MANUFACTURING'S IMPORTANCE MISSING FROM THE STATE OF THE UNION

Alan Tonelson
TradeAlert.org
Jan. 29, 2003

Of course, it was too much to expect President Bush to say the word 'manufacturing' in his State of the Union address Jan. 28 - much less to discuss this vital sector's mounting problems. After all, many of manufacturing's ills stem directly from the one-way, giveaway trade policies that the President has pushed so hard, and that he endorsed so enthusiastically during Bill Clinton's presidency.

But it remains remarkable that so many of the goals for America he set in the State of the Union speech seem completely unattainable without a strong, sustained rebound in manufacturing. How, for example, can the nation defend itself adequately without being the world's unquestioned leader in industry and technology? Doesn't this position enable America not only to defeat enemies on the battlefields of today, but to ensure victory in the conflicts of tomorrow? Judging by his State of the Union priorities, however, President Bush doesn't agree.

It stands to reason that by sustaining its manufacturing leadership, the United States can much more effectively control the militarily-relevant technologies received by rogue states (and their terrorist friends) through their normal peacetime commerce with other industrialized countries. For Washington would need to care much less about European and Japanese irresponsible commerce with the world's Iraqs and Libyas if it were clear that all these allies could sell was decidedly second-rate products and know-how. But judging by his State of the Union priorities, President Bush doesn't agree.

In addition, the President and all the rest of us want "an economy that grows fast enough to employ every man and woman who seeks a job." But won't one of the major sources of sound, long-term American growth continue to dry up if the United States keeps trading away its most productive economic sector - manufacturing? Again, judging by his State of the Union priorities, President Bush doesn't agree.

Another essential engine of growth - consumer spending - would seem set to falter as well if the nation's best-paying jobs are lost through ill-conceived trade policies, and on average these jobs are found in the manufacturing sector as well. But President Bush doesn't seem to agree.

It's true that the pay gap between manufactures and services has been narrowing in recent decades. But the reason is nothing to crow about: inflation adjusted manufacturing wages have simply been falling faster than inflation adjusted wages in services. So those believing that a consumer spending binge can continue indefinitely must believe that the world will continue to lend money indefinitely to ever more indebted Americans. And they are plainly ignoring the declining consumer confidence figures of recent months. Apparently President Bush agrees.

You'd think that as long as their pricing power and very survival are being undercut by predatory and penny-wage foreign competition, investor tax breaks won't induce many of America's most important companies - its manufacturing companies - to invest more and hire more workers. Nor does it seem plausible that anyone at home or abroad would buy stocks in such firms. For a dividend tax cut to be effective, you need the reality or genuine prospect of dividends. But having championed manufacturing-unfriendly trade policies for so long, it's clear that President Bush doesn't agree.

Some recent economic numbers show why these apparent Presidential views need some rethinking. In 2001, the last full year for which statistics are available, Americans' personal consumption expenditures rose by 2.5 percent after inflation. Government consumption and investment rose even faster - by 3.7 percent in real terms - while gross private investment sank by nearly 11 percent. But goods imports were down only 3.3 percent - from astronomical levels. And American industry wasn't making up for lost domestic sales overseas - its exports fell by 6 percent, nearly twice as fast. Because the consumer sector makes up about three-quarters of the entire economy, it all added up to a marked economic slowdown - real economic growth of a pathetic 0.3 percent and a much worse 5.1 percent nosedive in industrial production.

Americans didn't stop spending. But their spending on domestic products plummeted, meaning that domestic manufacturers had to cut production and fire workers, reduce wages and benefits, or some combination of both.

Now it could be that the President's apparent State of the Union priorities and the globalization-happy conventional economic wisdom of recent years are right - that manufacturing's importance is declining as the United States becomes a service economy, so the trade-induced manufacturing losses are no big deal. Maybe the United States really can be secure and prosperous during the 21st century without a large, diverse, world-class manufacturing sector. One thing that is certain - the President's trade policies are rapidly bringing the nation to the point where we'll find out.