Must-Read: Paul Krugman: Trade and Manufacturing Employment
Must-Read: Since 1970, manufacturing employment has fallen from 25% to 8.6% of nonfarm payrolls. (Since 1940, from 31% to 8.6%.) With different–I will not say “better”__trade policy, that is, absent China’s joining the WTO and absent NAFTA, we might be at 9%. (If you read carefully, you will find that Autor-Dorn-Hanson estimate the effects of increasing trade with China rather than China’s joining the WTO. Trade with China would have grown in any event.) With better macro-industrial policy–i.e., no Reagan tax cuts, no Bush II tax cuts, no big Republican full-employment budget deficits, no strong dollar policy, proper nurturing of our communities of engineering excellence–we would have an economy more like that of Japan or Germany, and might be at 12%.
But 12% is a far cry from 25% or 30%. And almost all of the paths I can think of for getting back toward 12% are destructive. And every idea I have heard from the Trump camp for getting back toward 12% is (a) destructive, and (b) likely to be counterproductive on its own terms:
Paul Krugman: Trade and Manufacturing Employment: “America used to be a nation where a lot of people worked in manufacturing…
…Today, we basically work in office parks and services. But people aren’t reconciled to the change; and ? (I’m using that symbol for the man who will use the Oval Office to turn us into a banana republic) is promising to bring the jobs back by punishing companies who move jobs abroad…. In conversations with various fairly sophisticated people, I’ve realized that there’s a widespread impression of major disagreement within the field… fed, it has to be said, by some misleading statements by economists themselves…. There’s actually very little disagreement about either the facts or the counterfactuals…. it comes down to which of these two questions you’re trying to answer:
- How much of a role did trade play in the long-term decline in the manufacturing share of total employment, which fell from around a quarter of the work force in 1970 to 9 percent in 2015? The answer is, something, but not much.
How much of a role did trade play in the absolute decline in manufacturing employment, down about 5 million since 2000? Here the role is bigger, basically because you’re comparing the same effect with a much smaller denominator; even so, trade is less than half the story, but by no means trivial….
Absent that trade deficit, U.S. manufacturing would probably be about 2 percent of GDP higher… the manufacturing share of employment would also be about 2 percentage points higher… manufacturing would be maybe a fifth bigger than it is…. That wouldn’t make much difference to the long-run downward trend, but looms larger relative to the absolute decline since 2000. But what about the now-famous Autor-Dorn-Hanson paper http://www.ddorn.net/papers/Autor-Dorn-Hanson-ChinaShock.pdf?… It’s… consistent…. The… China shock… 985,000 manufacturing jobs between 1999 and 2011. That’s less than a fifth of the absolute loss of manufacturing jobs over that period, and a quite small share of the long-term manufacturing decline…. The adverse effects on regional economies were large and long-lasting. But… America’s shift away from manufacturing doesn’t have much to do with trade, and even less to do with trade policy.