Candidate and now President Donald Trump has talked a lot about bringing well-paying manufacturing jobs back to the United States. As Trump sees it, the manufacturing sector in the U.S., once the standard-bearer that others sought to emulate, has now been brought to its knees with massive job losses. What and who are to blame for this saturnine state of affairs? The “what” is explained by international trade and the one-sided trade deals that feckless U.S. leaders have negotiated in the past. The “who” is still unclear, but it looks like it is nations like China and Mexico.
To remedy this disagreeable state of affairs, the president has used his bully pulpit with limited success—the air-conditioner company Carrier Corp. agreed to keep some jobs in Indiana—but, more importantly, he has threatened to renegotiate immiserizing trade agreements like NAFTA and to use trade policy instruments like tariffs to punish China, Mexico and possibly other uncooperative nations. Does this kind of thinking withstand careful scrutiny? Let us find out.
It helps to begin by referring to actual facts about the manufacturing sector in the U.S. Martin Wolf has pointed to the steady decline in the share of jobs in manufacturing from about 30 percent of total employment in the early 1950s to around 8 percent at the end of 2016. In addition, all of the increase in employment between 1950 and 2016 occurred outside manufacturing. In spite of this, because of rising productivity, manufacturing output increased by 640 percent from 1950 to 2016. This boom in manufacturing output was accomplished with a smaller workforce and increasing automation.
So, where have the lost manufacturing jobs gone? Some have gone overseas, moved there by companies that have, in the process, increased profits and reduced prices for American consumers. Others have been lost to technology. The researcher Ann Harrison has contended that 80 percent of the lost manufacturing jobs were not replaced by Chinese workers but instead by machines and automation. Therefore, slapping a tariff on Chinese goods is less likely to bring any manufacturing jobs back and more likely to start a trade war with China.
A salient related point is that U.S. exports frequently depend on supply chains that use inputs produced inexpensively in other nations such as China and Mexico. Hence, if the president levies tariffs on these nations, such an action would make our own manufacturing less competitive. In addition, it is quite likely that China will slap tariffs on our machinery exports and Mexico will do the same to our agricultural exports. An escalating trade war with either of these nations will not bring manufacturing jobs back and it will also not “make America great again.”
Structural features of both the U.S. and the world economies mean that a desire to recreate the U.S. manufacturing sector of the 1950s and 1960s is likely to be prohibitively costly and therefore remain unfulfilled. In other words, we need to be forward-looking in our thinking and in the economic policies we put in place. Such a plan of action requires us to focus on three things.
First, we need to comprehend that in a large country such as ours, the impact of import competition is often concentrated spatially. This means putting real resources into affected communities so that workers are able to retrain and find new sources of employment. Second, we need to deemphasize the mantra that a college education is the only ticket to future success. Instead, we ought to learn from a nation like Germany and create rigorous apprentice programs whose graduates will be skilled and able to produce goods for which there is global demand.
Finally, we need to recognize that astute economic policies do not work in a vacuum. The enabling political and global environments both matter.
Amitrajeet A. Batabyal is the Arthur J. Gosnell professor of economics at Rochester Institute of Technology. These views are his own.
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