Chips and cars …

According to some, the future belongs to American platform companies.

Manufacturing is a commodity, the real money comes from design, engineering and marketing.   The US - by implication - should not worry about its (shrinking as a share of employment) manufacturing sector, but rather should concentrate on moving up the value-added chain. 
That at least has been the model adopted by and large by much of the US electronics industry.  Design the chips and Ipods, but leave most of the actual manufacturing to East Asia.

Physics/ finance guru Steve Hsu (congrats, by the way) notes one potential problem with this approach: there is no guarantee that high-end design and engineering jobs will remain in the US.   I would add that at some point the US may have to actually pay for its imported goods (even if they are designed here in the US) by exporting real goods and services, not by exporting pieces of paper ... 

Which brings me to the car industry. 

That seems to be an industry where a lot of the high-end design and engineering jobs are found in Japan and Germany (maybe Korea too) while a fair share of the assembly jobs are in the US.  Think Toyota transplants.   Toyota may source the design and engineering of some models to the US - I don't know enough to know.  But my sense is that most of the engineering is still done in Japan. 

I consequently found Figure 1.2 this report by the Center for Automotive Research (the report was commissioned by the a group of German, Korean and Japanese auto firms) rather interesting.   Figure 1.2 is on p. 3 of the report/ p. 7 of the .pdf.  Hat tip: Dan Drezner.  The graph shows auto imports and transplant production over time.

Two things jumped out at me.  First, right now, US sales of imported cars (imported assembly, imported design and engineering) and transplants (US assembly, imported design and engineering) are both rising.   The chart ends in 2003, but I doubt the basic trend has changed, given the recent woes of GM and Ford.

Second, if you look back at the data from the 1980s, you see the process of macroeconomic adjustment play out in the industry-level data.   Imports of cars peaked in 85/86, at 4.19 million vehicles, and then fell sharply.   By 1996, US vehicle imports had fallen to only 1.72 million.  Why - the rise in US production by "transplants" - the US plants of Japanese firms.  Transplant production rose from 0.80 million vehicles in 1986 to 2.37 million in 1996.   That shift reflected US protectionist pressure no doubt - but I suspect moves in the dollar/ yen played a role too.  The dollar was rather weak v. the yen in 1995.  The fall in auto imports basically tracks the fall in the dollar, and the fall in the US trade deficit.

That may tell us something about the future adjustment process as well, if and when the US trade deficit starts to shrink.  I suspect that transplant production will need to rise/ imports fall to bring the US trade deficit down  - just as it did in the 1980s.   That stands in contrast to another view of the future of the auto industry - namely one where US auto firms transform themselves into platform companies that source first parts and then assembly in Asia in order to compete better in the US domestic market.  Andy Xie:

"The tie-up between China's production efficiency and US marketing has proven to be a winning combination.  Japanese industries seem to win against their American competitors otherwise.  Indeed, I see the combination to revive more US industries.  The OEM model could be applied to the auto sector like in the IT sector.  It could bring back the US auto sector. "

Others argue that Chinese auto firms will hire European design and engineering to become big exporters themselves ...

I just don't see how those visions are consistent with global balance - or more accurately, with global rebalancing.   Right now, the US is not selling enough airplanes and soybeans and (computer) chips and movies to Asia to pay for our existing Asian imports, or enough goods and services to Europe to pay for our existing European imports either.   But maybe my imagination is too limited ...