U.S. Markets closed

It’s Not Just Autos: Shortage of Japanese Parts Puts U.S. Economy at Risk, Tonelson Says

Fin - Daily Ticker - US

The devastating earthquake and tsunami that hit Japan last month is slowly starting to have a bigger impact on U.S. manufacturing.

Toyota announced Monday that its North American plants would likely have to close later this month due to supply disruptions in Japan. Honda, Nissan and Ford have already announced temporary plant shutdowns and Chrysler could be next in line.

But the impact of Japan's disaster on U.S. manufacturing has been vastly underestimated and goes far beyond the auto and electronics industries, says Alan Tonelson, research fellow at the U.S. Business and Industry Council and author of Race to the Bottom.

A new report by the Council found that "many of the highest rates of dependence on Japan are found in non-electronics capital goods sectors — industrial machinery and components vital to high-value production throughout the domestic U.S. manufacturing base."

The report — entitled A Supply-Chain Earthquake? American Industrial Dependence on Japanese Manufactures — cites these market-share figures for the sectors unrelated to electronics and automobiles that come from Japanese imports:

  • Metal cutting machine tools = 21% of U.S. market-share comes from Japan
  • Turbines for generating energy = 14.8%
  • Metal-forming machine tools = 12.7%
  • Plastic and rubber making machinery = 11.2%

"If you go to most small- and medium-sized factories in this country in particular, you are going to see a wealth of foreign made machine tools many of which are coming from Japan," Tonelson tells Aaron in the accompanying interview. "[Therefore] if we have supply chain disruptions due to the Japanese earthquake … that is likely to affect much of the advanced high-value manufacturing sector because these machine tools and bearings and forgings, etc. are such an integral of advanced manufacturing today."

Such disruptions -- over and beyond those of car and electronics -- certainly would not bode well for the U.S. economic recovery. "When you consider the number of advanced manufacturing industries that are so heavily reliant on Japanese capital equipment, so many different types, you'd have to say [a double-dip recession] is a very real possibility," he says. "We also have to remember that these high-value U.S. manufacturing industries generate an out-sized share of the economies best-paying jobs — especially for working class people."

But there may be a silver lining to this story.

Should shortages continue, Tonelson hopes that U.S. manufacturers can adapt to fill the growing supply gap. But, in order for that to happen, he says there has to be some major shifts in policy-making that would support jobs here at home, rather than (continuing to) sending them overseas.

Tell us, do you think the U.S. should be less reliant on foreign made goods?