#265. China’s Emergence as a Manufacturing Juggernaut: Is It Overstated?

Posted on | The Agurban

Last week our Agurban included a post by Dave Forest, who talked about American exports, and the niche that America may hold as the economy begins to recover. This week we want to share with you some statistics about American exports, especially compared to China.

In a recent report,Ā “China’s Emergence as a Manufacturing Juggernaut: Is It Overstated?”, written by Kei-Mu Yi and Behzad Kianian, members of the Research Department of the Philadelphia Fed, the authors look to put China’s manufacturing performance into a broader context.

China’s rapid economic development has gone hand-in-hand with extraordinary growth in manufacturing, with their share of the world’s manufacturing value-added increasing from 2.8 percent in 1991 to 9.9 percent in 2005. The United States remains the world’s largest producer of manufactured goods. However, the data does suggest that China will surpass the United States this year.

According to the authors, countries go through a “structural transformation” as they develop, in which large numbers of workers leave the agricultural sector and the share of agriculture in GDP (gross domestic product) falls. In addition, the service sector grows as a share of total employment and GDP, and the manufacturing sector typically increases in importance during the high growth years, but then falls when the economy matures.

For example, in the United States, manufacturer’s share in GDP has fallen steadily during the post-World War II period. In Japan, the manufacturing share of GDP peaked in the early 1970’s and has fallen steadily since then. It is likely that as China’s per capita income and wages rise to developed-country status, manufacturing will decrease in importance.

Our conclusion is this: In 1980 the USA exported $144 billion of manufactured goods. In 2005, the last year we can find data, the USA exported over $700 billion. So even though our share of the world pie fell from 13% to 10%, our overall exports increased greatly. If we can continue to grow the world markets, it won’t matter if our percentage continues to fall, as our sales will continue to increase and everyone wins. John Kennedy once said, “A rising tide lifts all boats,” which is probably applicable in this case.