China Manufacturing Edges out U.S. in Output, but is No Match for U.S. Productivity

China has become the world’s top manufacturing country by output, according to a study released last week by IHS Global Insight, a US-based economics consultancy (h/t Financial Times Article). Last year, China accounted for 19.8% of world manufacturing output, a fraction ahead of the United States’ 19.4%.

According to the Deborah Wince-Smith, chief executive of the Council on Competitiveness, a Washington-based business group, China’s ascendancy “shows the need for the U.S. to compete in the future not on the basis of commodity manufacturing, but on innovation and new kinds of services that are driven by production industries”.

As I pointed out in my post Made in the USA isn’t Dead, Just Different, Smith’s comments highlight the trend already taking place: US manufacturing is graduating on to higher value/higher skilled products such as aircraft, defense related equipment, space equipment, car parts, energy products, etc.

In fact, in 2007, for every $1 of value produced in China’s factories, American factories generate $2.50. Mark Killion, head of IHS’s world industry services, notes that the IHS report’s latest data indicates that manufacturing is far from bleak in the US, a fact that the media and policy makers often overlook:

The US has a huge productivity advantage in that it produced only slightly less than China’s manufacturing output in 2010 but with 11.5 million workers compared to the 100 million workers employed in the same sector in China.

The advantages of sourcing manufacturers in China versus sourcing manufacturers in the United States are quite distinct. A great many low-cost consumer products will continue to be made overseas, be it in China or other developing economies, as the low-skill/low-cost labor advantage is irrefutable. However, higher-value goods and industries requiring supply chains offering speed and flexibility will continue to find advantages here with U.S. factories.