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Mending Manufacturing: Reversing Poor Policy Decisions is the Only Way to End Current Crisis

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Abstract:

The plight of the U.S. manufacturing sector has finally attracted notice from policy makers, most notably President Bush, who mentioned manufacturing prominently in a Labor Day address in Ohio. This belated attention is welcome, although manufacturing's troubles began well before the onset of the 2001 recession (and may well have been a major factor in causing it) and have accelerated since. Between January 1998 and August 2003, manufacturing employment dropped by three million, and its share of total gross domestic product (GDP) fell from 16.3% in 1998 to 13.9% in 2002.

The rapid decline of U.S. manufacturing was a policy-induced crisis that warrants policy solutions. For too long, dollar and trade policies have hurt domestic manufacturing. In the short run, improving the state of the manufacturing industry requires alleviating the external pressures on manufacturing. In practice, this means first engineering a gradual but substantial decline in the value of the U.S. dollar. It also means toughening future trade agreements (including labor and environmental standards) to protect the U.S. manufacturing sector from unfair foreign competition.