U.S. Manufacturing Revival Needed

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Barack Obama and his Republican challengers don't agree about much, but they do agree manufacturing matters and resurrecting America's factories will be at the center of the fall presidential campaign.

America's economy can't be turned around and middle class prosperity saved, without it.

Since 2000, the U.S. economy has grown only 1.6% annually -- not its 3% potential, as defined by productivity and population growth -- and it has not created a single new job. But for an alarming increase in prime-working-age adults choosing not to look for work, unemployment would be 13 percent.

Economists agree weak demand for U.S.-made products are the cause. Dependence on foreign oil and manufacturing are at the center of this mess.

The trade deficit is nearly $600 billion or about 3.8% of GDP. Each dollar that goes abroad to pay for imports but does not return to purchase U.S. exports is lost demand and lost jobs. Eliminate the trade deficit and GDP would increase $1 trillion, and 10 million new jobs would be created.

Currently, oil accounts for 45 percent of the trade deficit, and manufactured goods from China, Germany and Japan the rest.

Oil imports are about 9 million barrels a day and gasoline consumption is about the same. Increased domestic production from the Gulf, Alaska and other offshore deposits could cut imports in half, and genuinely exploiting fuel efficiency opportunities and better use of natural gas for transportation in cities and heating could do much of the rest.

There are so many bogus arguments offered on manufacturing.

Improvements in productivity have certainly cut manufacturing employment in Europe, the United States and China, but improvements in productivity occur in all sectors, every year. That's the very essence of progress.

Agricultural productivity has improved dramatically in the 20th Century but Americans did not give up farming.

If the United States redressed three quarters of its $650 billion deficit in manufacturers, someone would have to make that stuff, even if at higher levels of efficiency than in the past. The U.S. economy would be 5% larger and policymakers would be worrying about a shortage of workers.

China's low wages are an advantage in labor-intensive activities, but U.S. technology should be an advantage in others. That's how Germany remains a leader in factory jobs and exports with a wage structure that is higher than the United States. Unless the Germans are smarter than Americans, we should be able to do it too.

America is a leader in service exports. But despite concerted efforts to increase those through trade agreements over the last three decades, the U.S. export surplus in business services is about $80 billion, and the United States is not going to do much more than double that, even if it manages to crack the highly protected Chinese and other Asian markets.

Modern domestic economies may be dominated by services, but most of those services don't move in international commerce -- consider movie theaters, dry cleaners and plumbers. On the other hand, the international economy, like the U.S. trade deficit, is dominated by commodities and manufacturers. Wishful thinking by academics, pundits and Wall Street financiers won't change that.

Moreover, manufacturing contributes to the dynamics of growth in other ways. It pays higher wages and supports two-thirds of all research and development, which generates the intellectual property that supports America's higher standard of living.

Without manufacturing, much of the innovation in services would not happen. For example, were Intel ( INTC) and IBM ( IBM) not U.S.-based companies, it is highly doubtful that Apple ( AAPL), Microsoft ( MSFT) and business solutions software companies -- which handle the lion's share of R&D in the services sector -- would be American-based firms today.

America's principal rivals, the governments of China, Germany and Japan have long recognized these facts, and managed their currencies, tax structures and business incentives to ensure competitive manufacturing sectors.

In a perfect world, Americans would not have to compete with rivals that interfere with the market, as those governments do, but alas this is not the best of all possible worlds.

Messrs Obama, Romney and Santorum are delivering a simple message -- manufacturing matters, and Americans must do what it takes to compete in the world as they find it.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

More from Opinion

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Time to Talk Tesla: What Happened This Week, Elon?

Time to Talk Tesla: What Happened This Week, Elon?

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks