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US Manufacturing and the Trade Deficit

By Matthew Yglesias  

"US Manufacturing and the Trade Deficit"

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Noam Scheiber has a response to my skepticism that there even is a US manufacturing “decline” that needs to be explained. He says that “In relative terms, though, the U.S. manufacturing sector has experienced a pretty steep decline.”

I’ll buy that. It’s also clearly true that relative to other major developed economies, we depend less on manufacturing and more on services:

manufacturing

He then goes on to link this to a point about the trade deficit which I’m not sure I buy. After all, if you look at the chart you’ll see that Japan is less industry-oriented than the European Union. Nevertheless, Japan clearly has a more export-oriented economy than the EU, which has consistently run a pretty close balance of imports and exports.*

In particular, it’s not totally clear to me that eliminating America’s trade deficit (or even merely eliminating its deficit in manufactured goods deficit) would entail us increasing our manufacturing output a great deal. After all, it’s not just that America as a whole buys more stuff than we make—individual households have been spending more than they earn. Bringing the whole thing into balance could easily just involve people buying less stuff on average.

* This is one reason why I think the tendency to lump Japan and Germany together as similar export-oriented economies somewhat misleading. These days, it’s probably better to think of Germany as an export-oriented region of a balanced continent-sized economy.

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