Monday, April 13, 2015

China Trade Decline Points to Changing Role of Manufacturing

A surprising 15 percent decline in exports from China and a similar decline in imports has analysts rethinking the conventional thinking that says manufacturing can only increase. The broader trends are still relatively rosy, with 7 percent annual growth in output expected, but that pace of growth cannot hold up in the long run if manufacturing is no longer booming.

Manufactured goods continue to occupy a prominent place in everyday life, but manufacturing can retreat in other ways, as products become more durable, versatile, mobile, and efficient. For example, if phones last for four years instead of just one, while at the same time becoming 20 percent smaller, that translates to an 80 percent decline in manufacturing for that category. The textiles category is declining with clothing increasingly seen as a durable good. With improved portability, a single machine can be put to work in more places. Increased recycling reduces the demand for new base materials such as paper and aluminum, while better repair techniques delay replacements for cars, printers, and other machines. None of these trends take away from the prominence of manufactured products, but they reduce the amount of manufacturing work.

The conventional view is that the rapid expansion of the global middle class during the first half of this century will lead to a corresponding increase in manufacturing, but if that were the case, activity in the largest manufacturing country should only be going up. A pair of metrics that say there is a 15 percent decline tell us there must be a flaw in this view.