Who’s Ahead in Global Manufacturing Exports?

As part of this trend, we see deteriorating manufacturing employment in nations like the United States, Germany and Japan — while the number of manufacturing jobs in such places as Mexico, Poland and China expands rapidly.

The Middle Kingdom, make no doubt about it, has emerged as a manufacturing powerhouse. And, led by China, the developing nations’ share of global manufactured exports has never been higher.

Before relegating manufacturing activities in the United States and other developed nations to the dustbin, we decided to take a closer look at global trade in manufactured exports to determine just where the developed nations stacked up relative to the developing nations.

We analyzed more than two decades worth of trade data from the World Trade Organization regarding global manufacturing exports.

The developed nations — not the developing nations — account for the bulk of global manufactured exports.

Not all manufacturing facilities in the developed nations have been shuttered. To the contrary, the developed nations are large exporters of manufactured goods, accounting for approximately two-thirds of total global manufactured exports in 2003.

Among the developed nations, the European Union accounts for the greatest of share of global manufactured exports — 43.4% in 2003. This large share reflects extensive cross-border production networks across Europe, which in turn promotes trade in manufactured goods.

Belgium, of all nations, posted the fastest level of growth in manufactured exports in the world during the years spanning 1990 through 2003.

The developing nations’ share of global manufacturing exports is rising and will continue to increase. Manufactured exports from the developing nations have soared over the past decade, with the developing nations’ share of global exports rising from 20% in 1990 to roughly 35% in 2003.

Over this same time span, manufactured exports from the developing nations grew by 11.1% annually — versus 5.1% growth from the developed nations.

Strong manufactured export growth from the developing nations reflects a variety of factors: an expanding pool of skilled labor, improving infrastructure and above all else, stronger production linkages between the developing nations and the world’s leading multinational companies.

The United States is one of the world’s leading exporters of manufactured goods. There is a growing consensus in the United States that America’s manufacturing base is withering in the face of global competition.

This perspective, however, does not square with reality, as the United States remains among the largest exporters of manufactured goods in the world. In 2003, for instance, U.S. manufactured exports totaled $587 billion.

The figure represents 10.8% of the global total and was some 48% larger than total manufactured exports from China in the same year. Only Germany exported more manufactured goods than the United States in 2003.

As a percentage of world manufactured exports, Japan, Germany and the European Union, in general, have lost greater global shares than the United States over the past few decades.

For all the hand wringing in the United States and fears that American manufacturers are uncompetitive in the global markets, America’s share of world manufactured exports has declined only modestly over the past quarter century.

Indeed, between 1980 and 2003, the U.S. share of world manufactured exports fell just 2.2 percentage points, from 13% in 1980 to 10.8% in 2003. Larger declines were posted in Japan (3.1 points), Germany (3.4 points) and the European Union (7.3 points).

If any developed nations are falling behind in terms of global manufactured exports, they are Germany and Japan, whose manufactured exports grew by 3.9% and 3.7%, respectively, on an annualized basis between 1990 and 2003. The comparable growth rate for U.S. manufactured exports was 5.6%.

In 1980, manufactured exports from China totaled just $8.7 billion and accounted for less than 1% of the global total. Just over two decades later, China accounted for more than 7% of the global total, as manufactured exports from China reached $397 billion in 2003.

That said, however, it is important to note that a large share — roughly half — of manufactured exports from China are shipped by foreign affiliates, not by indigenous Chinese firms.

Not only has China’s manufacturing growth impacted the global competitiveness of the developed nations, China has also displaced many of its peers in the developing world. In fact, between 1990 and 2003, China alone accounted for 25% of the growth in manufactured exports from the developing nations.

Strip China out, and the global share of manufactured exports from the developing nations has actually fallen from 28.0% in 2000 to 27.4% in 2003.

The bottom line is that there is plenty of life left in manufactured exports from the United States and other developed nations. While global trade in manufactured exports is indeed tilting toward the developing nations, we believe this trend should be kept in perspective.

A closer examination of the data reveals that the United States remains a formidable exporter of manufactured goods, which stands contrary to the prevailing view held by many investors that U.S. manufacturers are doomed in the face of increased competition from China and India.

The manufacturing capabilities of Asia’s emerging giants are certainly impressive, but let’s not assume that U.S. manufacturers — as with other developed economies — are about to roll over and play dead.

If anything, our hunch is that increased competition from the developing nations will force U.S. manufacturers to become stronger, not weaker. Stay tuned.