The folly of "bringing back manufacturing"

Team Trump talks about the issue as if we're suffering from bad deals but it's simply not true

I felt a little bad for Treasury Secretary Scott Bessent who appeared on Laura Ingraham’s show on Fox News on Tuesday evening arguing that the US has a big problem because manufacturing employment has declined to 8% of the workforce.

He’s probably right with that 8% number but he, channeling President Trump, implies not just that the decline from prior numbers inherently represents a problem for America but also that he can and should somehow be reversed through a policy change. This claim is based on Donald Trump’s claims over at least the last couple of decades that everything was fine with US manufacturing until NAFTA wrecked everything, a wrecking-ball exacerbated by China’s entrance into the WTO.

It is true that the US and the rest of the industrialized world lost manufacturing jobs to China. It’s not true that that’s the only reason. And it’s not true that NAFTA hurt the US.

Without getting much deeper into the analysis, take a look at this chart from the Federal Reserve Bank of St Louis representing manufacturing employment as a percentage of total US employment from 1940 until now.

The rate of decline of manufacturing

Please show me NAFTA. You might be able to point to China joining WTO but that’s unclear as well because it coincides with a recession and we always lose manufacturing jobs during recessions. Part of the reason is that the availability of inexpensive Chinese imports allowed the growth of higher-value-added US manufacturing.

We lost manufacturing jobs at a very steady rate from the 1950s until 2010. This is NOT about NAFTA and only moderately about China.

And to the extent that we lost jobs to China, I’m not saying that didn’t have American losers. It absolutely did. (Again, NAFTA was not similar…NAFTA likely had small positive impact though much of what happened might have been inevitable as economies and supply chains globalized.)

But there were also huge winners, and not just the hundreds of millions of Chinese who came out of poverty. I understand that that’s not of much concern to Americans and there isn’t much reason it should be, especially because they aren’t massive buyers of American production. Instead, the winners are the 300 million Americans who can buy all sorts of things for less money than they otherwise would have been able to. With the money they didn’t spend on a product made in an inefficient or non-competitive American factory, they have lots of choices:

• Buy something else, perhaps made in America

• Save for retirement

• Put a kid through college

• Buy a better house or move to a better neighborhood

• Invest, whether in stocks or private-company bonds, allowing growth of American businesses, or funding the (insane spending of the) US gov’t

• Anything else you can think of that you might want to do with your money

Trump and friends almost never talk about how they’re not just looking to raise prices but also to curtain choices. But to be fair, Trump has been honest in recent days with his comments about how he’ll be happy if parents find only two dolls on the shelf in the toy stores rather than the 30 to choose from now, and if those two are at a higher price. Is it OK for a president to reduce your choices and increase your costs in order to theoretically create a few jobs in America? I think not.

The US did not embark on more than a half-century decline in manufacturing employment because of policies or trade deals or China. Instead, the primary cause is improvements in productivity allowed by technology.

Think of how many workers can be replaced by machines and robots that don’t take sick days (well, they can break down for a while), don’t need health insurance, 401(k) programs, paid family leave, or vacation.

Yes, it sounds somewhat heartless to talk about those things in a positive sense and again I’m not saying it’s all positive; I’m simply saying it’s not all negative.

Imagine what a car would cost if it took as many workers to make one as it used to take. Right now, for $198 at Walmart I can buy a 55-inch TV that we might think of as “consumer grade” or even “low end” these days and yet has a picture quality that vastly exceeds the best TVs of my childhood, and those TVs were massive and weighed hundreds of pounds. This thing is 3 inches deep and weighs 30 pounds.

Be honest: Are you willing to pay $1200 instead of $200 to buy a TV that’s made in America, to create a manufacturing job in America. Obviously I’m guessing but I bet the difference would be something like that. Are you willing to pay thousands of dollars more for an American car in order to force the parts of the assembly process that currently takes place in our friendly neighboring countries, Canada and Mexico, back into Ohio?

I’m not, and it’s not a close call.

And as I said, it’s not just the US. You can see a few other countries’ data here: Manufacturing jobs as a share of total employment

I haven’t found a dataset going back before 1979 to show average real (meaning adjusted for inflation) earnings in the US. Please show me where NAFTA or trade with China caused a decline:

Donald Trump is the 21st century’s version of a Luddite. He despises progress although he’s surely more ignorant than the Luddites because he has easy access to this data and chooses not to see it or to believe it.

Yes, trade has losers. And they can be concentrated among certain parts of the American workforce and those parts can wield disproportionate political power (which is the sole purpose of the AFL-CIO and other large unions.) Politicians pander to those people even though protected industries often end up failing anyway because the rest of us don’t organize well enough to say, “Stop impoverishing 300 million Americans to buy the votes of 3,000 or even 30,000 workers in swing states.”

But trade has had, and will always have, FAR more winners than losers. Again, we’re relatively invisible, but we’re being fleeced by an ignorant president leading a populace who, understandably, doesn’t get trade econ. I say understandably because trade econ is some of the most challenging and often counterintuitive economics.

Here’s one way to think of it: typically each job “created” by protectionist tariffs costs consumers FAR more than almost any American would be willing to pay if they actually knew. Here’s one example, though the data span a wide range in various studies: The Production, Relocation, and Price Effects of US Trade Policy: The Case of Washing Machines (University of Chicago)

Key quote: “Despite the increase in domestic production and employment, the costs of these 2018 tari s are substantial: in a partial equilibrium setting, we estimate increased annual consumer costs of around 1.5 billion USD, or roughly 820,000 USD per job created.”

The siren song of “bring back manufacturing” is superficially appealing. But in the real world, the ability to do that is extremely limited by the cost of labor in the US as well as the cost of permitting and regulation. Sure, some manufacturing can be developed here (and should be) but it will tend to be high-value high-productivity stuff that will probably create a lot more temporary jobs building a factory (and good luck finding those workers!) than long-term jobs working in the factory.

Trying to bring back the manufacturing we used to do in the 1950s or even 1980s is a recipe for economic stagnation and making our nation poorer, not richer.