News Release

June 21, 2001

Trade not to blame for manufacturing slump, says Cato scholar
Drop in domestic demand responsible for slowing output

WASHINGTON-While it's tempting to blame foreign competition for the recent decline in U.S. manufacturing output, "the cause of the recent slump in output is not a flood of imports or a 'giant sucking sound' of manufacturing investment moving overseas, but a slowdown in domestic demand," argued Daniel T. Griswold, associate director of Cato's Center for Trade Policy Studies, in testimony before the Senate Commerce, Science and Transportation Committee today.

"U.S. manufacturing has prospered during much of the past decade, a period not only of rising manufacturing output but also of rising imports and growing trade deficits," said Griswold. Despite the recent slump, "total output remains almost 50 percent above what it was in 1992, and remains near its record peak of last year. This is not the profile of a nation that is losing its manufacturing base," he argued.

Imports are not to blame for the recent downturn, Griswold argued. "In fact, the growth of real goods imports and manufacturing output tend to be positively correlated," he said. "An expanding economy raises demand both for imports and domestic production." In addition, "The predicted flight of capital to countries with lower costs and standards never materialized," Griswold said. "If there has been any giant sucking sound since 1993, it has been the rush of global capital to the safe and profitable haven of the United States." Finally, Griswold argued, "Technology, not trade, is the great job displacer in the U.S. economy. If members of Congress are determined to stop any loss of jobs in the manufacturing sector, you would have to legislate not against imports, but against the capital investment and technological advances that are fueling the gains in manufacturing productivity."

"An open and competitive U.S. economy has been a tonic for American industry," Griswold concluded. "International competition has spurred innovation, efficiency and customer satisfaction. The biggest winners have been American families, who benefit from the lower prices, greater variety, and higher quality of products that international competition makes available."

"Blame Domestic Slowdown, not Trade, for Manufacturing Slump"