By Ernest Beck, MSN MoneyThe next time you slip on a pair of socks, spare a thought for the U.S. hosiery industry -- or what's left of it.
A decade ago, 76% of socks sold in the United States were made here. By 2006, only 26% came from American factories. Blame the Central American Free Trade Agreement, which let in a flood of socks made in Honduras.
Though sock-making isn't a major industry, the demise of a homegrown sector of the economy such as hosiery reflects wider trends facing the U.S. in the era of globalization. Besides socks, industries including textiles, shoes and furniture are under pressure from low-wage countries like China, with the rivals taking advantage of cheap manufacturing and free trade to push into industries that were once largely American.
The apparel business has been hit especially hard. "The manufacturing base of apparel has almost disappeared," says Kevin Burke, the president of the American Apparel & Footwear Association, a trade group. "Go into any department store, and all you'll find is clothing made almost anywhere but in the U.S."
Where were your clothes made?
Overall, almost 3.7 million manufacturing jobs in the U.S. were lost between 1998 and 2007 as countries such as China and India increased production and expanded in the global market. China is increasingly producing more sophisticated and technologically advanced goods rather than cheaper ones. One recent study by economic forecasting company Global Insight finds that China is on track to overtake the U.S. as the world's biggest manufacturer by 2016.
To be sure, manufacturing is still a vital part of the U.S. economy, providing 14 million jobs and generating $1.6 trillion in gross domestic product in 2006. That's about 12% of GDP, compared with about 67% for services.
Some sectors of the economy are being challenged by factors other than offshore production sourcing. The auto industry, for instance, misjudged the shift to fuel-efficient vehicles and is now paying the price.
How can US automakers survive?
Airlines have been pinched by high fuel prices. Cigarette companies face the anti-tobacco movement. And globalization means your Budweiser now comes from a foreign multinational.
Will sectors such as textiles, apparel and furniture disappear as American-based industries? Perhaps.
But some industries also have a chance to restructure, as the steel industry has done.
The steel industry was rusting away in the early 1980s, when dozens of companies slipped into bankruptcy in the face of cheap imports, high labor costs and overcapacity. Today, steel is back, sort of. After losing 400,000 jobs, the industry retooled to introduce more-efficient production methods and gained massive foreign capital investments. It is now flourishing on strong global demand coupled with record-high steel prices. But about half the industry is now foreign-owned. And beware: China is not only a steel consumer but also a major producer.
Growing economies in developing countries such as China also provide opportunities for U.S. companies to export more products with high added value, like airplanes and pharmaceuticals.
"There is a lot of potential out there because we have skills and capital invested and advanced production methods," says Robert E. Scott, an economist at the Economic Policy Institute, a Washington, D.C., think tank. "We can't lose it all."
Here's the outlook for eight at-risk American industries:
1. Autos
The U.S. auto industry, once an economic bellwether, is now weighing mergers just to stay afloat. Automakers have gone to Washington seeking up to $50 billion in government loans. The money would help them modernize factories and produce fuel-efficient cars. (Why weren't they doing that before strapped consumers turned against gas-guzzling SUVs?) The companies are laying off workers, shuttering plants and pouring money into design and technology to rush hybrid and electric cars onto the market. But some observers say it might be too late to save at least one of the Big Three.
2. Furniture
Two decades ago, most residential furniture sold in the U.S. was American-made. Today, more than half is manufactured offshore, mostly in low-wage countries where factories churn out products for U.S. furniture companies. "There has been a mass exit to China," says Andy Counts, the chief executive of the American Home Furnishings Alliance, an industry group. High Point, N.C., America's furniture capital, has been hit hard by furniture factory closures and job losses. Overall, employment in the industry has declined to 137,000 from 224,000. One bright spot: About 70% of customized furniture, especially upholstered furniture, is still made in the U.S.
3. Apparel and footwear
Except for a few companies, such as upstart retailer American Apparel, which manufactures in Los Angeles, the "rag trade" has largely migrated abroad. The reason: While American consumers continue to demand low-priced, high-quality merchandise, U.S. apparel companies face rising labor and materials costs, forcing manufacturers to look abroad for low-priced manufacturing in the labor-intensive industry. Apparel officials partly blame the North American Free Trade Agreement, implemented in 1994, for the import surge, saying the apparel and textile sectors have lost a combined 1 million jobs (640,400 in apparel, 360,600 in textiles) since the agreement came into force. But the migration isn't just south of the border. Jobs are also moving to Vietnam and China, which now manufactures about 30% of apparel sold in the U.S.
4. Textiles
Like apparel, the textile industry is facing a massive influx of foreign-made goods from China and other Asian nations. Over the past decade, more than 500 U.S. textile plants have closed, and 156,000 workers have lost their jobs, according to the National Council of Textile Organizations, a trade group. It accuses Asian governments of illegal trade practices, including subsidies and tax holidays, that keep textile prices at artificially low levels "to crush free-market competition." But don't count U.S. textiles out yet. Despite the downturn, the U.S. remains one of the world's largest textile exporters, primarily of yarns and fabrics.
5. Glassware
It's not the biggest sector, but glassware is one of America's oldest and most venerable industries -- and it, too, is facing tough times. Famous names such as Corning Consumer Products, Oneida and Anchor Hocking have faced Chapter 11 over the past few years. Industry officials blame imports from China and Turkey in particular. In 1996, those two countries accounted for 12% of the U.S. glassware market. In 2006, the figure was 53%. Decorative glass and tableware have suffered the most, but the phasing out of television tubes hasn't helped, and neither has the transition from traditional incandescent light bulbs to compact fluorescent bulbs (which also are largely made in China). But where the environmental movement taketh, it may also provide salvation: The industry might be able to save itself by ramping up glass sales for solar panels.
6. Tobacco
Marlboro may be an all-American brand, but overall cigarette production in the U.S. is slumping. Under pressure from anti-tobacco forces and the government, a mere 471.6 billion sticks were made in 2007, down from 709.7 billion in 1990. Annual U.S. consumption slowed to 360 billion cigarettes from 525 billion over the same period, according to the Centers for Disease Control and Prevention. Now production is shifting to developing countries like, yes, China, where lower costs and fewer restrictions are attracting Western tobacco companies, including Marlboro maker Philip Morris, in joint-venture deals. It's a good place to be: The Chinese smoke about 2 trillion cigarettes annually, or 40% of the global total.
7. Airlines
U.S. airlines are reckoning with losses of at least $5 billion this year (some analysts say it might be much more) as higher fuel prices eat into profits. Struggling carriers are cutting flights, curbing airliner purchases and charging passengers for water and blankets. And several have already disappeared from the radar screen this year, including Aloha and ATA airlines and all-business-class carriers Silverjet, MAXjet and EOS. Frontier has filed for Chapter 11. Still more airlines could go under if the liquidity and credit crunch accelerates. Airlines may try to charge more, but they risk lowering traffic. There's talk of a new round of mergers and consolidation, but even that might not smooth the turbulence.
8. Beer
As brand icons go, nothing is more quintessentially American than Budweiser -- a fact that riled fans of the King of Beers when Belgian brewer InBev bought Bud's maker, Anheuser-Busch, for $52 billion this year.
The InBev buyout was the biggest brewery deal in a decade, a time in which other famous American beer brands, including Miller and Coors, were also swallowed by foreign companies.
Sam Adams gets creative in face of competition
Bud won't disappear, of course, but the takeover means that many of the iconic names of American brewing, with its long tradition, are no longer American-owned (Boston Beer, maker of Samuel Adams, is now one of the largest American beer companies). Cheers!
Produced by Elizabeth Daza
Published Nov. 14, 2008
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