The U.S. is the world’s export dumping ground for three reasons. The first reason is obvious: the U.S. is the world’s largest consumer market, home to the world’s largest corporations who source from abroad to make their cell phones, medical devices, kitchen appliances, Ford Mach-E Mustangs (built in Mexico), and then some.
The second reason is because we are a big, open market with an average tariff rate of around 3%. So even with tariffs imposed on China and managed trade against global steel and aluminum, imports of other goods still flood in from Southeast Asia and elsewhere.
Finally, the third reason is because the dollar exchange rate is hitting historic highs as global capital inflows surge. Imports are cheaper for Americans while exports of USA made products are more expensive for foreigners.
As a result, companies that make things in the U.S., be it leather handbags or writing paper, are losing market share to importers making the same thing.
In an ideal world, demand for a particular good is expanding and the U.S. manufacturer of that product is growing with the market. But what our numbers show is that market growth is being picked up increasingly by imports.
The Coalition for a Prosperous America’s (CPA) Domestic Market Share Index (DMSI), a new indicator that measures the success of U.S. manufacturing producers in the U.S. home market, fell to 64.9 in the first quarter of 2022, down from 66.4 in the previous quarter, indicating that importers increased their share of U.S. consumption of manufactured goods by 1.4 percentage points to 35.1% for all goods bought here. This is the lowest domestic market share and highest import share since the beginning of the data series in 2002. The loss of the domestic share this past quarter is driven by notable declines in the U.S. share of chemical, computer, and machinery manufacturing industries.
In fact, new data shows that the market penetration rate for imports has increased for sectors that are already dominated by imports, like apparel (most of our clothes are from Central America and Asian countries) – domestic market share for local producers of clothing is vanishing.
Amanda Mayoral, an economist for CPA who worked on the DMSI, said sectors where the U.S. manufacturer has low domestic representation ended up with an even smaller portion of the local market in the last quarter.
“A key takeaway from this quarter release is that we lost market share in areas where we already have low market share,” Mayoral said. “We lost two percentage points in apparel and now it’s lower than ever at just 5%.”
To some, the numbers might look okay. Domestic manufacturers have an overall market share of 64.9%. What do you make of that number?
Amanda Mayoral, Coalition for a Prosperous America staff economist. (Photo by Max Taylor).
Amanda: “It’s terrible. Because the trend is not our friend in this case. It was 66.4% at the end of last year. It was around 68% in 2020. So as the economy comes back to life after lockdowns, imports picked up more of the share of the market. Overall, the situation is not getting better for domestic producers. We keep hitting historical lows every quarter.”
The only sector where the U.S. market share remained solid to growing was in oil and gas. How do you explain how everything else is in decline?
“It goes back to what we keep saying, that even if we add a tariff on imports from China we are not going to see imports fall significantly because they have all of the means to lower those costs for their buyers. They are profiting by selling to us. They want to sell in our market and they are going to do what they can to keep that market.”
If you do a deep dive into the DMSI data, what countries and product lines jump out in terms of noticeable increases in market share?
“Vietnam. Their overall market share is just 1.6%, but when you look at individual sectors you see how they are moving in on the U.S. Most of these are probably Chinese companies offshoring production to Vietnam. Apparel imports from Vietnam rose by 7.5% of the U.S. market. Furniture imports from Vietnam rose by 5.4%, so they are growing and we can argue that this comes to the detriment of local producers because you just have to look at the DMSI trend line to see where we sit overall. When you look at individual sectors, Vietnam was the one country on a sector-by-sector basis that realized the biggest pick-ups in market share.”
We have an increased awareness of the situation facing domestic manufacturing, and we see import penetration is on the rise. What can be done to reverse course?
“Tariffs alone cannot solve this problem. You cannot compete with the billions of dollars in subsidies, in free land, cheap or slave labor, and state-controlled investments. Our domestic companies are competing with countries, not just companies. Tariffs cannot outweigh the range of other trade barriers created by places like China. If you want to slow imports, you have to do more than just tariffs. You have to realize that countries like China have all sorts of subsidies and policies; and when we put tariffs on mainland China, for example, they often divert manufacturing elsewhere or abuse our trade rules via e-commerce, where you can ship duty free for packages under $800.”
CPA chief economist Jeff Ferry said Mexico is also a major player in what Ross Perot once called “the giant sucking sound” of manufacturing leaving America in “free trade”.
Jeff Ferry. (Photo by Max Taylor).
“I often highlight Mexico as well as China just to show that the problem does not require an evil government,” Ferry said. “This is all instigated as much by U.S. multinationals as it is by any other country. China presents a national security threat on top of an economic threat so that makes them unique. But the problem of imports is very broad and requires changes to our trade policies and to the incentives that global corporations have to outsource and offshore everything.”
We have also seen at least since the Great Recession, dollar strength makes it more attractive for companies to invest abroad and source abroad. Could this also be why manufacturers are losing out to imports?
Jeff: “Our estimates had the dollar overvalued by around 20% at the start of this year and it has climbed another 6% to 8% since then. This is a huge burden for U.S. manufacturers. It’s also destabilizing for the entire world economy. We need to get back to a competitive dollar. The best way to do that would be a small tax on capital inflows from foreigners.”
The U.S. market for manufactured goods is the world’s largest, worth over $7 trillion last year. That’s roughly six times the Mexican economy.
Since 2002, when current government data series became available, U.S. producers have lost more than 10% of their local market share to imports, worth around $700 billion of goods at today’s prices—which is like losing the entirety of the Saudi Arabia economy.
DMSI Falls to Lowest Level in Q1 2022 As U.S. Manufacturing Loses Share to Imports
Domestic Manufacturer’s Share of U.S. Market is Shrinking. CPA Economists Explain Why.
The U.S. is the world’s export dumping ground for three reasons. The first reason is obvious: the U.S. is the world’s largest consumer market, home to the world’s largest corporations who source from abroad to make their cell phones, medical devices, kitchen appliances, Ford Mach-E Mustangs (built in Mexico), and then some.
The second reason is because we are a big, open market with an average tariff rate of around 3%. So even with tariffs imposed on China and managed trade against global steel and aluminum, imports of other goods still flood in from Southeast Asia and elsewhere.
Finally, the third reason is because the dollar exchange rate is hitting historic highs as global capital inflows surge. Imports are cheaper for Americans while exports of USA made products are more expensive for foreigners.
As a result, companies that make things in the U.S., be it leather handbags or writing paper, are losing market share to importers making the same thing.
In an ideal world, demand for a particular good is expanding and the U.S. manufacturer of that product is growing with the market. But what our numbers show is that market growth is being picked up increasingly by imports.
The Coalition for a Prosperous America’s (CPA) Domestic Market Share Index (DMSI), a new indicator that measures the success of U.S. manufacturing producers in the U.S. home market, fell to 64.9 in the first quarter of 2022, down from 66.4 in the previous quarter, indicating that importers increased their share of U.S. consumption of manufactured goods by 1.4 percentage points to 35.1% for all goods bought here. This is the lowest domestic market share and highest import share since the beginning of the data series in 2002. The loss of the domestic share this past quarter is driven by notable declines in the U.S. share of chemical, computer, and machinery manufacturing industries.
In fact, new data shows that the market penetration rate for imports has increased for sectors that are already dominated by imports, like apparel (most of our clothes are from Central America and Asian countries) – domestic market share for local producers of clothing is vanishing.
Amanda Mayoral, an economist for CPA who worked on the DMSI, said sectors where the U.S. manufacturer has low domestic representation ended up with an even smaller portion of the local market in the last quarter.
To some, the numbers might look okay. Domestic manufacturers have an overall market share of 64.9%. What do you make of that number?
Amanda Mayoral, Coalition for a Prosperous America staff economist. (Photo by Max Taylor).
Amanda: “It’s terrible. Because the trend is not our friend in this case. It was 66.4% at the end of last year. It was around 68% in 2020. So as the economy comes back to life after lockdowns, imports picked up more of the share of the market. Overall, the situation is not getting better for domestic producers. We keep hitting historical lows every quarter.”
The only sector where the U.S. market share remained solid to growing was in oil and gas. How do you explain how everything else is in decline?
“It goes back to what we keep saying, that even if we add a tariff on imports from China we are not going to see imports fall significantly because they have all of the means to lower those costs for their buyers. They are profiting by selling to us. They want to sell in our market and they are going to do what they can to keep that market.”
If you do a deep dive into the DMSI data, what countries and product lines jump out in terms of noticeable increases in market share?
“Vietnam. Their overall market share is just 1.6%, but when you look at individual sectors you see how they are moving in on the U.S. Most of these are probably Chinese companies offshoring production to Vietnam. Apparel imports from Vietnam rose by 7.5% of the U.S. market. Furniture imports from Vietnam rose by 5.4%, so they are growing and we can argue that this comes to the detriment of local producers because you just have to look at the DMSI trend line to see where we sit overall. When you look at individual sectors, Vietnam was the one country on a sector-by-sector basis that realized the biggest pick-ups in market share.”
We have an increased awareness of the situation facing domestic manufacturing, and we see import penetration is on the rise. What can be done to reverse course?
“Tariffs alone cannot solve this problem. You cannot compete with the billions of dollars in subsidies, in free land, cheap or slave labor, and state-controlled investments. Our domestic companies are competing with countries, not just companies. Tariffs cannot outweigh the range of other trade barriers created by places like China. If you want to slow imports, you have to do more than just tariffs. You have to realize that countries like China have all sorts of subsidies and policies; and when we put tariffs on mainland China, for example, they often divert manufacturing elsewhere or abuse our trade rules via e-commerce, where you can ship duty free for packages under $800.”
CPA chief economist Jeff Ferry said Mexico is also a major player in what Ross Perot once called “the giant sucking sound” of manufacturing leaving America in “free trade”.
We have also seen at least since the Great Recession, dollar strength makes it more attractive for companies to invest abroad and source abroad. Could this also be why manufacturers are losing out to imports?
Jeff: “Our estimates had the dollar overvalued by around 20% at the start of this year and it has climbed another 6% to 8% since then. This is a huge burden for U.S. manufacturers. It’s also destabilizing for the entire world economy. We need to get back to a competitive dollar. The best way to do that would be a small tax on capital inflows from foreigners.”
The U.S. market for manufactured goods is the world’s largest, worth over $7 trillion last year. That’s roughly six times the Mexican economy.
Since 2002, when current government data series became available, U.S. producers have lost more than 10% of their local market share to imports, worth around $700 billion of goods at today’s prices—which is like losing the entirety of the Saudi Arabia economy.
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