And what were these trade deficits paid for with? Borrowed money. America is now the largest debtor in world history.

And to pay for lost revenue from abolished tariffs on foreign products, taxes are being hiked on Americans and American companies.

Can America be rescued? Yes, it still can, but there isn’t much time, and it will require a complete break with the free trade ideology and policies of the free trade ideologues running the CATO Institute, the Heritage Foundation, the Mercatus Center, and the Club for Corporate CEOs’ Greed. The US should:

  • Immediately implement the Export-Import Certificates proposed by Raymond, Howard, and Jesse Richman. This means that no country would be allowed to export more to the US than it imports from America.
  • Immediately impose a 25% tariff on all Chinese products imported into the US. China will then have a choice between letting American products into its market or financing the US Pacific Fleet.
  • Strictly enforce intellectual property laws.
  • Write, and strictly enforce, product quality standards on all imported products.
  • Terminate the useless Export-Import Bank.
  • Withdraw from NAFTA, the WTO, and the GATT.
  • Abolish all loopholes in the taxcode and use the resulting revenue (as well as the revenue coming from tariffs on Chinese products) to cut taxes across the board for all Americans and all American companies. The corporate income tax rate should be no higher than 12.5% (it’s 35% today).
  • Designate China as a currency manipulator.

Tens of millions of jobs will then be created and production will be shipped back to the US – because then, in order to sell products in the huge American market, you will have to produce things in the US. And foreign countries wishing to export to the US will have to open their own markets to American products on the basis of reciprocity.

US Olympian Clothes–Made In China!

In just a few short weeks all eyes will be focused on London. The best of the best athletes will gather for this summer’s Olympics. As always, the United States contingent will be strong and competitive.

Our Olympians will look good as they represent the United States. But a closer look reveals that one country has already won the gold. CHINA. Yes, it’s true, the official clothing for the representatives of the United States of America was made in China.

The President continues to promote American manufacturing but it appears the Olympic committee did not get the memo. The Olympics are privately sponsored and not government funded. Still, one  has to think a “Proudly Made In America” slogan would have been helpful in many ways.

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MSSC Joins President Obama In An Effort to Credentialing 500,000 Manufacturing Workers

File:Industrial factory.pngALEXANDRIA, Va., June 15, 2011 — President Obama last week announced an initiative to credential 500,000 manufacturing workers with industry-recognized certifications through an expansion of Skills for America’s Future. He stated that this would be implemented through a close partnership between industry, education and the National Association of Manufacturers.

As one of the Founding Members of the national Manufacturing Skills Certification System endorsed by the National Association of Manufacturers (NAM), the Manufacturing Skill Standards Council’s (MSSC) Certified Production Technician (CPT) credential will be an essential tool in the effort to meet this goal.

“We are pleased to see this joint action from industry, education and the public sector to grow a skilled manufacturing workforce within the framework of a robust nationwide program with macro-economic impact,” said Leo Reddy, MSSC CEO. “The manufacturing jobs of the 21st century continue to become more technical and require a higher level of skill among front-line production workers. Based on MSSC’s industry-defined, nationally validated standards, the CPT program addresses this demand by certifying these workers in the core technical competencies of high performance manufacturing common to all manufacturing sectors.”

While the manufacturing sector has faced real challenges in recent years, it continues to be the lifeblood of the American economy. The manufacturing sector currently employs over 11 million Americans, and by itself it would be one of the 10th largest economies in the world. Manufacturing is also critical for continued innovation; manufacturing companies account for two-thirds of private sector research and development and roughly 90% of all registered patents. Most importantly, manufacturing has long provided good-paying jobs for millions of families and serves as the anchor employer in communities across America. For that reason, the ability to win the future will depend in large part on the ability to train the most productive manufacturing workers in the world.

One of the challenges in today’s manufacturing sector is the lack of a standardized credentialing system that manufacturing firms recognize as useful preparation for their unfilled jobs. As a result, students often spend time and money on training that can have little value to potential employers while employers have difficulty identifying which credentials are of value and should influence hiring and promotions. An additional challenge faced by manufacturers is that Baby Boomers are reaching retirement age. An estimated 2.7 million manufacturing employees are 55 years of age or older and are likely to leave the labor force in the next 10 years.

“The CPT credential addresses the needs of both the worker and the employer by providing the individual with a nationally portable, industry-recognized credential and reducing recruiting and on-the-job training costs of employers,” said Reddy. “This is often a first step into manufacturing and launches workers into an educational and vocational pathway supported by the other NAM partners.”

The Manufacturing Skills Certification System, developed by NAM’s Manufacturing Institute, gives students the opportunity to earn manufacturing credentials that travel across state lines, are valued by a range of employers and improve earning power. The founding partners of this system include MSSC, ACT, the Society of Manufacturing Engineers, the American Welding Society and the National Institute of Metalworking Skills. This allows students and workers to access these manufacturing credentials and pathways in community colleges in 30 states as a for-credit program of study.


U.S. Durable Goods Order Drop Much More Than Expected

The commerce department released its advance report of April durable goods orders. Due to a slump in auto and aircraft manufacturing, durable goods orders dropped 3.6%, a much larger decrease than the 2.2% expected by analysts.

New Orders

New orders for manufactured durable goods in April decreased $7.1 billion or 3.6 percent to $189.9 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.4 percent March increase. Excluding transportation, new orders decreased 1.5 percent. Excluding defense, new orders decreased 3.6 percent.

Transportation equipment, also down two of the last three months, had the largest decrease, $4.9 billion or 9.5 percent to $46.7 billion.


Shipments of manufactured durable goods in April, down following four consecutive monthly increases, decreased $2.0 billion or 1.0 percent to $194.9 billion. This followed a 3.1 percent March increase.

Transportation equipment, also down following four consecutive monthly increases, had the largest decrease, $1.5 billion or 3.0 percent to $46.6 billion.

Unfilled Orders

Unfilled orders for manufactured durable goods in April, up twelve of the last thirteen months, increased $1.6 billion or 0.2 percent to $849.5 billion. This followed a 0.7 percent March increase.

Machinery, up fifteen consecutive months, had the largest increase, $2.2 billion or 2.2 percent to $103.6 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 2.1 percent March increase.


Inventories of manufactured durable goods in April, up sixteen consecutive months, increased $3.2 billion or 0.9 percent to $350.5 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 1.7 percent March increase.

Transportation equipment, also up sixteen consecutive months, had the largest increase, $1.0 billion or 1.0 percent to $106.1 billion. This was also at the highest level since the series was first published on a NAICS basis in 1992 and followed a 2.4 percent March increase.

Capital Goods

Nondefense new orders for capital goods in April decreased $5.3 billion or 7.3 percent to $67.6 billion. Shipments decreased $1.1 billion or 1.6 percent to $66.0 billion. Unfilled orders increased $1.6 billion or 0.3 percent to $495.5 billion. Inventories increased $2.2 billion or 1.4 percent to $157.8 billion.

Defense new orders for capital goods in April decreased $0.5 billion or 5.8 percent to $8.0 billion. Shipments decreased $0.4 billion or 4.5 percent to $8.1 billion. Unfilled orders decreased $0.1 billion to $147.7 billion. Inventories increased $0.2 billion or 0.8 percent to $20.8 billion.

Revised and Recently Benchmarked March Data

Revised and recently benchmarked seasonally adjusted March figures for all manufacturing industries were: new orders, $445.3 billion (revised from $444.2 billion); shipments, $445.2 billion (revised from $443.5 billion); unfilled orders, $847.8 billion (revised from $848.3 billion); and total inventories, $579.6 billion (revised from $578.7 billion).

U.S. Commerce Department:  http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf


America is dependent on Oil: For Millions of Reasons

(I am aware that most ‘tree-huggers’ are liberal in their thinking. If you have read my previous article you already know what I believe the practical, common-sense I.Q. of most liberals is. If you know me, you already know that I even though I believe I am once again spitting in the wind when attempting to reach anti-oil liberals with the everyday logic expressed in this article; here I go again. I have heard rumors—mainly rumors—that there has actually been die-hard liberals who have been converted to the conservative way by the process of thinking logically. I hope and pray that there will come a day when ex-liberals will thank me for helping to rescue them from the land of dumb and dumber because of a story I wrote! So Mr. or Mrs. Liberal, please pay close attention to the following story. Please read it slowing. Take your time. There will not be a test afterwards. If this article begins to make sense to you, continue to walk towards the light.)

I find it incredibly frustrating to try to reason with an “environmental wacko” when attempting to discuss the myriad of reasons why America needs to do more oil exploration—let alone more oil drilling in America. The frustrating part is that I can never get past liberals with the fact that America’s need for oil goes way beyond its uses in motor vehicles. These environmental alarmists have these false perpetual visions in their brain that good-life as we know it on planet Earth is going to end unless all Americans go green—and go green quickly. These environmental alarmists believe that somehow all animal life will be wiped off the planet if there was ever another major oil spill in this country, or the waters around this country. Well, we have had bad oil spills in both places in the past, and life goes on. Now I am not suggesting that oil spills are good or even okay. I am just stating the fact that oil spills do happen—and I am still alive so as to be able to write this story.

I believe one real important part of the biological aspects of oil that are normally left off most news stories dealing with an oil spill is that not enough emphasis is put on the fact THAT OIL IS A NATURAL PRODCUT OF THIS PLANET! The oil we take out of the ground is not some chemically-altered, genetically designed science fiction-like goop that was made in some mad scientist’s laboratory! In liberal lingo, oil is a natural product manufactured by ‘Mother Earth.’  Am I to believe that ‘Mother Earth’ made this oil for the sole purpose of trying to kill herself (if we earthlings used it? NOT!) This planet and its people were created with an amazing ability to endure hardships.

I am getting sidetracked from my initial reason for writing this article. My main reason for writing this article was not to find arguments for either promoting or condemning the use of oil primarily for motor vehicles. My main reason for writing this article was to make our American society as a whole see the economical necessity of having access to lots and lots and lots of readily available oil. Very few Americans are aware of all the goods and materials that are made from the petro-chemicals found in oil. Below is a partial list.

Products Made From Compounds Found In Oil:

  • Clothing
  • Ink
  • Heart
  • Valves
  • Crayons
  • Parachutes
  • Telephones
  • Enamel
  • Tape
  • Antiseptics
  • Vacuum–bottles
  • Deodorant
  • Pantyhose
  • Rubbing Alcohol
  • Carpets
  • Epoxy–paint
  • Oil–filters
  • Upholstery
  • Hearing Aids
  • Car sound insulation
  • Cassettes
  • Motorcycle helmets
  • Pillows
  • Shower doors
  • Shoes
  • Refrigerator linings
  • Electrical tape
  • Safety glass
  • Awnings
  • Salad bowl
  • Rubber cement
  • Nylon rope
  • Ice buckets
  • Fertilizers
  • Hair coloring
  • Toilet seats
  • Denture adhesive
  • Loudspeakers
  • Movie film
  • Fishing boots
  • Candles
  • Water pipes
  • Car enamel
  • Shower curtains
  • Credit cards
  • Aspirin
  • Golf balls
  • Detergents
  • Sunglasses
  • Glue
  • Fishing rods
  • Linoleum
  • Plastic wood
  • Soft contact lenses
  • Trash bags
  • Hand lotion
  • Shampoo
  • Shaving cream
  • Footballs
  • Paint brushes
  • Balloons
  • Fan belts
  • Umbrellas
  • Paint Rollers
  • Luggage
  • Antifreeze
  • Model cars
  • Floor wax
  • Sports car bodies
  • Tires
  • Dish washing liquids
  • Unbreakable dishes
  • Toothbrushes
  • Toothpaste
  • Combs
  • Tents
  • Hair curlers
  • Lipstick
  • Ice cube trays
  • Electric blankets
  • Tennis rackets
  • Drinking cups
  • House paint
  • Roller skates wheels
  • Guitar strings
  • Ammonia
  • Eyeglasses
  • Ice chests
  • Life jackets
  • TV cabinets
  • Car battery cases
  • Insect repellent
  • Refrigerants
  • Typewriter ribbons
  • Cold cream
  • Glycerin
  • Plywood adhesive
  • Cameras
  • Anesthetics
  • Artificial turf
  • Artificial Limbs
  • Bandages
  • Boats
  • Nail polish
  • Golf bags
  • Caulking
  • Tape recorders
  • Curtains
  • Vitamin capsules
  • Dashboards
  • Putty
  • Percolators
  • Skis
  • Insecticides
  • Fishing lures
  • Perfumes
  • Shoe polish
  • Petroleum jelly
  • Faucet washers
  • Food preservatives
  • Antihistamines
  • Cortisone
  • Dyes
  • LP records
  • Solvents
  • Roofing
  • Dentures
  • Mops
  • Beach Umbrellas
  • Ballpoint pens

Are We Amazed Yet?

And this is only a partial list! There are literally thousands upon thousands of products that this society needs (i.e., dependent on) which are made from oil. These products are not things that we can just stop making. Many of these oil produced products are necessary for the safety and well-being of Americans! These hundreds of thousands of oil-based products are in turn produced by employees—millions and millions of employees! The American Petroleum Institute reports that 9.2 million people have a job because of oil—and only a small percentage of these jobs are jobs that deal with getting the oil out of the ground, moving the oil, or refining the oil. And these 9.2 million people who are employed because of oil do not include the millions who are benefactors of oil-based products. So even if we all drove electric cars, the demand for oil—to make the hundreds of thousands of products that come from oil—would still be great.

Does this administration even have a clue that literally hundreds of thousands, if not millions of jobs are dependent on oil? I don’t think so. Remember, most liberals have this low common-sense I.Q. issue. I don’t even believe our present President understands the consequences of eliminating oil from the American scene!

Simply switching over to new green jobs will not magically or mystically replace the petro-chemicals we need to produce the products above. We cannot drill for green jobs. We do not have zillions of gallons of some easily available, super-charged, green energy slime buried underground in planet earth that will put millions of people to work.

My point is: Even if we had the technology to design and produce 100% green cars and trucks, and 100% solar powered electrical plants which could provide for 100% of America’s energy needs—which we do not have—we would still need billions of gallons of oil to produce all the products made from petro-chemicals—which in turn produces millions of jobs!
Contrary to what many people may believe, America’s oil companies aren’t owned by a small group of wealthy investors.

  • Only 1.5 percent of industry shares are owned by corporate management. The rest is owned by tens of millions of Americans.
  • 55 million U.S. households with mutual funds and 45 million personal retirement accounts are likely to invest in oil and natural gas stocks.
  • Since 2000 the industry has invested $1.7 trillion in U.S. capital projects to advance all forms of energy, including alternatives, and reduce the industry’s environmental impact.
  • Between 2000 and 2008, the industry invested more than $58 billion in new low and zero carbon emissions technologies.

So as you can see above, the investment in oil is not only practically good, it is economically good for those millions of citizens who invest in oil.
Could we find alternate ways to produce all the products that come from oil? Maybe, but it would take many years and cost many jobs to take that step of faith. Will there be a day when we won’t need oil at all? I don’t believe so. Oil is an amazing product! Simply looking—really looking—at all the stuff that is made from oil should amaze anyone. I don’t believe oil got here by accident. (P.S. I know oil did not come from “Mother Earth.”) I believe the same Creator God who made us in His image, created oil for us. He knew there would be a day when His created beings would get technologically smart enough to use this oil in ways that would even amaze anti-oil drilling liberals. We are not yet to the point in our technology or even everyday practicality where we can be without oil. I say it is a good thing there was oil there in the first place! Without the oil and the by-products of oil I know my life would be much more difficult. I just cannot envision myself living in a cave.

So Mr. and Mrs. Ant-Oil Drilling Liberal, the next time you tell people that you believe America can do without oil, search your memory banks and recall the ‘lost’ information that you initially got from reading this article about the economic importance of oil. And the next time you throw out the some anti-oil gibberish at one of your liberal buddies ask him what he or she does for a living. The chances are pretty good that they are working at a job that is in some way dependent on oil. So as you worry about the possible effects of a possible oil spill affecting some far-away isolated Arctic Reindeer or a deep water shrimp, I would encourage you to worry more if millions of more Americans were unemployed. There is not much of a shrimp or Reindeer meat demand amongst poor people!

U.S. Manufacturing Strongest in the World – For Now

For decades Americans have been battered with messages around the demise of the United States manufacturing sector.  Some state concerns of too much of a shift to services, which is said to produce nothing.  Is goods manufacturing really fading in the U.S.?

IHS Global Insight, an economics consulting firm, has published a ranking of the manufacturing output of the leading economies, and to my surprise, the U.S. still manufactures more stuff than anyone else — $1.7 trillion in manufacturing value added in 2009, compared to $1.3 trillion from China.

Manufacturing as a percentage of GDP

The IHS report makes two assertions.  First that the American Manufacturing sector is in decline from the perspective of portion of GDP and total economic output.  And second, that China is increasing it’s economic output from  both of those perspectives.

In 2009, the United States economy was held up, in part, by $1.7 Trillion (with a T) in manufacturing output.  By comparison, China’s economy was supported by $1.3 Trillion in ouput.   What may be more important is to understand what percentage of the  Chinese economy is based on just building cute trinkets for Americans and Europeans to buy.

While manufacturing makes up only 25% of the U.S. economy, the Chinese economy is largely based upon non-technical manufacturing – raw materials and dolls, cups, trinkets and other junk.  According to Wikipedia:

Industry and construction account for 46.8% of China’s GDP. Around 8% of the total manufacturing output in the world comes from China itself.  Major industries include mining and ore processing; iron and steel; aluminium; coal; machinery; armaments; textiles and apparel; petroleum; cement; chemical; fertilizers; food processing; automobiles and other transportation equipment including rail cars and locomotives, ships, and aircraft; consumer products including footwear, toys, and electronics; telecommunications and information technology. China has become a preferred destination for the relocation of global manufacturing facilities. Its strength as an export platform has contributed to incomes and employment in China. The state-owned sector still accounts for about 30% of GDP.

Why is Chinese goods production so low-tech?  Perhaps it’s the lack of a mature service sector.  The same service sector that many bemoan within the U.S. economy.  A healthy service sector is absolutely required to produce highly complicated and technologically advanced goods.  Stryfoam cups and plastic dolls do not require the sophisticated machinery nor the complicated logistics required to produce a Caterpillar earth mover, jet aircraft or other advanced goods.  Where are the Chinese competitors to Caterpillar, Airbus and Boeing?  These high-tech goodies have far higher price points and margins than drink coasters and cheap pens.

There is also the problem of accurately understanding the Chinese economy.  True profits from up to 30% of the manufacturing sector are raked in by the government, not the private sector.  Considering the government control of the Yuan, how true are the numbers reported from State Owned Enterprises (SOE’s).

China will have to  build a highly-skilled service sector if it wants to compete with the U.S.  There is evidence that they too realize this.  The Chinese produced a three-step plan in the early 1980’s.  The first two steps were to increase GDP by several times.  The first step has been accomplished and the second is on track.  Step three is to increase per-capita income by 1950.  That will require more people to move into more complex manufacturing and services.

So while America is holding an advantage in the sophistication of our manufacturing, it appears China has a plan to build a competitive force in those areas as well.  But, for now, the United States does indeed still the manufacturing leader of the world.

Manufacturing Up as Factories Stop Cutting Inventories

As an almost total surprise, the Institute for Supply Management’s factory index(NAPMPMI:IND) rose to its highest level in three years.   The 55.7 level indicates stronger growth in manufacturing than any economists had predicted.  Most were looking for between 50 and 55.

The index is based on a survey of manufacturing executives.  Taken by itself, this index seems incredibly positive, but several questions arise when seeing such “growth”.  Unemployment is still edging up, expected to go to 9.9%-10.1% in this Friday’s numbers.  Consumer spending was just reported to have dropped by it’s largest margin in 9 months.  So if there are fewer consumers, and the consumers that do have money are spending much less of it, why would factory output go up?

Obviously, the index is a highly-subjective non-economic indicator of factory output so it’s difficult to know for sure if manufacturers are increasing production or simply slowing the rate at which they reduce their output.  If we assume that factories are truly making more goods, and we know fewer goods are being purchased, the only reasonable driver for this is inventory levels.

For several months, manufacturers have been idling factories and filling orders mainly from stockpiles in order to cut costs.  It would appear that by looking at the inventory index (now at 46.9%), manufacturers have stopped slashing their inventories and are now moving into a mode of sustaining their new lower levels of stock.  This would be more indicative of a sector of the economy that is not improving, but rather has adjusted itself to the new economic norm.

When hearing good or bad economic news, understanding the factors that cause the news is often more-important than the news itself.