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News : US Economy Last Updated: Aug 24, 2010 - 4:49:58 PM

US may concede its 1890 crown as the world's top manufacturer to China in 2013/14
By Michael Hennigan, Founder and Editor of Finfacts
Jun 22, 2010 - 4:39:44 AM

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The US may concede its 1890 crown as the world's top manufacturer to China in 2013/14 according to a report issued on Monday.

“Other than growth trends, the main factor causing the size of China's manufacturing sector to rise to the levels of the US, despite a big difference in the relative size of GDP, is that China has an unusually large share of manufacturing in GDP, when compared to other countries, indeed the highest share of any major economy in the world,” US consultancy IHS Global Insights says in the report (no online link).

The US manufacturing sector accounts for 13 % of GDP (gross domestic product or economic output) compared with 34% in China, South Korea's 29% manufacturing share of GDP, Germany's 24% and the UK's share at 14%. While China's manufacturing is estimated to have expanded by 14% in “real” inflation-adjusted terms over 2007-2009 and 21% in nominal US dollar terms, there was a fall of 8.2% in the US manufacturing sector over that period of recession. In value terms, US value added in 2009 was $1.7trn compared to $1.3trn in China.

“A turnaround in US manufacturing output by now has already begun, starting in late 2009 and continuing through the early months of 2010, so the recessionary trends of 2008-09 for the US manufacturing sector should not be extrapolated into the future,” the IHS report said.

IHS also says the strengthening of the Chinese yuan currency compared to the US dollar over the coming years will magnify the growth rates in dollar terms.

China's manufacturing base is skewed towards a dependency on cheaper goods in such sectors as textiles, apparel, appliances, as well as certain commodities. Textile, apparel and appliances together make up 25% of Chinese manufacturing, compared to 13% in the United States.

The US manufacturing base is dominated by sectors such as aircraft, special industrial machinery, medical and scientific equipment and media-related industries, including software.

China's electronics sector is dominated by foreign-owned firms.

The  UK was the world's sixth biggest manufacturer and it fell behind France with the gap between British and French output widening in 2009 to $26bn from $14bn in 2008.

According to the latest league table, Italy is in fifth position, with the US, China, Japan and Germany in the top four slots.

In the US, services overtook goods as the dominant sector in the economy in 1958 and now accounts for almost 70% of economic output.

Data from the US-China Business Council reveal how in nine years the amount of goods imported from China has tripled in size.

In 2000 the value of goods imported was at $100bn but by 2009 that figure was at $296bn. In comparison the US exported $69bn worth of goods to China.

Table 1: China's Trade with the United States ($ billion)
Notes: US exports reported on FOB basis; imports on a general customs value, CIF basis
Source: US International Trade Commission
  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
US exports 16.3 19.2 22.1 28.4 34.7 41.8 55.2 65.2 71.5 69.6
% change 24.4 18.3 15.1 28.5 22.2 20.6 32.1 18.1 9.5 -2.6
US imports 100.0 102.3 125.2 152.4 196.7 243.5 287.8 321.5 337.8 296.4
% change 22.3 2.2 22.4 21.7 29.1 23.8 18.2 11.7 5.1 -12.3
Total 116.3 121.5 147.3 180.8 231.4 285.3 343 386.7 409.2 366.0
% change 22.6 21.4 21.2 22.8 28 23.3 20.2 12.7 5.8 -10.6
US balance -83.7 -83.0 -103.1 -124.0 -162.0 -201.6 -232.5 -256.3 -266.3 -226.8

Leif Johansson, the head of the European Roundtable of Industrialists (ERT) and also chief executive of truckmaker Volvo, told the Financial Times that many European countries, led by Germany, are suffering from acute shortages of engineers as fewer and fewer young people enroll in technical studies. Germany alone lacks 30,000 engineers currently while China trains 400,000 each year.

He criticised the notion that Europe can live off knowledge only and keep research and development while letting manufacturing drift to lower-cost countries.

"There needs to be a political debate: how can we compete?

"It is a false model that we can live off knowledge and have manufacturing elsewhere. Over time manufacturing and R&D go hand in hand."

Scott Paul, executive director of the Alliance for American Manufacturing, says China accounts for 80% of the U.S.' trade deficit. He tells CNBC's Karen Tso and Bernard Lo that the U.S. has lost one-third of its manufacturing jobs since China joined the WTO:

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