FAIRLY OR UNFAIRLY, President Obama gets blamed for economic disappointments on his watch. By the same token, he gets to crow when things go well — whether he deserves credit or not. So he was entitled on Wednesday to trumpet the fact that U.S. manufacturing employment grew by 334,000 jobs over the last two years — the strongest two-year growth since the late 1990s. That’s good news for Mr. Obama’s reelection campaign, for the people who got jobs — and for the country, which had been shedding manufacturing jobs even before the Great Recession.
But let’s put the celebration in context. U.S. manufacturing is hardly as weak as it is sometimes portrayed. In 2009, U.S. manufacturing output was equal to that of Germany, Italy, France, Russia, the United Kingdom, Brazil and Canada combined, according to the United Nations. In 2010, U.S. manufacturers produced nearly $1.8 trillion in goods (in constant 2005 dollars), about $100 billion more than China did.
Crucially, the United States managed that with only about a tenth as many workers as China employed; indeed, swift increases in output per worker are one big reason why this country lost 8 million factory jobs since manufacturing employment peaked at 19.6 million in mid-1979. That’s the price of competitiveness.
Of course, in many areas even the most productive U.S. firms could not beat China’s low wages. That has begun to change, as companies return production to the United States from China and other low-wage countries — a trend Mr. Obama labeled “insourcing.”
Again contrary to much rhetoric, “outsourcing,” painful as it was for U.S. workers, was not a nefarious corporate plot. Most of it was a rational response to market incentives, with benefits for businesses and consumers. As recent reports from the Boston Consulting Group show, the return of jobs to the United States from China is also due to market forces: specifically, China’s comparative rise in labor costs.
This may mean that “insourced” manufacturing jobs will not pay the high wages that U.S. factory hands enjoyed during the 1950s and 1960s. In fact, as BCG’s reports emphasized, the greatest competitive advantage for the United States against China belongs to lower-wage, right-to-work states in the South.
Still, the jobs are welcome. Mr. Obama claimed that his policies helped bring them back. His decision to aid and restructure General Motors and Chrysler preserved those companies and the U.S. plants of foreign carmakers too. However, the Federal Reserve’s ultra-low interest rates, and the cheaper dollar they engendered, probably did far more to improve the international competitiveness of U.S. products than, say, the administration’s National Export Initiative did.
The White House briefing paper that accompanied the “insourcing” event attributes much of the rebound in manufacturing to the boom in domestic natural gas production, made possible by new “fracking” technologies. The federal government didn’t do much specifically to promote fracking. Yet the process has dramatically cut the price of gas, a key industrial input, and led to spinoff employment in related industries. The White House notes that more of such development, appropriately regulated, could have “substantial” benefits to the U.S. economy. Even in a polarized Washington, everyone should be able to agree on that.