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I had a couple of people ask me what I thought of this NYT piece on trade and manufacturing from last week. The piece makes some valid points, but it continues to push the elites’ big lie — that trade was not the major factor in the collapse of manufacturing employment in the 00s. 

It makes this point explicitly:

“Take manufacturing. Of the six million factory jobs erased during the 2000s, Chinese imports accounted for about one-sixth of the losses, or a million jobs. But the other five million were killed off by other forces.”

The other forces are supposed to be productivity growth and the shift from goods consumption to service consumption. There is a big problem with these alternative explanations. We had productivity growth forever. We also have been seeing people shift from goods consumption to service for a long time. It did not just begin in the 00s, or end there. But the job loss in manufacturing did.

Here’s the picture on employment in manufacturing since 1970.
 

(Click on image to enlarge)

As can be seen, there are cyclical ups and downs throughout the whole period, but the only time we saw widespread job loss outside of a recession was in the 00s. It seems a bit fantastical to think that productivity growth and a shift to service consumption cost us 40 percent of manufacturing jobs in this decade when the trade deficit exploded, but not in the decades before or in the last 15 years, when employment in the sector has been on a modest upward trend. 

It’s true that productivity growth in manufacturing was more rapid at the start of that decade than in the rest of the period, but there is a simple explanation for this upturn, which ended very quickly. When trade displaces domestic manufacturing, it is the least productive plants that are likely to close.

Getting rid of the least productive plants raises productivity in the same way that pushing the short people out of a room will raise the average height. If we lose the 40 percent least productive manufacturing plants due to import competition, average productivity in the manufacturing sector will increase almost by definition. Rather than being a cause of job loss in the 2000s, rapid productivity growth was the result of the job loss.

The piece also notes people polled on factory closings were far more likely to say the government should respond to job loss when it was due to trade than when it was due to technology or inept management. While this view is presented as irrational, it actually is quite rational.

Trade is hugely influenced by government policy. In the last half century, we made it far easier to import manufactured goods from other countries. We did little or nothing to allow workers in highly paid professions, most importantly doctors and dentists, to come into the United States and practice their profession. As a result, our doctors are paid twice as much as doctors in other wealthy countries. We also made government-granted patent and copyright monopolies longer and stronger and imposed these rules on our trading partners. 

These policies shifted an enormous amount of income upward. It is not surprising that people would therefore resent trade policy and demand government action to protect workers.

However, while it is important to be honest about this history, it doesn’t mean that Trump’s policy of high tariffs is likely to bring back large numbers of manufacturing jobs and to increase wages. As the piece points out, historically manufacturing jobs paid substantially more than jobs in other sectors. This was because they were more likely to be union jobs.

That is no longer the case today. The manufacturing sector is only slightly more unionized than the rest of the private sector — 8.0 percent compared to 6.0 percent in the rest of the private sector. As a result, the pay in manufacturing jobs is little different than the pay for other jobs in the private sector. 

This means that even if Trump’s trade policy did lead to an increase in manufacturing employment, it will not bring back the sort of good-paying jobs that people had half a century ago. Opening to trade in the way we did may have been a bad mistake, which should be acknowledged, but it is not reversible.

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