Theres a Whole World Out There

Theres a Whole World Out There

Robert Brooks, Editor

The metalcasting industry will convene in Atlanta next month for its “most important North American trade show,” but that description is deceptive. It will be a global trade event. Visitors will come from Europe, Asia, and South America. More important, many, if not most, of the companies presenting products and services there will be divisions or subsidiaries, or partners, or licensees, of some foreign or multinational corporation.

These facts are all a bit mundane, but they remind us that the globalization of manufacturing is a long-established fact. And yet, in recent months we have been drawn into a strangely retrograde discussion about domestic manufacturing’s waning global competitiveness, and the imperative to actively reverse that trend.

This discussion is all about politics, of course, and only nominally about manufacturing. None of the recommendations pushed by adherents of this point of view make much sense in any way that can be considered constructive toward the goal of strengthening domestic manufacturing.

Let’s go back to September of last year, when the long-running trend of U.S. trade deficits finally collided with the long-running trend of high-volume U.S. consumer spending, leading to a predictable realization that there was not enough capital in the financial markets for stocks to remain profitable. In short, we ran out of money to pay our debts.

With inflation effectively outlawed by Federal Reserve policies, there was no avoiding a decline in U.S. currency values. That’s not a great achievement, nor a result that our Treasury officials should accept, but in a global economy it’s not the worst situation to be in. In fact, for some domestic manufacturers, it presents real advantages.

U.S. manufacturers have spent decades paring costs and maximizing process efficiencies, so the low-value dollar is an opening to new global competitiveness. The total U.S. trade deficit fell 6.8% in 2007, from $758.52 billion to $711.61 billion, and total exports grew at a double-digit pace, 12.18%, to $1.162 trillion. Also, imports fell, indicating the additional benefit of greater domestic marketshare for domestic companies.

The impact for metalcasters is notable, for example those serving markets like mining, energy, construction, and agriculture segments, all of which are enjoying sustained growth in multiple foreign markets.

Currency devaluation is also good for metalcasters serving domestic markets and industries whose export potential is enhanced by lower export costs — automobiles, for example. General Motors is planning to increase exports of U.S.- built vehicles to Europe, China, and Latin America; Chrysler is shifting production from Europe to the U.S.; and Ford Motor Co. has conditional plans to increase exports — all of this because of the new advantage domestic manufacturers have thanks to a lower-value dollar.

If manufacturing were not globalized already, there might still have been a cash-short market, and all the financial and consumer woes that follow, but there would be virtually no opportunity to remedy the situation by accessing foreign customers and their fresh capital. In short, there is much to be gained by engaging fully in a global market, and much to be lost by instituting trade barriers, incentifying domestic purchases, and penalizing foreign investments.

So, it is confounding that so many advocates for U.S. manufacturing believe they can improve the segment’s fortunes by blocking new free-trade agreements, or (as some threaten) rescinding agreements now in place.

You’d be right to suppose labor is behind much of this free-trade opposition, though some management and ownership interests also think they can reestablish the stable, high-wage, highemployment conditions of past decades.

The truth isn’t just that the global market is already established, but that it is shifting and changing in sudden dramatic ways.

The currency advantage is an opening, not a solution. Manufacturers that keep costs competitive, product quality high, and services creative can thrive in the world, but they can’t ignore it.

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