Friday, May 20, 2011

The Manufacturing Renaissance

On the day after Chrysler announced that it was repaying the U.S. Treasury $7.5 billion in debt, Paul Krugman wrote that manufacturing was making a comeback in America:

Crucially, the manufacturing trade deficit seems to be coming down. At this point, it’s only about half as large as a share of G.D.P. as it was at the peak of the housing bubble, and further improvements are in the pipeline. The Boston Consulting Group, which is now predicting a U.S. “manufacturing renaissance,” points to major U.S. firms like Caterpillar that once shifted production abroad but are now moving it back. At the same time, companies from other countries, especially European firms, are moving production to America.

And one potential disaster has been avoided: the U.S. auto industry, which many people were writing off just two years ago, has weathered the storm. In particular, General Motors has now had five consecutive profitable quarters.

America’s industrial heartland is now leading the economic recovery. In August 2009, Michigan had an unemployment rate of 14.1 percent, the highest in the nation. Today, that rate is down to 10.3 percent, still above the national average, but nonetheless a huge improvement.

Some worry about the decline of the American dollar. It's not without consequences for Canada. Our dollar is now worth more than the American dollar; therefore, our exports to the United States have become more expensive.

On the other hand, because of the North American Free Trade Agreement, the American and Canadian economies are joined at the hip. That is why, when President Obama rescued GM and Chrysler, the Canadian and Ontario governments joined in the bailout.

We are each others largest trading partners. When the United States does well, Canada does well. Both countries have a huge stake in an America which makes things.


janfromthebruce said...

But one needs to dig deeper to see that the manufacturing renaissance is being built with sweatshop labour - what wasn't revealed in your article - see Olive: America, the world’s sweatshop

So the renaissance is good for corporations, bad for workers unless union busting and cheap labour is in order of the day to make corps richer after the public already bailed them out!

Owen Gray said...

I take your point, Jan. Simply relocating manufacturing jobs to "right to work states" is not the answer.

Olive points to Henry Ford's decision to increase wages so his employees could buy his cars. Costco also understands the wisdom of sharing the wealth.

At least manufacturing is making a comeback. But, if decreasing corporate taxes becomes more important than increasing workers' wages, it will all be for naught.