The argument that opening up trade relations with China shifted a bunch of manufacturing there seems pretty plausible. I’m not sure why this isn’t consistent with a story where the US is moving up the value chain, especially given that most growth seems to be coming from high-tech manufacturing.
I’m not sure how to interpret the slowed productivity growth. Naively, it seems like evidence against this explanation (if the US loses less capital-intensive manufacturing first). We should expect that if the least productive US firms exit due to Chinese competition, average productivity should go up because of this.
On the other hand I can make up explanations where we should expect this to cause slower measured productivity growth. Lower prices mean lower output (when measured in market value) and thus lower measured productivity, all else equal, so new competition from China could lower measured US productivity growth even if output measured in widgets produced per unit of labor or capital invested stays the same. If US manufacturers are slow to exit, this can lead to slowed productivity growth, as the incentive to raise output via investing in process improvements or new equipment declines in relevant areas of manufacturing.
My argument had been that if we were moving up the value chain successfully we’d see higher productivity, and we don’t.
My intuition is that something to do with knowledge/skill/synergy goes away if you move too much manufacturing away, which makes the manufacturing that remains less productive. For example, there are efficiency gains from having factories close to suppliers; if the parts manufacturers move to China, then the auto manufacturers in the US don’t get to have the same tight feedback loops with them, and so become less productive per worker and per dollar of capital, because the benefits of proximity don’t show up in either of those categories.
In autos, at least, we look worse when you measure “number of widgets” than when you measure dollar value. The total number of cars produced in the US has actually decreased. The peak was in 1978.
(I seem to recall that the US boosted sales by switching to SUVs, which were more expensive per unit.)
The argument that opening up trade relations with China shifted a bunch of manufacturing there seems pretty plausible. I’m not sure why this isn’t consistent with a story where the US is moving up the value chain, especially given that most growth seems to be coming from high-tech manufacturing.
I’m not sure how to interpret the slowed productivity growth. Naively, it seems like evidence against this explanation (if the US loses less capital-intensive manufacturing first). We should expect that if the least productive US firms exit due to Chinese competition, average productivity should go up because of this.
On the other hand I can make up explanations where we should expect this to cause slower measured productivity growth. Lower prices mean lower output (when measured in market value) and thus lower measured productivity, all else equal, so new competition from China could lower measured US productivity growth even if output measured in widgets produced per unit of labor or capital invested stays the same. If US manufacturers are slow to exit, this can lead to slowed productivity growth, as the incentive to raise output via investing in process improvements or new equipment declines in relevant areas of manufacturing.
My argument had been that if we were moving up the value chain successfully we’d see higher productivity, and we don’t.
My intuition is that something to do with knowledge/skill/synergy goes away if you move too much manufacturing away, which makes the manufacturing that remains less productive. For example, there are efficiency gains from having factories close to suppliers; if the parts manufacturers move to China, then the auto manufacturers in the US don’t get to have the same tight feedback loops with them, and so become less productive per worker and per dollar of capital, because the benefits of proximity don’t show up in either of those categories.
In autos, at least, we look worse when you measure “number of widgets” than when you measure dollar value. The total number of cars produced in the US has actually decreased. The peak was in 1978.
(I seem to recall that the US boosted sales by switching to SUVs, which were more expensive per unit.)