Domestic manufacturing grows, but so does trade deficit

We've written in the past about how the recent domestic energy boom is supporting the U.S. manufacturing industry. But is the sector growing enough to keep up with competition from foreign rivals?

According to a recent article in the Wall Street Journal, it is not entirely clear if this is the case. Despite some manufacturing growth, the U.S. trade deficit actually increased in the first half of this year from $354.64 billion to $371.59 billion. Though manufactured exports—excluding petroleum and coal—only rose by 0.8 percent, total imports rose by 3.3 percent.

Obviously, China is partially responsible for this increasing trade gap, as the country has continued to pursue policies that support manufacturing for export. But the news source adds that China is far from alone on the world stage. Germany, France and Italy are pursuing similar export policies, and the U.S. saw its trade gap with each country increase during the first half of the year.

Some economists are surprised by these gaps, arguing that lower energy costs in the U.S. should be a major benefit. For example, the news source found that German manufacturers pay about 2.4 times more for electricity than those in the U.S.

Wages are less of a problem as well. In the wake of the recession, U.S. wage earners have seen few gains, while workers in China are demanding much more than they used to. This should serve to make Chinese-made goods more expensive relative to U.S. made products.

The fact that these advantages have not yet narrowed the balance of trade suggests that more must be done. Policymakers must push forward initiatives that will support CNC machine shops and other facilities that will help improve domestic manufacturing efficiency,