The Relationship Between Trade and Manufacturing Jobs

It is a well-known fact that income inequality in the United States has been widening over the past couple of decades. There’s a great deal of political and economic banter surrounding this topic as seen in declarations such as these: the middle class is disappearing, the top 1% holds a disproportionate amount of the nation’s wealth, and American Dream is no longer a reality. This widening of the income gap between rich and poor Americans is partially attributable to the ongoing trend occurring in this country that manufacturing jobs are vanishing. From 1979 to 1999, the total number of manufacturing jobs decreased from about 19 to 17 million. The next decade, however, saw a much larger reduction. By 2009, there was an estimated 12 million manufacturing jobs remaining, and this number is continuing to decline. The decline in manufacturing has been debated at length in economics and politics, and various explanations for its occurrence are circulating at this time. By far, the most prevalent yet incorrect explanation for the disappearance of manufacturing jobs in the U.S. is the country’s involvement in trade and lousy trade deals. This idea played a major role in politics, especially the 2016 presidential election. Candidates such as Trump and Sanders aggressively spoke out against the North American Free Trade Agreement (NAFTA) and Trans-Pacific Partnership (TPP). They campaigned on the promise to engage in more protectionist policy and to bring manufacturing back to America from abroad—mainly China and Mexico.

This may seem curious to economics students—isn’t trade supposed to be mutually beneficial, what about comparative advantage? Economists have argued yes, the U.S. has largely benefitted from these trade agreements, but at the same time, it has cost our manufacturing industry some jobs. These job losses due to trade, however, are nowhere near as large as presented by politicians. According to Brad Delong, only an insignificant potion of the decline in manufacturing jobs stems from changing trade patterns: “The North American Free Trade Agreement, contrary to what US President Donald Trump has claimed, contributed almost nothing to manufacturing’s decline. In fact, all of those ‘bad trade deals’ have helped other sectors of the American economy make substantial gains; and as those sectors have grown, the share of jobs in manufacturing has fallen by only 0.1%.” On the other hand, the gains from international trade are large. So many goods are cheaper and better in quality than they were before trade (shoes, watches, kitchen appliances, phones, etc.). While these benefits are diffuse, the pain is concentrated (it doesn’t matter how cheap these goods are if I am one of the few who lost my job).

If trade is not the reason for this decline in manufacturing, what then is the cause? Many economists argue that the largest contributor to this decline is automation. It accounts for roughly 85% of the job losses accumulated between 2000 and 2010. This explanation makes sense, because it joins two different strains of evidence. These two strains are: factory jobs are declining; however, output from factories has been growing. The most reasonable way to connect these two seemingly contradictory trends is that factories’ replacement of human labor with robots has increased efficiency and therefore, production. This process is irreversible, and is likely to continue at an even faster rate in the future. This means that manufacturing jobs are never going to return to the U.S. The president’s and government’s plans to adopt protectionist policies then will have only a marginal benefit for those who lost their manufacturing jobs, while imposing enormous costs for the entire country and all consumers. Prices will rise steeply, and this will not be taken lightly. Instead of bashing trade deals, a much better idea is for the government to focus on ways to help those who have been displaced from their manufacturing jobs by paving roads for them to retrain/migrate to areas of the economy where they are needed, and can earn a decent wage.

https://www.bloomberg.com/view/articles/2017-05-03/trade-is-the-scapegoat-for-political-failure

http://www.npr.org/2016/04/18/474393701/china-killed-1-million-u-s-jobs-but-don-t-blame-trade-deals

https://www.ft.com/content/dec677c0-b7e6-11e6-ba85-95d1533d9a62

https://www.project-syndicate.org/commentary/manufacturing-jobs-share-of-us-economy-by-j–bradford-delong-2017-05

 

 

 

 

 

 

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