China Ends America's Century Old Manufacturing Dominance

by Peter Gorenstein

Ending a 110-year run for America as the world's dominant producer, China has overtaken the United States as the world's largest manufacturer. According to economics research firm IHS Global Insight, China manufactured 19.9% of the world's goods in 2010, while the U.S. accounted for 19.4%.

This marks the first time since 1850 that China has held the crown as the world's largest manufacturer, the latest sign of the nation's economic resurgence. (See: China Overtakes Japan in Economic Clout: Is the U.S. Next?)

The U.S. “should be worried” by the news, Deborah Wince-Smith, chief executive of the Council on Competitiveness, tells The Financial Times. “This shows the need for the U.S. to compete in the future not on the basis of commodity manufacturing but on innovation and new kinds of services that are driven by production industries."

True as that might be, it doesn't mean the world's most populated country is destined to hold the crown for as long as the U.S.. China is already suffering the growing pains of higher labor costs, labor shortages and a push for better working conditions in its factories.

There is, however, plenty of reason the U.S. should use this as a wake-up call. America must recognize China is no longer just producing low-end cheap products, it's now home to many high-tech components that live in Apple devices and other consumer electronics. Thanks to better technology, education and infrastructure the Chinese will continue to move up the production food chain, including highly sophisticated weaponry.

Wages in the U.S. can't compete with those in China or other emerging markets, where manufacturing enjoys massive support from government susidies and incentives.

Is it time for American to adapt similar policies or do corporations already benefit enough for the current system?