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The Competitive Edge -- The Trillion-Dollar Club and the Health of U.S. Manufacturing

The United States must take steps now to participate in the high-growth promise of these emerging economies.

The Peterson Institute for International Economics (IIE) has taken to calling six large emerging economies the "Trillion-Dollar Club," as all have, at least before the current recession, passed this threshold in national output. This group of nations -- to which I would add the Association of Southeast Asian Nations, or ASEAN -- is crucial to near-term global economic recovery, to the long-term health of the global economy, and especially to U.S. manufacturing.

Together, ASEAN plus the six -- China, Russia, India, Brazil, Mexico, and South Korea -- account for about 20% of world GDP. Emerging markets grew at an 8.3% rate in 2007, compared with 2.7% for the advanced economies. In contrast to the financial crisis of 1997 when many emerging markets were at the epicenter of the crisis, most of these countries have shown relative stability in the current recession -- in large part due to the lessons they learned in 1997.

Indeed, they could well help lead the world out of the 2008-2009 downturn. China especially has a robust stimulus plan in effect which IIE's Nick Lardy estimates will lead to a bottom in that country's slowdown this spring and a return to as much as 9% growth in the second half of 2009. India, Korea, and Brazil all have withstood the worst of the downturn and, together with ASEAN, could recover quickly if the massive stimulus in the United States and China manages to turn these economies around.

As we look beyond the debilitating recession still plaguing us, the six plus ASEAN will be a prime pillar of growth. The collective GDP of this somewhat artificial grouping is large enough to be an "engine of growth," has a higher potential growth rate than the debt-ridden and consumption-saturated industrial countries, and so is likely to be the primary focus of increased demand for manufactured goods once global recovery begins.

To take advantage of the growth opportunities, however, U.S. manufacturers will have to regain lost market shares both domestically and, especially, in Asia. About 30% of U.S. exports went to this grouping in 2008, but only 18% if free-trade partner Mexico is excluded.

Moreover, we have lost market share in the vital Asian region, primarily to China. Between 2000 and 2008, China increased its exports to other Asian destinations by 400%, while we saw an increase of only 19%. China now has more than twice the U.S. market share in Asia, the fastest-growing and most populous region in the world.

Several steps are needed to promote U.S. competitiveness in these markets. China, Korea, Japan and ASEAN have been aggressive in recent years in building a web of free-trade agreements (FTAs) spanning most of Asia. India is now negotiating entry into this network. At a minimum, the United States will have to find a way to join this free-trade network, or risk losing even more market share. A vital first step is ratifying the U.S-Korea FTA. Our trade with FTA partners is largely in balance.

Additionally, we will have to find a global path to rebalance the undervalued Asian currencies, an action which also will contribute to global economic stability in the coming decades and, hopefully, accelerate consumption growth in Asia.

Finally, in terms of domestic policy, the United States cannot keep undermining the competitiveness of manufacturers by raising taxes, imposing ever tighter controls on the energy economy, and stifling innovation through tighter regulation of private firms.

Dr. Duesterberg is president and CEO of the Manufacturers Alliance/MAPI, an executive education and business research organization in Arlington, Va.

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