Friday, February 22, 2008

trade policy and manufactoring jobs

Recently there have been a number of people that have blamed foreign trade for the decline in the number of manufacturing jobs in the United States, but this is mainly wrong, while undoubtly some manufacturing jobs have left the United States due to freer trade policies, it is not the main reason for the decline in manufacturing jobs. The main reason is the increasing productivity of the American work force in general and in the manufacturing industries in particular and improved production process and that have allowed more industrial output to be produced with fewer workers and inputs, to be exact between 1980-2003 manufacturing outputs in the United States has increased by 93 percent. Productivity has been the main reason for this, manufacturing productivity has grown at almost twice the rate of the average for non-farm business, but demand for these products have grown at a far slower rate meaning that it takes fewer workers to met demand and that has been the main reason for the falling percentage of workers in employed in the manufacturing industry as a percentage of overall employment and as percentage of GDP.

Trade restrictions would only harm the American economy in the long run, while it would probably protect some jobs, the cost to the larger economy would be greater than the “value” of those jobs protected. The reason for this is that protectionist trade policies create distortions in the larger economy as companies and consumers are no longer able to buy from the lowest cost producer, they end up paying more for the products they buy from the protected industry and this in turn effects the decision they make about buying goods and services from non-protected industries. For example take the automobile industry, it buys a number of components parts for it product from other countries because it cheaper, if they were required to buy it from domestic producers that would charge a higher price, this higher price would be end up being included in the final price of their product, the car, truck, ect that they produce. This will have a couple effects on the economy, one the higher car prices will lead to fewer cars being sold, which in turn will reduce the revenues and profit earn by the car company and this will lead to them either lay off workers, higher fewer workers in the future or paying lower wages, or some combination of the three. The second effect comes from people that do still buy cars having to pay more for each car they buy, which in turn will leave them less to spend on other goods and services, this means that non-protected industries will see their revenues and profits fall, which in turn will lead them to lay off workers, higher fewer works in the future or pay lower wages. These effects are the reason that protectionist trade policies will end up costing the economy more than the “value” of the jobs protected.

For that matter there is little reason to worry about a the American economy running out of good paying jobs, since the 1980s the number of high paying jobs in management and in specialized professional jobs has roughly double, growing at a rate that is far higher than the rate of population growth, and the percentage of the total jobs in economy made up this has increased from 23% to 30%, and 9 million jobs in this area are expected to be added by 2012.

The people that are calling for trade restriction do so for a number of reason, many of them because they are misinformed, other because they are jobs that have been lost for one of the above reason and are looking for some to blame, but many of people that are calling for protectist trade policies do so because they stand to benefit economically at the cost of the larger economy and most of the public.

1 comment:

Jesse Richman said...

I partially agree with your argument, but I think it is incomplete. You might find my recent article on Enter Stage Right interesting.

http://www.enterstageright.com/archive/articles/0508/0508republicantrade.htm