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.