The Realities of Global Trade

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The Realities of Global Trade

In many circles, there is a widespread belief that globalization has destroyed U.S. manufacturing and that unfair foreign competition has eaten away at the domestic market share of American companies.

In our analysis of the trend We Can Reignite America's Manufacturing Engine, we identified five factors or levers that can be used to reignite the engine of U.S. manufacturing. Those factors are:

  1. Exploiting our close proximity to huge markets.
  2. Leveraging our unique understanding of those markets.
  3. Fully utilizing the capabilities of our state-of-the-art technology.
  4. Making use of the proven superiority of American management.
  5. Taking strategic advantage of the shrinking gap in U.S. labor costs relative to China

Fortunately, in the most strategic industries, leveraging these factors can still propel the U.S. back to its position as the world leader in manufacturing.

In fact, the real reason why U.S. manufacturing has lost ground to foreign competitors hasn't been globalization; instead, the problem has been the failure to quickly and fully exploit the five advantages. When their potential is unleashed, globalization will be seen by American manufacturers as an opportunity rather than a threat.

"Made in China", Bought in the U.S.

"Made in China", Bought in the U.S.

This conclusion is supported by several research studies, such as a recent report from the Federal Reserve Bank of San Francisco that reveals how U.S. consumers spent their money in 2010:1

  • 81.9 percent was spent on goods made in the U.S. from U.S. parts.
  • Just 13.9 percent was spent on imported goods. This includes both final goods, and the foreign parts imported to be made into products the U.S.
  • The remaining 4.2 percent of U.S. consumer spending was on U.S. content, which is added to goods made in other countries.

These numbers tell us that in spite of all the talk of globalization, our economy is, in reality, still relatively closed. Considering how much we spend locally on goods and services such as groceries, gasoline, dry cleaners, accountants, mechanics, manicurists, and so forth, the figure of 81.9 percent for domestic spending is understandable...

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