he value added factor accounted for 25.0 percent in the manufacturing sector and 27.3 in the employment sector. Respectively, in 1990, the figures were 18.4 percent of GDP and 17.4 percent of employment (Krugman & Lawrence, 1994, p. 45). In same the twenty year span, in seeming contradiction, imports rose from 11.4 to 38.2 percent of the manufacturing contribution to GDP. Exports also rose dramatically, from 12.6 to 31.0 percent of value added. In layman's terms, this indicates that more raw materials and inputs were being purchased from foreign sources, than domestic sources. These inputs represent fewer value added products, and more raw materials that require a lower degree of technology to produce. The idea, then, is to locally produce more technologically advanced products, which require fewer skilled workers, and more attention from the service sector.
The contribution of manufacturing to the GDP is defined by value added in the sector, that is, by sales minus purchases from other sectors. When imports displace a dollar of domestic manufacturing sales, a substantial fraction of that dollar would have been spent on inputs from the service sector, which are not intrinsically part of a manufacturers contribution to the GDP. This "leakage" of GDP is accounted for in other ways. Each dollar of trade deficit reduces the manufacturing sector's contribution to the GDP by 60 cents. In 1990, for example, the trade deficit in manufacturing was $73 billion. This deficit reduced manufacturing value by approximately $42 billion. The other $31 billion represented leakage, goods and services that manufacturers would have purchased from other sectors (Krugman & Lawrence, 1994, p. 48). Because these other sectors are increasingly foreign, the conclusion is often drawn that our economy, and wages are suffering at the hands of foreign business. In a real sense, understanding why the American economy has apparently lost vigor means understanding t...