Manufacturing in the US

One of US president Donald Trump’s campaign promises was to bring well-paid manufacturing jobs back to the United States by reworking international trade agreements. Peter Navarro and Wilbur Ross, two major figures in the Trump administration, advocated an economic vision to accomplish this in a paper posted to the campaign’s website in September 2016. The main claim made by Navarro and Ross is that by relocating factories to other countries, US manufacturers widened the trade deficit, destroyed good-paying manufacturing jobs and left workers to take lower-paying service sector positions.

“Technological progress has been a major driver of losses in manufacturing jobs in the US and elsewhere.”

It’s true that trade policy affects manufacturing jobs. Yet technology has been a major factor in the global decline of manufacturing jobs. And the assertion that service sector jobs are lower paid “is a myth”: Nonsupervisory manufacturing workers’ average hourly wages haven’t kept up with those of employees in sectors such as information, mining and logging, finance, construction, professional and business services, and education and health care. Service jobs, on average, paid 80 cents per hour more than manufacturing jobs in 2016.

“If the US were not to impose tariffs on foreign competitors,…the price of Fords produced at American wage levels would be higher than those of Volkswagens produced at Mexican wage levels.”

Returning manufacturing to the United States can happen with or without protectionist tariffs. In the latter case, domestically produced items would be more expensive because of the higher wages US companies offer compared to those of firms located in less costly countries. American consumers would then prefer to purchase the lower-priced foreign-made alternatives. Reduced US sales would inevitably lead to US job losses. If Trump imposes tariffs, as he has promised, Americans would have no choice but to pay more for many US-made products. Manufacturing wage levels might increase temporarily but would likely drift down as competition for those jobs rose. In the meantime, Americans bearing the brunt of higher prices would spend less on services. Service-sector workers, who might seek increased pay in manufacturing, could not readily acquire the necessary skills: “A server cannot leave the restaurant on Friday and start to build cars on Monday.” And retaliation by US trade partners could put a severe dent in the businesses of US exporters.

“It is still hard to see how putting up barriers after the fact would be a winning policy for Trump’s America.”

If there is any argument against recent trade policy, it is that international trade opened up too fast for labor markets to adjust. Nonetheless, the idea of bringing manufacturing jobs to the United States through protectionist policies “looks like a losing proposition.”