Forget manufacturing, we’ve got marketing

Marketplace Staff May 30, 2006

Forget manufacturing, we’ve got marketing

Marketplace Staff May 30, 2006


SCOTT JAGOW: On one hand, it’s good for the global economy to see countries like Vietnam succeed. On the other hand, it’s a threat to the US economy. Or is it? Southeast Asia is close to signing a trade pact with the US. The treaty’s supposed to help Vietnam along and make it eligible to join the World Trade Organization. Commentator David Frum says the US should embrace, not fear, the Vietnams of the world.

DAVID FRUM: Products from Vietnam should be showing up at your local Wal-Mart soon. That’s good news for that country’s hard-pressed people. More trade means lower unemployment, higher incomes and, we can hope, ultimately greater political and religious freedom.

But for Americans working in manufacturing, Vietnam adds 85 million people to their list of potential competitors. And for Americans working in journalism, that has triggered another round of complaints and hand-wringing about globalization and trade deficits.

As we all know, America buys more manufactured goods abroad than it sells. In fact, the nation’s trade deficit in manufactures exceeds $600 billion — very nearly as much as the entire economy of Australia.

Now there’s a view out there that this amounts to an economic catastrophe. Many people believe that manufacturing is the basis of national wealth. A great nation, the theory continues, cannot survive on the basis of financing, insurance, marketing and services.

As a matter of fact, the US does continue to make things. Indeed, manufacturing’s share of the US economy has declined by at most a couple of percentage points from the middle 1950s.

But it’s equally true that this has become a very tough planet for manufacturers. One example: The glamorous iPod Nano, Apple’s gleaming new high-tech toy.

It contains about $90 worth of parts, and costs about $8 to assemble. The parts are manufactured and the assembly done in the Far East, by manufacturers who earn pennies on the dollar and face ever-declining prices.

Apple then retails the Nano for $200 and earns $100 from its design, marketing, and retail savvy. Which business would you rather be in?

Put it another way. The US economy grew at a 5.3% annualized pace in the second quarter of the year — faster than any other developed economy and five times as fast as the most manufacturing-intensive advanced economy, Italy.

And while the value of the dollar fluctuates in trading, and will sometimes go down as well as up, this idea you hear that foreigners will dump dollars the way they once dumped the Thai baht is a masochistic fantasy.

How much of your wealth would you like to store in Chinese currency its rulers manipulate? Or in a Euro that Italy may quit at any minute?

The US economy has problems, real problems: high and growing medical costs, a perverse tort system, shaky education. That’s a long enough list for any policy maker without tormenting ourselves with false fears.

Author David Frum is a resident fellow at the American Enterprise Institute.

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