If you were to listen to certain politicians and pundits, the U.S. economy would be stronger today — more “resilient” — if we manufactured more and imported less. Many of these same folks point to Germany, which has an economy more focused on manufacturing and exports, as a model for a new American industrial policy that would allegedly strengthen the national economy in the face of future economic shocks like COVID-19.
It turns out, however, that having an economy reliant on manufacturing and mercantilism also has its downsides:
More than 40 percent of German companies said they had lost sales because of supply problems in an August survey by the Association of German Chambers of Industry and Commerce. Europewide, exports would have been 7 percent higher in the first six months of the year if not for supply bottlenecks, according to the European Central Bank.
While every economy in the world is suffering from shortages, Germany is particularly sensitive because of its dependence on manufacturing and trade. Nearly half of Germany’s economic output depends on exports of cars, machine tools and other goods, compared with only 12 percent in the United States.
Because Germany is a nation of factories, “the impact is dramatic,” said Oliver Knapp, a senior partner at Roland Berger, a Munich‐based consultancy.
And, no, reshoring supply chains wouldn’t necessarily solve Germany’s problems:
Some political leaders have even suggested that the pandemic could have a silver lining, because it will inspire companies to bring manufacturing back to Europe and the United States, creating well‐paying factory jobs.
But disentangling the networks that move products around the globe is not so easy, and maybe not even a good idea, some economists and business managers say.
The widespread assumption that suppliers close to home are more reliable has not always proved true. During the turmoil caused by the pandemic, some German companies had more trouble getting supplies from France or Italy, because of strict lockdowns, than they did from Asia.
“It’s not the case that if we were not dependent on China we would have gotten through the crisis without any problems,” said Alexander Sandkamp, an economist who studies supply chains at the Kiel Institute for the World Economy in Kiel, Germany.
None of this is to say that the U.S. model is perfect, but Germany’s current struggles are perfectly consistent with past research (see my papers here and here, for example) showing that manufacturing and mercantilism aren’t a simple recipe for economic resiliency, that domestic economic shocks can cause the same supply chain problems as foreign ones, and that the U.S. economy is not nearly as vulnerable to global economic turmoil as is often claimed.
Reality, it turns out, is really complicated.
It turns out, however, that having an economy reliant on manufacturing and mercantilism also has its downsides:
More than 40 percent of German companies said they had lost sales because of supply problems in an August survey by the Association of German Chambers of Industry and Commerce. Europewide, exports would have been 7 percent higher in the first six months of the year if not for supply bottlenecks, according to the European Central Bank.
While every economy in the world is suffering from shortages, Germany is particularly sensitive because of its dependence on manufacturing and trade. Nearly half of Germany’s economic output depends on exports of cars, machine tools and other goods, compared with only 12 percent in the United States.
Because Germany is a nation of factories, “the impact is dramatic,” said Oliver Knapp, a senior partner at Roland Berger, a Munich‐based consultancy.
And, no, reshoring supply chains wouldn’t necessarily solve Germany’s problems:
Some political leaders have even suggested that the pandemic could have a silver lining, because it will inspire companies to bring manufacturing back to Europe and the United States, creating well‐paying factory jobs.
But disentangling the networks that move products around the globe is not so easy, and maybe not even a good idea, some economists and business managers say.
The widespread assumption that suppliers close to home are more reliable has not always proved true. During the turmoil caused by the pandemic, some German companies had more trouble getting supplies from France or Italy, because of strict lockdowns, than they did from Asia.
“It’s not the case that if we were not dependent on China we would have gotten through the crisis without any problems,” said Alexander Sandkamp, an economist who studies supply chains at the Kiel Institute for the World Economy in Kiel, Germany.
None of this is to say that the U.S. model is perfect, but Germany’s current struggles are perfectly consistent with past research (see my papers here and here, for example) showing that manufacturing and mercantilism aren’t a simple recipe for economic resiliency, that domestic economic shocks can cause the same supply chain problems as foreign ones, and that the U.S. economy is not nearly as vulnerable to global economic turmoil as is often claimed.
Reality, it turns out, is really complicated.
