Manufacturing to Services

Economics: Lesson 165

If Americans ‘buy Asian,’ what can Asian exporters do with the dollars?

Politicians have trained the public to believe that a manufacturing country is more wealthy. This is true, and the Industrial Revolution is the perfect example of this. But what happens when a nation gets exceedingly rich? It shifts from manufacturing to services.
There are 3rd world countries, 2nd world countries, and 1st world countries, and you can picture them like this; low-productivity agriculture economy, manufacturing economy, and services economy.

After WWll, manufacturing in America has steadily declined as a percentage of the American economy and shifted over to services. The once manufactured goods are now being imported from Canada, Mexico, and China. This is a good thing for both the importing and exporting countries, especially for China since it only substituted manufacturing for low-productivity agriculture in the 1980s.

So why do politicians still tell the public that it is better to be a manufacturing country with tariffs on imported goods? Follow the money. Where is all the money from the tariffs and sales taxes going? Into the pockets of politicians and special interest groups which are usually run by the government. And the money used to buy the imported goods is going to the exporting country. This is not a bad thing. If the U.S. can spend money on importing manufactured goods that are no longer practical to manufacture domestically, then the U.S. should do it. This will allow the U.S to focus more time, money, and space on profitable services that will make the nation richer.

Yes, China is getting American dollars, but you have to remember that the U.S. is getting manufactured goods in return and those dollars will go into buying American goods. It’s a win-win. Just as tariffs on a national border are a lose-lose situation.