Should-Read: Paul Krugman: “This might be a good time to talk about the arithmetic of trade and manufacturing… why even a full-on trade war can’t restore the manufacturing-centered economy Trump wants back…

…Once upon a time manufacturing really was a third of employment; these days it’s well under 10 percent. But how much does trade have to do with this decline? The US used to run roughly balanced trade; now it runs a deficit of about 3 percent of GDP. If that deficit were closed, most of the shift would be in manufacturing. But a dollar of trade shift in manufacturing would add much less, maybe 60 cents, to manufacturing value-added, because manufacturing uses a lot of service inputs. So were talking about maybe 1.8% of GDP added to manufacturing—or about 15% more than now. First-pass estimate would be a comparable increase in employment. So we’d be talking about raising manufacturing from 8.5% of employment to maybe 9.8%. We’d still be overwhelmingly a service economy, nothing like we once were. Not saying that trade had no role; over shorter periods, like the surge in deficits under Bush, it was a big factor in absolute changes in manufacturing employment. But over the long run manufacturing decline reflects forces much bigger than trade. Which is why the European Union, which seems to be Trump’s current focus of enmity, has also seen a steady decline in manufacturing as a share of total employment…


Brad DeLong


Connect with us!

Explore the Equitable Growth network of experts around the country and get answers to today's most pressing questions!

Get in Touch