Sounds like things are looking up, no?
As I explained in detail in this article, upticks in American manufacturing output, or even the fact that manufacturing output is at record levels (as it is), do not prove we have a healthy manufacturing sector.
The reason is that the appropriate standard for how much manufacturing output America should have is not “more than yesterday,” which is what all the joy over reported increases implies.
If we don’t, we can only finance consumption by either a) selling of existing assets or b) going into debt. That’s what a trade deficit is.
This implies that if America runs a trade deficit in manufactured goods (we do, and it’s huge) and our exports of raw materials and services aren’t big enough to cover the gap (they aren’t), then our manufacturing output isn’t large enough.
Forget raw-materials exports saving us. That idea drowns in the ocean of foreign crude oil we suck in every year–which causes us to run a deficit, not a surplus, in this sector.
Granted, we could hypothetically export more soybeans to pay for our imports without loitering around the global pawn shop. But our agricultural exports are a tiny fraction of the size of our deficit, so that’s unlikely.
Our situation in services is a bit better, but our surplus in services is going down, not up, thanks to offshoring, which isn’t going away.
Therefore, it’s pretty much up to manufacturing to balance our trade, which gives us two choices: either export more Boeings and Caterpillars in return for all those Hyundais and BMWs, or produce more Fords and Chryslers here so we don’t need to import so many Hyundais and BMWs.
Either choice would requires more American manufacturing output, so no, our manufacturing output isn’t high enough.
And it certainly isn’t “red hot.”
Recently by Ian Fletcher:
We Can’t Just Compensate Free Trade’s Losers