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The Looming Civil War In American Manufacturing

Bloomberg reports this morning that both Caterpillar and GE--two titans of the American manufacturing sector--are among the companies lobbying the Obama Administration not to place "buy American" provisions in its planned surplus package. Both companies are truly multinational--GE gets half of its profits overseas, while Cat gets 60 percent--and both would suffer if such provisions sparked a trade war.

But such provisions would also likely include planks requiring not just final products but some percentage of the parts that go into them to be made domestically, which would mean a double whammy for the likes of GE and Caterpillar. In today's networked, globalized supply chain, very few products are ever wholly made in one place, nor should they be; economic patriotism aside, there are simply some products that some countries make better than others, having specialized in, say, semiconductors or bearings long ago. And for complex products like jet engines and constuction equipment, the array of international input can be dazzling. As a result, we have the makings of a manufacturing civil war, in which rump industries like steel and semiconductors will face off against complex industries like construction equipment. Crazy times, eh?

--Clay Risen