Thriving U.S. Manufacturing Sector Needs No Protection from Congress

August 28, 2007

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WASHINGTON — Protectionist measures currently being considered on Capitol Hill would damage America’s manufacturing base and fail to take into account that the nation’s manufacturing sector far from ailing is in fact booming, according to a new study released today by the Cato Institute.

“The year 2006 was a record year for output, revenues, profits rates, and return on investment in the manufacturing sector,” according to the study “Thriving in a Global Economy—The Truth about U.S. Manufacturing and Trade” by Daniel Ikenson, associate director of Cato’s Center for Trade Policy Studies.

“Despite all the stories about the erosion of U.S. manufacturing primacy, the United States remains the world’s most prolific manufacturer—producing two and a half times more output than those vaunted Chinese factories in 2006.”

Rhetoric to the contrary, much of which emerges from Capitol Hill, is based on outdated facts from the 2002 manufacturing recession as “political action tends to lag behind economic or social circumstances,” explains Ikenson.

In fact, “In the first six months of the 110th Congress, more than a dozen antagonistic or protectionist trade-related bills have been introduced, which rely on the presumed precariousness of U.S. manufacturing as justification for the legislation,” writes Ikenson.

“Justification for those bills is predicated on the belief that manufacturing is in decline and that the failure of U.S. trade policy to address unfair competition is to blame.”

Not only are these facts erroneous, the policies they inspire can be greatly detrimental to the very sector they are trying to protect.

Among the arguments made by legislators who promote protectionist bills is that trade barriers need to be erected to preserve this sector. Ikenson’s paper shows that the opposite is true as imports and manufacturing performance are highly correlated.

“Trade is an important part of [the manufacturing industry’s] success story: greater access to raw materials and components has helped control costs of production, while greater access to foreign markets has been crucial to surging sales revenues,” says Ikenson.

Despite the overall boom, the study recognizes that there are a few industries within the manufacturing sector that are floundering—mostly those that are more labor intensive and require lower–skilled workers.

“But those data are not evidence of a declining manufacturing sector or unfair trade competition,” says Ikenson. “At most, they shed light on a sector that is in transition. And during that transition, some phenomenal operating results have been registered.”