The Economy

China Poised To Pass U.S. In Manufactured Goods Exports

March 27, 2006

Shift to higher tech is troubling. What should the U.S. do?

Trade and currency discussions in Washington, D.C., next month between U.S. President George W. Bush and Chinese President Hu Jintao carry a new sense of urgency.

After pulling even with the U.S. last year in manufactured exports, China, whose symbol is the red dragon, this year "will almost certainly" surpass the U.S. to become the world's number one exporter of manufactured goods, says Ernest H. Preeg, the senior fellow in trade and productivity at the Manufacturers Alliance, an Arlington, Va.-based business and public policy research group.

According to Preeg's calculations, China exported $713 billion worth of manufactured goods in 2005, a catalog that predictably included such low-tech products as footwear and textiles and apparel, but more importantly also featured higher-tech goods such as office equipment and telecommunications equipment. Indeed, among China's six largest manufacturing export sectors in 2005, export growth among higher-tech goods -- which included electrical machinery, non-electronics machinery and chemicals in addition to office and telecommunications equipment - -was greater in percentage terms than for textiles and apparel. Exports of textiles and apparel grew 21% to $115.3 billion while export growth ranged from 26% to 29% among higher-tech goods; exports of higher-tech goods totaled $360 billion. "The picture that emerges is a global competition in trade in manufactures dominated by the EU, China, and the U.S., with Japan in a strong fourth position, followed by South Korea, and with [these] 'big five' together accounting for two-thirds of global exports of manufactures."

However, while China ran a global trade surplus in manufactured goods of $201 billion last year, the U.S. posted a troubling $662 billion trade deficit in manufactured goods. "For the U.S., a $700 billion deficit equates roughly to 50% of the value-added in the U.S. manufacturing sector," says Preeg. "In other words, if U.S. trade in manufacturers were in balance, manufacturing output, other things being equal, would be 50% higher and U.S. employment in manufactures would be up by about 6 million."

What can the U.S. do? The Bush Administration's American Competitiveness Initiative, which envisions more public funding of R&D and advanced training for engineers and scientists, will not be sufficient for the U.S. to retain its leadership technological innovation and development, believes Preeg.

The U.S. policy response, he contends, must also include pressuring China to revalue its currency, the yuan; pursuing full implementation of the commitments, including comprehensive action against piracy of U.S. intellectual property, that China made when joining the World Trade Organization five years ago; and increasing the rate of savings in the U.S. Substantial revaluation of the yuan could begin with a 10% to 20% increase this year, "followed by further revaluations in 2007 and beyond until a convertible, market-based exchange rate was achieved," posits Preeg.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.