Domestic Energy, Manufacturing Competitiveness and Trade

Mark Green
Posted December 26, 2012

The Washington Times has an article that focuses on the connection between increased domestic energy production, a U.S. manufacturing resurgence and an improved trade balance:

A recent wave of “re-shoring” of overseas manufacturing plants by U.S. chemical, auto and other companies signals the revival of U.S. competitiveness in many industries vis-a-vis Europe, Japan, China and other major trade partners. The trend got a big push recently from a dramatic drop in American natural gas prices, making the U.S. a highly desirable location for manufacturers relying on gas for energy and as a component in plastics, chemicals and other essential materials. Rising U.S. competitiveness has stoked a major export revival since 2009, helping pull the economy out of recession. “The secular trend of the U.S. trade deficit is a great, positive story,” said David A. Levy, chairman of the New York-based Jerome Levy Forecasting Center. “The trade gap has been an enormous [drag on the economy] for over three decades. America may be only a decade from running consistent merchandise trade surpluses.”

The article notes that growing oil and natural gas from shale – made possible by fracking – is lowering costs for domestic manufacturing while producing exportable commodities. Dieter Ernst, East-West Center economist, tells the newspaper:

“The boom in gas and unconventional oil extraction may generate a significant number of new jobs. It reduces one of the main cost factors for petrochemical products such as plastic, which could accelerate investment in a broad range of domestic industries.”

Here’s another byproduct of increased U.S. oil production: reduced oil imports – which plays a large role in the trade balance picture. Take a look at domestic oil production and oil imports, using U.S. Energy Information Administration data:

Here’s what the converging blue and red lines mean: Since 2008, when U.S. production bottomed out, U.S. crude use has increased 142,500 barrels a day. Yet thanks to increased U.S. production, oil imports have fallen more than 1.2 million barrels per day. That’s more than $120 million a day that would have gone out of the country, staying right here at home. That’s $44 billion a year.

Put another way, the money that’s staying in the country because of the combination of increased domestic oil production and falling oil imports is more than four times as large as U.S. box office receipts for movies this year ($9.7 billion).

Yeah, that’s a big number – helping make America more competitive globally, reducing imports and keeping more of our wealth at home.