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Who's The World's Biggest Manufacturer?

We are, and by a large margin. But, according to this Journal piece, the recession has accelerated our decline--relative to China in particular:

In 2007, the latest year for which data are available, the U.S. accounted for 20% of global manufacturing; China was 12%.

The gap, though, is closing rapidly. According to IHS/Global Insight, an economic-forecasting firm in Lexington, Mass., China will produce more in terms of real value-added by 2015. Using value-added as a measure avoids the problem of double-counting by tallying the value created at each step of an extended production process.

As recently as two years ago, Global Insight's estimate was that China would surpass the U.S. as the world's top manufacturer by 2020. Last year, it pulled the date forward to 2016 or 2017.

"The recent deep recession in U.S. manufacturing does mean that China's catch-up is occurring a few years earlier than would have been the case if there had been no recession," says Nariman Behravesh, the group's chief economist.

There are actually two things going on here. One is that many domestic manufacturers are shrinking or going under  because sales and revenues are declining, while lower-cost producers in China are presumably better able to withstand the pressure. The other is that some domestic manufacturers are moving work to lower-cost locales (again, like China). This second trend is somewhat counterintuitive. You'd think the recession would be lowering costs (or at least moderating increases in the cost of labor and various inputs). But the Journal says some costs--like energy--are actually rising, making the offshoring calculus harder to resist. (Of course, even if costs were falling, it's not clear that they'd be falling fast enough to offset the drop in revenue, so maybe offshoring would make sense even then.)

--Noam Scheiber