The chart above shows manufacturing output as a share of GDP, for both the world and the U.S., using United Nations data for GDP and its components at current prices in U.S. dollars from 1970 to 2009. We hear all the time from Donald Trump and others about the “decline of U.S. manufacturing,” about how nothing is made here any more, and how everything that used to be made here is now made in China, etc. An underlying assumption here is that if the manufacturing base is shrinking in the U.S., there is an offsetting manufacturing gain that is captured elsewhere in the world. In reality, the decline in U.S. manufacturing as share of GDP is a really a global phenomenon as the entire world becomes increasingly a services-intensive economy.
This graph and data brings up an interesting question, if global manufacturing is dropping as a percentage of GDP worldwide, why has our economy been moving sideways over the last decade?
Part of the problem facing us is the issue of our economy sending $48.2 billion out of the country every month in the form of our trade deficit. And the biggest contributors to our trade deficit is oil.
And to lesser extent, other raw materials are contributing to our trade deficit. For example, steel.
Via the U.S. Commerce Dept.
U.S. imports of steel mill products have fluctuated in the past few years, while exports have remained relatively stable. The February 2011 steel trade deficit narrowed to -0.81 million metric tons, 15.5% less than the deficit in January 2011.
- Compared to the trade balance one year ago, the February 2011 steel trade deficit increased 31%.
- From January to February 2011, the volume of exports and imports decreased 10% and 13%, respectively.
- February 2011 exports are 6% more than February 2010 exports; February 2011 imports are 17% more than the level a year ago and 41% less than the most recent import peak of 2.8 million metric tons in October 2008.
Imagine if our government decided to get out-of-the-way (and remove all the onerous regulations) and let us retrieve our natural resources and began to export them to the world. Our economy would skyrocket rather than energy prices.
Returning back to the manufacturing graph, a lot of our economic problems are rooted in raw materials (mining, oil drilling, rare earth elements) rather than the old political saw that we don’t manufacture things here anymore.