Let’s Not Bring Back Manufacturing Jobs to America

The title of this article is provocative and I understand this. But, as one economist put it: those clamoring for manufacturing jobs have never worked in one.

My point is that U.S. trade policy is completely misunderstood and our political leaders are demagoguing the issue to create fear and buy your votes.

Tariffs and protectionism harm consumers and benefit only a miniscule number of businesses and workers, workers who are mostly union members. I have the data and history of protectionism to back up my assertion. Anything you hear to the contrary are mostly economists who shill for unions. 

Global free trade has been a boon to every country that has engaged in it. On the contrary countries that engage in protectionism have held back economic development. Protectionism is mostly a political ploy by governments to keep themselves in power by misleading voters with populist and nationalist appeals. Our current presidential candidates are doing exactly that.

The main “villain” in these uniformed claims is China. They, it is said, have hollowed out manufacturing in America and have stolen jobs from hard working Americans. 

That is not true. 

First of all, America is the second largest manufacturing country in the world (after China). Industrial production (manufacturing) in the U.S. has doubled since 1994. It is presently about 11%+/- of real GDP and has remained about the same since 1947.You might remember that the 1994 free trade pact with Canada and Mexico (NAFTA) would, according to Ross Perot, result in the “great sucking sound” of jobs leaving the USA to Mexico. Well, he was wrong. Even despite two recessions, and China joining the WTO (2001), U.S. manufacturing has increased by about 50% since NAFTA. 

Employment in manufacturing has declined from about 19 million in 1980 to about 13 million today. Before you jump to conclusions, it’s not what you think. For example, output per worker has gone way up. In 1987 the government index measure was about 62. Today it is 99 or roughly double. How can that happen with five million fewer workers? 

The primary reason for job losses was the increase in productivity of workers. You might recall that the 1980s and on was the beginning to a technological boom that made workers more efficient. Capital investment flowed into manufacturing and resulted in an estimated 88% of job losses but it gave us a tremendous productivity boost. This was not a local thing: It happened in countries all over the world.

Yes, the fallout resulted in some unemployment of factory workers. But the other thing was that employment has continually increased in the U.S. over those years. Right now companies are talking about worker shortages. So, where did all those jobs go? To the service industry. As a share of GDP growth the top industries are finance, real estate, insurance (21%); professional services (13%); government (11%); education, health care (8.6%); retail (6.4%). 

Are those great manufacturing jobs better paid? The average wage today of all employees is $34.69 per hour. For all services: $31.06. For manufacturing: $33.63 per hour (union workers included in that calculation). Manufacturing pays only $2.57 per hour more than service jobs.

Again, tariffs are about politics not economics. The politicians and unions complain about how unfair Chinese competition is. I say, so what. If the Chinese government subsidizes its companies so that they can offer lower prices on the world market for their goods, who benefits and who is harmed? 

The main beneficiaries are American consumers. We buy cheaper (not in quality) Chinese goods to save money. If we pay less for a product from China, we have more money to spend on other things. We are wealthier as a result. Who is harmed? Mainly the Chinese. They are in effect paying to subsidize American consumers, so they have less money to spend because of their government’s wasteful policies. 

There are some workers who have lost jobs because of international competition. But as explained above, competition always does that, whether within our country or without. This is called “creative destruction” a concept which is wildly misunderstood. Basically competition by profitable companies drives out money losing businesses which frees up scarce capital to go into more productive uses which benefit us consumers. Also some countries are better at producing certain goods than we are.

With all the forces of international competition somehow we have thrived in America. Tariffs harm everyone involved. Even those workers who benefit from protectionist tariffs are harmed as they too have to pay higher prices for tariffed goods. We must educate ourselves to the truths of history and economics and not give way to emotional appeals from power seeking politicians.