Here’s a letter to Yahoo!Finance:
Editor:
Uncritically reporting on Michael Pettis’s recent plea for higher tariffs, Jason Ma quotes Pettis’s assertion that America today is “suffering from … a declining manufacturing share of GDP” (“It’s different now: Tariffs can boost U.S. jobs, wages, and the economy, finance professor says,” January 6).
Pettis is mistaken. For starters, there’s been no significant decline in manufacturing output as a share of U.S. GDP. From 1947 through 2015, as found by the St. Louis Fed, U.S. manufacturing as a share of GDP was quite steady. It fluctuated around 12%, rising a bit in some years (up to 13.6%) and falling a bit in other years (down to 11.3%), but with no sustained trend upward or downward. Since 2015, manufacturing as a share of GDP has fallen but only very modestly: In 2023, manufacturing as a percentage of GDP was 10.3% – a number that belies Pettis’s insinuation that trade and foreign manufacturing have inflicted serious harm on American manufacturing.
But a deeper problem afflicts Pettis’s case – namely, his foolish fetish for manufacturing. There would be nothing to fear if manufacturing’s share of U.S. GDP had indeed fallen significantly as long as Americans are left free to purchase manufactured goods from abroad. Just as Jeff Bezos’s household successfully produces and sells services and uses part of the resulting income to purchase goods manufactured by people outside of that household, there’s no principle that says that Americans cannot prosper by specializing even more at producing and selling services and using part of the resulting income to purchase goods manufactured by people outside of America.
U.S. public policy would be much-improved if pundits and politicians learned some history and economics and thereby freed themselves of their fetish for manufacturing.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
