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Worthless without context. What I'd really like to see is the change in US manufacturing as a percent of world manufacturing over time, and the trajectory of US manufacturing in comparison to the level of manufacturing in China.

Krugman: "He was driven mad by Lester Thurow and Robert Reich in particular, both of whom had written books touting a theory that he believed to be nonsense: that America was competing in a global marketplace with other countries in much the same way that corporations competed with one another. In fact, Krugman argued, in a series of contemptuous articles in Foreign Affairs and elsewhere, countries were not at all like corporations. While another country’s success might injure our pride, it would not likely injure our wallets. Quite the opposite: it would be more likely to provide us with a bigger market for our products and send our consumers cheaper, better-made goods to buy. A trade surplus might be a sign of weakness, a trade deficit a sign of strength. And, anyway, a nation’s standard of living was determined almost entirely by its productivity—trade was just not that important."


Krugman is wrong. In many circumstances, countries are competing with each other. For instance, imagine Kuwait produces oil, and Japan produces automobiles. Kuwait trades oil to country America for automobiles. Now imagine Japan enters the market and makes automobiles that are much better and cheaper than America's. Kuwait will now start buying automobiles from Kuwait instead of America. America will find the price of oil skyrocketing and it's standard of living collapsing, unless it can produce automobiles that match the quality and price of Japan's automobiles.

Krugman's point is not that countries don't compete, but that global trade sums to zero, unlike the case for corporations. You can't tell if a country is 'winning' by looking at its balance of trade.

No, America just winds up also buying much better and cheaper automobiles.

No, because in my example America has no source of foreign exchange it cannot buy autos from Japan, it has nothing to offer Japan in return (it's a simplified example, but it shows an underlying dynamic that can and does exist).

EDIT: to clarify, there are also examples where increased foreign industry will benefit America. For instance, if Kuwait doubles its productivity, oil imports to the U.S. will be much cheaper. But my point still stands that this is not also the case. Increased productivity from other countries can be positive or negative to America, depending on the specific situation.

Right. To be a participant in a global marketplace means having specialties you can trade on. This is why a common strategy of the emerging economies of the world, past and present, is to heavily protect and subsidize infant industries so that they aren't crushed by foreign competitors. As they establish themselves, the barriers can be gradually lowered until the industry is competitive on the open market.

Free-trade policies tend to be most beneficial to the market incumbents; but I would note that even when a foreign company simply comes in and exploits cheap labor, the workers will get better wages, and even if that doesn't directly benefit their own lives, it can give their children a better lifestyle and education.

Why are either of them so interesting in the context of US manufacturing?

The single biggest thing to happen in the last few decades is a couple of billion people (re-)joining the world economy (the PRC, India, the former Soviet Union, etc.).

To the extent a lot of recent manufacturing is satisfying basic needs we take for granted, e.g. refrigerators, isn't that likely to be all to the better?

What I'm saying here is that this gets complicated. Economies of scale are likely to give the manufacturers in the PRC the edge in supplying the world's demand for refrigerators, but on the other hand their increased demand for say aircraft and especially jet and turboprop engines is directly to our advantage.

Or perhaps I should say, this isn't a simple matter of winners or losers at this gross a level (PRC vs. US, US vs. the world). I expect the share of US manufacturing vs. the world's to go down during this period and I expect the trajectory of PRC manufacturing to be wild compared to ours.

I believe much of manufacturing is building things from parts from elsewhere. I did work for a pottery wheel company and the wheels major components were from Mexico (the metal frame) and motor from China. I didn't really take a look at the other parts but likely those were from overseas as well.

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