Trade is not the problem By Scott Sumner

It is difficult to convince people that trade is not stealing American jobs, even with the unemployment rate now at 3.9%, which is less than half of the rate in the Eurozone (which has a massive trade surplus.) Some pundits have pointed out that manufacturing output keeps hitting new highs, and that the actual problem is automation—we are able to produce more goods with fewer workers.

A new article over at Quartz challenges this view, pointing out that much of the growth in manufacturing was concentrated in the computer sector, where productivity growth was extremely rapid. Other sectors were much more sluggish. That may be true, but trade doesn’t really account for the huge drop in manufacturing employment since 2000:

Between 2000 and 2010, manufacturing employment plummeted by more than a third. Nearly 6 million American factory workers lost their jobs. The drop was unprecedented–worse than any decade in US manufacturing history. Even during the Great Depression, factory jobs shrunk by only 31%, according to a Information Technology & Innovation Foundation report. Though the sector recovered slightly since then, America’s manufacturing workforce is still more than 26% smaller than it was in 2000.

Between 2000 and 2016, imports edged up from 14.3% of GDP to 14.7% of GDP. But exports rose even faster, from 10.7% of GDP to 11.9% of GDP. As a result, the current account deficit actually got smaller, falling from about 4% of GDP to roughly 2.5% of GDP:

So why the perception that trade is the problem? Perhaps trade has interacted with automation. Thus trade allows the US to specialize in producing more capital intensive goods, and import more labor intensive goods. If we import more shoes and clothing and furniture and autos and export more corn and chemicals and computers and aircraft, then the trade balance may not be affected, but there may be a loss of jobs in specific regions that are impacted by trade with China and Germany and Mexico.

The Quartz article also argues that trade played a big role in the political success of Donald Trump. That seems a bit of a stretch. Trump won easily in the farm belt, a region that has has massively benefited from trade, and would be hurt by protectionism. The same applies to coal mining areas. He also carried Mission Viejo (California) where I currently live—another area that hugely benefits from trade. While trade was an issue in certain areas, if people voted on the basis of how they benefit from international trade, then Trump would have lost in a landslide.

Obviously there are specific areas where trade has reduced employment, and Trump may have benefited in those regions. But protectionism is not particularly popular in America, partly because the vast majority of Americans benefit from trade. If a politician wants to run as a “populist”, they ought to favor trade.

HT: Cyril Morong