Trade gap aside, a lot still 'made in USA'

The housewares on sale at Crate & Barrel, like those at most stores these days, represent a global bazaar: the cutting board from China, ceramic cups from Japan, a raffia magazine holder from the Philippines. Consumers would be forgiven for wondering, is anything "Made in the USA" anymore?

News of a record $726 billion US trade deficit and of shrinking domestic automakers adds urgency to the question.

But a closer look at American manufacturing reveals not only decline, but also a remarkable resilience. Although the United States can no longer claim to be the peerless production colossus of a half-century ago, the nation is actually making more goods, in dollar value, than ever before.

The issue is not so much whether America will retain a manufacturing base as how successful it will be in a world of increasingly sophisticated competitors.

Rising to that challenge will be a formidable task, as President Bush suggested recently when he outlined a "competitiveness initiative" during his State of the Union address. But America is hardly out of the game.

"Certain parts of the base are disappearing," and employment is falling across the board in manufacturing, says Robert Lawrence, an economist at Harvard University. But "it doesn't mean we can no longer produce the products.... We've had very robust productivity growth in manufacturing."

In general terms, the production of consumer goods - often relatively low-tech work in which profits can be tied heavily to labor costs - has been shifting overseas. Textiles, shoes, and those raffia magazine holders are examples. US producers have focused increasingly on higher-end industrial goods, from aircraft to heavy machinery.

Personal computers flow in from Chinese assembly plants, but their highest-value component - the microprocessor - often comes from a US factory.

Although America imports far more consumer goods than it exports, trade in industrial goods is roughly in balance, says Catherine Mann of the Institute for International Economics in Washington.

And the US still makes potato chips as well as computer chips. As long as production is reasonably automated, traditional industries such as wood products, food processing, and chemicals have remained healthy. At Crate and Barrel, made-in-the-US cast-iron skillets sit side by side with competing cookware from Asia and Europe.

Goods producers, in short, have held their own even in an economy where the job growth is in services. Thanks to gains in efficiency, manufacturing output has grown nearly as fast as the overall economy since 1977, after adjustments for inflation.

Over the past decade, US output has been buoyed by productivity gains that have outpaced rivals such as Japan and Germany. The flip side of that is that employment has plunged, and the gains in productivity have been driven by intensifying global competition that squeezes profits for many companies.

For all the dire news out of Detroit in recent months, with General Motors and Ford announcing plant closures and benefit cuts, the auto industry is not alone in its challenges. Employment in auto manufacturing fell 5.5 percent between 1990 and 2004, according to the Census Bureau. But the job decline was even steeper - 19 percent - for all US manufacturers. Just since 2000, America has lost 27 percent of its workforce in computers and electronics.

And operating profits, as a percentage of total sales, have been lower this decade than in the 1990s, according to Census data. "The overwhelming majority [of US manufacturing industries] have lost market share to foreign competition," says Alan Tonelson of the US Business and Industry Council, which represents mainly small and mid-size manufacturers.

While many industrial managers are upbeat about generally strong conditions today, they are also concerned about their ability to make the investments needed to remain competitive in the future, he says.

The issue matters well beyond shop floors. Each dollar of manufacturing sends wider ripples - additional goods and services bought - through the economy than does any other sector, according to the Council of Manufacturing Associations.

Although the economy is increasingly service oriented, many services are linked closely with the delivery, maintenance, and use of goods.

"We need to change our view of manufacturing, so that it encompasses ... all the other elements of the manufacturing value chain," says Richard Lester, an industrial expert at the Massachusetts Institute of Technology in Cambridge.

If exports someday must move toward balance with imports - an event many economists say is likely - manufacturing will have a key role to play. Exports of services remain too small to carry that load.