The global economy is a fascinating thing to study. Around the world, there are those countries that have very little manufacturing. They tend to be the same countries that do not export much. On the other hand, there are those countries with strong manufacturing and exports. They are the ones that tend to win the economy.
Manufacturing is based on a simple principle. You take raw materials and convert them into goods. You then convert those goods into money by selling them. It is a proven model that has sustained human economics since the beginning of time.
Services also generate money. You provide a service for which someone pays you. But services are different in that their demand waxes and wanes. We do not necessarily need many of the services available to us. A lot of the services we pay for we could actually provide for ourselves. By contrast, there are tons of products we just cannot do without.
Strong Technology Exports
Israel is a good example of manufacturing and exports winning the economy. According to recent numbers, Israel is expected to export a record $120 billion in goods this year. That is up some $6 billion from last year, though 2021 exports were artificially impacted by the COVID pandemic. In both years, technology exports played a significant role.
Technology exports have risen some 20% this year. Those numbers are bolstered by the fact that technology accounts for 12% of Israel’s economy and 10% of its labor force. Indeed, the fact that Israel’s high-tech exports contribute economic health is no surprise.
Trade Deficits Are Real
Anyone who wants to know just how important manufacturing and exports are need only look at trade deficits. They are very real. A country that imports more than it exports is operating at a deficit. That country is relying on others to provide what it is not providing for itself. It is rarely a good thing.
The other side of that equation is the trade surplus. There are countries that routinely export more than they import. Their trade surplus provides economic stability and revenue. They are stronger for it.
The Foundation of Manufacturing
The thing about exports is that they are based on manufacturing. To illustrate the point, Vigilant Global Trade Services says there are more than 19,000 HTS codes assigned to goods imported into this country. The codes represent hundreds of thousands, if not millions, of products.
HTS product classification applies only to physical goods. It does not apply to services. The fact that our country imports so many physical goods shows just how much we are lacking in terms of manufacturing. And by the way, our trade deficit is in the tens of billions of dollars every year.
We are not exporting goods because we are not manufacturing them. Meanwhile, China has built its economy on manufacturing and exports. U.S. store shelves are filled with cheap Chinese goods manufactured for a fraction of the cost.
Services Are Extra
A diligent study of world history demonstrates that the strongest economies in the world are built on manufacturing. From the ancient Spice Road to America’s rise as a superpower on the back of robust manufacturing, those countries that emphasize domestic manufacturing have had goods to export. Countries operating on a trade surplus were stronger.
In the end, services are extra. They do support the economy to some degree. And yes, you can export services as well. But services can never replace manufacturing as the foundation. If you’re not making things, there is no need for services. Manufacturing is the foundation of exports, and exports win the economy.