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From The Editor

Manufacturing's Dilemma Just A Footnote

By James M. Borneman, Editor In Chief

R elax, N. Gregory Mankiw, chairman of the Council of Economic Advisers, has concluded: "The future of the US economy is bright. This is a testament to the institutions and policies that have unleashed the creativity of the American people and their spirit of entrepreneurship. History teaches that the forces of free markets are the bedrock of economic prosperity."

Or maybe, don't relax, because if you dig a little deeper into the "Economic Report of the President," you get a sense that the concerns of US manufacturing have been heard and tacitly ignored. Excerpts follow (emphasis added):
The Manufacturing Sector     
 Manufacturing was affected by the economic slowdown earlier, longer, and harder than other sectors of the economy and manufacturing employment losses have only recently begun to abate. The severity of the recent slowdown in manufacturing was largely due to prolonged weakness in business investment and exports, both of which are heavily tied to manufacturing.
Over the past several decades, the manufacturing sector has experienced substantial output growth, even while manufacturing employment has declined as a share of total employment. The manufacturing employment decline over the past half-century primarily reflects striking gains in productivity and increasing consumer demand for services compared to manufactured goods. International trade has played a relatively small role by comparison.

International Trade And Cooperation
The Administration has pursued, and will continue to pursue, an ambitious agenda of trade liberalization through negotiations at the global, regional, and bilateral levels.
Growing international demand for goods such as movies, pharmaceuticals, and recordings offers new opportunities for US exporters. A burgeoning trade in services provides an important outlet for US expertise in sectors such as banking, engineering, and higher education. The ability to buy less expensive goods and services from new producers has made household budgets go further, while the ability of firms to distribute their production around the world has cut costs and thus prices to consumers. The benefits from new forms of trade, such as in services, are no different from the benefits from traditional trade in goods. Outsourcing of professional services is a prominent example of a new type of trade. The gains from trade that take place over the Internet or telephone lines are no different than the gains from trade in physical goods transported by ship or plane. When a good or service is produced at lower cost in another country, it makes sense to import it rather than to produce it domestically. This allows the United States to devote its resources to more productive purposes.
Although openness to trade provides substantial benefits to nations as a whole, foreign competition can require adjustment on the part of some individuals, businesses, and industries. ...

Well ain't that a kick in the ... pants? It's interesting that Mankiw usually preaches comparative advantage, yet when it comes right down to it, trade is based on "low cost is king."

Manufacturing doesn't require adjustment, it simply demands US economic and trade policies based on fairness and enforcement. - And by the way, what exactly are more productive purposes?

March 2004