I was doing some research on an acquisition target the other week. The target was a US based materials manufacturer that primarily served the industrial sector in the US. During my research I asked myself.....is US industry dying? You hear in the media that US manufacturing has been fleeing to lower cost countries like China. Well.....here's what I found on the OECD website. This graph is from data I compiled on manufacturing output by country as a percent of the total world output using constant US dollars to take out exchange rate noise. Unfortunately the data does not have Russia or many of the ex-Soviet Union satellite countries. So I can not share with you how Russia affected the balance of manufacturing in this analysis. You can interpret the data in many ways but the economic history goes something like this.... The US was the dominant producer of manufactured goods after the second World War. It makes sense....every factory in Europe and Japan was essentially bombed to rubble and China was still a feudalistic country. Germany probably started its ascent to manufacturing dominance after the war. Unfortunately the data goes back only to 1970 but my gut tells me Germany climbed up to or past the 15% we see in 1970. Japan's ascendancy started in the late 1970s (14% in 1978) and their peak was in 1991 at 19%. During that time US declined from 25% in 1978 to 21% in 1991. But ever since then the US economy has held its own with the same 21% of the world's output in 2009. One can argue Japan's growth had a direct impact on US manufacturing. It makes sense since a sizable portion of Japan's manufacturing growth was automotive related and that was around the time the US automotive industry started to show cracks in the facade. But one can say the same thing about Germany. Their manufacturing output sank from 14% to 11% during the same period. What's even more baffling to me is the relationship Germany and China had on the world economy after 1990. Its clear that Germany had their lunch taken from them since the 1970. They went from 14% in 1970 to 11% in 1991 to a measly 6% in 2009. China grew like a new born baby! Going from 1% in 1970 to 4% in 1991 ending up at 19% in 2009.
So what about the other BRIC countries....
Brazil: It might be growing in absolute terms but it doesn't look like the growth is in manufacturing. I guess I have another blog topic on my thoughts on why people are crazy about Brazil.
India: Probably the wrong type of analysis for India since much of the media about India has been about IT services.
Russia: I don't have the data but I have a feeling their money is coming from oil.
So I guess this is a long winded way of saying. China has probably help the US economy by providing cheap manufactured goods but have not taken the manufacturing from the US. Thoughts?
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