After We Kill Free Trade, Are We Next Going to Smash the Machines?

 

pethokoukis_04042016-e1459784418581There has been plenty of upside for America from more free and open trade. A new Economist piece cites many of them: For consumers, lots of things — including clothes and home furnishings — cost the same as they did 30 years ago. Overall, China trade specifically boosts spending power by $250 a year for the average American, with lower-incomers benefiting more. Offshoring and outsourcing low-wage assembly have also boosted the productivity and wages of high-skill workers, with the design (right here) and manufacturing (over there) of many Apple products being the classic example.

But there have been downsides, too. New research finds that some American communities whose manufacturing jobs moved to Asia never really recovered. Jobless rates stayed high, worker earnings depressed. Many displaced workers never moved or found work in less-trade affected sectors as economic models had predicted. They just got stuck. But if you listen to some presidential candidates, you would think that trade has been the primary driver of the decades-long decline in manufacturing employment. If they are right, then reversing course might bring jobs back. But that economic assumption appears wrong. From The Economist:

The sharp decline in American manufacturing employment began in 2000, just as Chinese imports took off. Yet on the extreme assumption that every dollar spent on imports replaced a dollar spent employing an American, Mr Lawrence calculates that between 2000 and 2007 Chinese imports caused, at most, 188,000 of 484,000 annual manufacturing-job losses. A recent, more detailed, estimate by Daron Acemoglu, David Autor and others chalks up about 1m of 5.5m manufacturing jobs lost between 1999 and 2011 to Chinese competition (with similar-sized job losses in other industries).

This implies that many other factors are in play.Technological change is probably the prime culprit for shrinking manufacturing employment. Productivity increases in the industry have been staggering. For instance, since 1994 carmaking’s contribution to GDP—to which outsourced production by American firms does not contribute—has fallen by about 10%. But there are 30% fewer carmaking jobs. This had led to the false impression that America’s car industry has outsourced most of its work. Such are the advances in manufacturing technology that if China disappeared tomorrow, far fewer jobs would return to America’s shores than left them. … Between 2000 and 2007 Americans left 5m jobs a month and started 5.1m new ones. A million or so jobs lost to trade with China over more than a decade seems tiny by comparison.

Indeed, China itself is turning more toward machines as worker wages rise. From one of my recent The Week columns:

In response, China is making a huge automation push. Beijing planners view advanced robotics as key to raising productivity and keeping economic growth strong as the country transitions to a more service-based economy. It’s already happening, actually. The nation is on pace to soon have more industrial robots than any other advanced economy. Foxconn, a Taiwan-based company that employs over a million workers to assemble iPhones and other Apple products in mainland China, wants robots to take over 70 percent of its assembly work within three years. So when Trump says he wants to force Apple to make its products in America, what he’s really unintentionally saying is that he wants American robots to do the work of Chinese robots.

Those lost manufacturing jobs aren’t coming back in large numbers, though technological advances may mean we can create new ones here. At the same time, we need to upgrade our national safety net for workers hurt by trade — including helping them move to where new jobs are –while also preparing them for new opportunities. As The Economist concludes: “If America is to go on reaping the gains from trade, it must ensure it compensates those who lose out. You can oppose protectionism, or you can oppose redistribution. It is getting harder to do both.”

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  1. Jamie Lockett Member
    Jamie Lockett
    @JamieLockett

    I have some spare wooden shoes if any of the protectionists need them.

    • #1
  2. Richard Fulmer Member
    Richard Fulmer
    @RichardFulmer

    In a recent EconTalk discussion, economist Timothy Taylor made the point that what government does best is collect money and write checks.  What the market does best is provide goods and services that people want.

    Sending a check to defray the costs of moving to areas where jobs are available sounds like something government can handle.  What I suspect they’ll mess up is providing the “service” of determining whether an applicant is, in fact, moving from a depressed area to a growing area.  The problem will be that politicians will have every incentive to interfere with the determination.

    Similarly, government bureaucrats are certainly capable of sending someone a check to pay for retraining.  Determining what constitutes “retraining,” though, is likely to beyond their capability.

    • #2
  3. Fake John/Jane Galt Coolidge
    Fake John/Jane Galt
    @FakeJohnJaneGalt

    Retraining means writing large checks in the forms of grants, loans and tax breaks to some cronies company so a few minorities can be placed in a situation that creates a presidential and a few other PR events before the cronies bankrupt the company.  As long as the politicians can get some good press and contributions everybody is happy.

    • #3
  4. BrentB67 Member
    BrentB67
    @BrentB67

    Jamie Lockett:I have some spare wooden shoes if any of the protectionists need them.

    What size?

    • #4
  5. Jamie Lockett Member
    Jamie Lockett
    @JamieLockett

    BrentB67:

    Jamie Lockett:I have some spare wooden shoes if any of the protectionists need them.

    What size?

    There’s no problem, I assure you.

    • #5
  6. Z in MT Member
    Z in MT
    @ZinMT

    James Pethokoukis: After We Kill Free Trade, Are We Next Going to Smash the Machines?

    After listening to Alex Jones this weekend I am beginning to think that is what his ilk wants.

    • #6
  7. Robert Lux Member
    Robert Lux
    @RobertLux

    Wow, $250 extra dollars a year!!  Ever look at the figures for what working class folk have to shell out per month on food and housing? These have actually increased substantially. Truth is, things have been going quite badly for a huge segment of the America for quite a while.

    [W]hat is the American economy for?  Is it to raise standards of living for the Third World poor while enriching transnational billionaires at the expense of the American middle and working classes?  Or to serve the interests of the American people?…

    Ronald Reagan required Japanese auto makers to build plants on American soil, and thus hire American workers and pay American taxes, as a price of admission to our market.  For this heresy against free trade, will National Review expel him from the conservative pantheon?”

    • #7
  8. Arizona Patriot Member
    Arizona Patriot
    @ArizonaPatriot

    James:

    Do you know of any good research into why displaced American manufacturing workers “got stuck”?

    I can think of several possibilities, from higher home ownership rates (which make it harder to move) to more generous government assistance or even disability fraud (which gives less incentive to move), to the psychology of the loss of job, status, and ensuing depression (which undermines incentives).

    It does seem that the labor market may not react like other markets.  For example, I get the impression that wages are “sticky” when going down — that is, when unemployment increases, we would expect wages to drop, but they may not don’t drop for existing workers at the same jobs

    • #8
  9. Jamie Lockett Member
    Jamie Lockett
    @JamieLockett

    Arizona Patriot:James:

    Do you know of any good research into why displaced American manufacturing workers “got stuck”?

    I can think of several possibilities, from higher home ownership rates (which make it harder to move) to more generous government assistance or even disability fraud (which gives less incentive to move), to the psychology of the loss of job, status, and ensuing depression (which undermines incentives).

    It does seem that the labor market may not react like other markets. For example, I get the impression that wages are “sticky” when going down — that is, when unemployment increases, we would expect wages to drop, but they may not don’t drop for existing workers at the same jobs

    The labor market turned out to be much stickier than previously believed. Also the fact that this was a real estate driven recession made relocation much harder than previous recessions.

    • #9
  10. Richard Fulmer Member
    Richard Fulmer
    @RichardFulmer

    Arizona Patriot:James:

    Do you know of any good research into why displaced American manufacturing workers “got stuck”?

    I can think of several possibilities, from higher home ownership rates (which make it harder to move) to more generous government assistance or even disability fraud (which gives less incentive to move), to the psychology of the loss of job, status, and ensuing depression (which undermines incentives).

    It does seem that the labor market may not react like other markets. For example, I get the impression that wages are “sticky” when going down — that is, when unemployment increases, we would expect wages to drop, but they may not don’t drop for existing workers at the same jobs

    Automation.  Just as in agriculture, where only a couple of percent of the workers now feed the rest of the country and much of the world, we produce far more manufactured goods today than we used to, but with far fewer people.  The United States became a service economy – that is, the bulk of the country’s jobs were in the service sector – sometime in the 1950s.

    • #10
  11. Richard Fulmer Member
    Richard Fulmer
    @RichardFulmer

    While machines eliminate some jobs, they also create new ones.  Not only in the design, production, and maintenance of the machines, but also in their use.  Lately, the trend has been the creating of smaller and cheaper equipment: computers, 3D printers, “smart” sewing machines, embroidery machines, decal makers, you name it.  These machines open up new opportunities for entrepreneurs, driving what I call “radical customization.”  People are able to purchase products made unique by these machines.

    We need to teach our children how to tap into the opportunity that an entrepreneurial society offers.  Unfortunately, American students are far more likely to be taught that the system is rigged, the deck is stacked against them, and any effort on their part is futile.  Meanwhile, people are coming from overseas and availing themselves of the opportunities that the country affords and that Americans have been taught to ignore.

    • #11
  12. Zafar Member
    Zafar
    @Zafar

    It’s just a matter of time before the Butlerian Jihad is upon us.

    • #12
  13. Mike LaRoche Member
    Mike LaRoche
    @MikeLaRoche

    Robert Lux:Wow, $250 extra dollars a year!! Ever look at the figures for what working class folk have to shell out per month on food and housing? These have actually increased substantially. Truth is, things have been going quite badly for a huge segment of the America for quite a while.

    [W]hat is the American economy for? Is it to raise standards of living for the Third World poor while enriching transnational billionaires at the expense of the American middle and working classes? Or to serve the interests of the American people?…

    Ronald Reagan required Japanese auto makers to build plants on American soil, and thus hire American workers and pay American taxes, as a price of admission to our market. For this heresy against free trade, will National Review expel him from the conservative pantheon?”

    So it would seem.

    • #13
  14. Big Green Member
    Big Green
    @BigGreen

    Robert Lux:Ronald Reagan required Japanese auto makers to build plants on American soil, and thus hire American workers and pay American taxes, as a price of admission to our market. For this heresy against free trade, will National Review expel him from the conservative pantheon?”

    Well, I doubt that the National Review would expel him from the conservative pantheon because the bolded part isn’t actually true.  He put some tariffs on Japanese imported vehicles for a period of time but he made no such requirement.  The Japanese still export plenty of vehicles to the U.S.  The main reason they built plants here over time was it took them a while to figure how to do it in the South so they wouldn’t be burdened with UAW labor.  Also, the yen weakened significantly from the early 1990s on so it made much more economic sense to build in the U.S.

    Further, Reagan was a unapologetic supporter of global trade and was a strong proponent of what became NAFTA (he proposed something similar in his 1980 campaign).  Guess what?  The Japanese automakers export almost a million vehicles a year from Mexico to the U.S.

    Now that you know the facts, are you going to throw Reagan out of your “America first” conservative Pantheon that understands the economy is serving the interests of the American people?

    • #14
  15. Big Green Member
    Big Green
    @BigGreen

    Mike LaRoche:

    Robert Lux:Wow, $250 extra dollars a year!! Ever look at the figures for what working class folk have to shell out per month on food and housing? These have actually increased substantially. Truth is, things have been going quite badly for a huge segment of the America for quite a while.

    [W]hat is the American economy for? Is it to raise standards of living for the Third World poor while enriching transnational billionaires at the expense of the American middle and working classes? Or to serve the interests of the American people?…

    Ronald Reagan required Japanese auto makers to build plants on American soil, and thus hire American workers and pay American taxes, as a price of admission to our market. For this heresy against free trade, will National Review expel him from the conservative pantheon?”

    So it would seem.

    No, it wouldn’t seem so since what is written above is mostly fiction.

    • #15
  16. Robert Lux Member
    Robert Lux
    @RobertLux

    Big Green:

    Robert Lux:Ronald Reagan required Japanese auto makers to build plants on American soil, and thus hire American workers and pay American taxes, as a price of admission to our market. For this heresy against free trade, will National Review expel him from the conservative pantheon?”

    Well, I doubt that the National Review would expel him from the conservative pantheon because the bolded part isn’t actually true. He put some tariffs on Japanese imported vehicles for a period of time but he made no such requirement. The Japanese still export plenty of vehicles to the U.S. The main reason they built plants here over time was it took them a while to figure how to do it in the South so they wouldn’t be burdened with UAW labor. Also, the yen weakened significantly from the early 1990s on so it made much more economic sense to build in the U.S.

    Further, Reagan was a unapologetic supporter of global trade and was a strong proponent of what became NAFTA (he proposed something similar in his 1980 campaign). Guess what? The Japanese automakers export almost a million vehicles a year from Mexico to the U.S.

    Now that you know the facts, are you going to throw Reagan out of your “America first” conservative Pantheon that understands the economy is serving the interests of the American people?

    Ronald Reagan, protectionist: https://mises.org/library/ronald-reagan-protectionist

    • #16
  17. Pony Convertible Member
    Pony Convertible
    @PonyConvertible

    Any discussion about why we have less manufacturing jobs in America has to include taxes and regulations.  My company, a medical device manufacturer, had plans to built 9 new plants in the Midwest.  These plans were scraped when the medical device tax was implemented.

    • #17
  18. The Cloaked Gaijin Member
    The Cloaked Gaijin
    @TheCloakedGaijin

    After We Kill Free Trade, Are We Next Going to Smash the Machines?

    No, just…

    1. increase welfare.
    2. increase the minimum wage.
    3. increase the salaries, pensions, and employment numbers for the favored white-collar government and educational bureaucrat and administrative buggy whip industry.
    4. Repeat as necessary.

    Not even Republican politicians are interested in attacking the governmental administrative parasite monster that they helped create.

    “…employers like Amazon will have less incentive to lobby for that unskilled immigrant labor. They have their robots, after all. Upshot: Time is maybe not on the side of Rep. Gutierrez and the La Raza-centered lobby for unimpeded immigration of less skilled workers from Latin America and elsewhere.  The coming amnesty/borders debate could be their last shot…” — Mickey Kaus, April 4, 2016

    • #18
  19. Big Green Member
    Big Green
    @BigGreen

    Robert Lux: https://mises.org/library/ronald-reagan-protectionist

    So you are admitting that your previous quote about “requiring” the Japanese build auto plants in the U.S. if they want access to the U.S. market was completely false?  I never suggesting Reagan, didn’t play politics but the Mises piece also ignores about 70% of his record which was devoted promotion of ever freer global trade.  Also, written in 1988…pre NAFTA and NAFTA likely doesn’t exist without Ronald Reagan.  Keep telling yourself fantasies.

    • #19
  20. Fake John/Jane Galt Coolidge
    Fake John/Jane Galt
    @FakeJohnJaneGalt

    Pony Convertible:Any discussion about why we have less manufacturing jobs in America has to include taxes and regulations. My company, a medical device manufacturer, had plans to built 9 new plants in the Midwest. These plans were scraped when the medical device tax was implemented.

    Nothing can destroy an industry faster than the US government regulation.

    • #20
  21. Arizona Patriot Member
    Arizona Patriot
    @ArizonaPatriot

    Zafar:It’s just a matter of time before the Butlerian Jihad is upon us.

    Good Dune reference.  Of course, SciFi allows an author to posit machines that enslave humanity.  At  present, the potential threat is from the Luddites, not the thinking machines.

    • #21
  22. Could Be Anyone Member
    Could Be Anyone
    @CouldBeAnyone

    James Pethokoukis: As The Economist concludes: “If America is to go on reaping the gains from trade, it must ensure it compensates those who lose out. You can oppose protectionism, or you can oppose redistribution. It is getting harder to do both.”

    Since when did I have a moral imperative to ensure some one else is employed or paid value for losing their employment after they became less efficient than other means of production? If this is truly the logic by which we are to govern ourselves then let us push for reparations for those that lost their jobs as artisans and as farm workers throughout the ages!

    The issue is reallocation of labor and other resources. The federal and in some cases the state governments have imposed layer upon layer of government edict in order to control the flow and allocation of resources for any sector. Hence when that sector deteriorates and individuals lose employment and need to move or learn new skills the system only hinders them. This leaves them flat footed.

    If the state would just let individuals live their lives for crying out loud this issue would not exist. This fantasy of the state willing utopia into existence by force and then getting angry when it doesn’t work for the nth time is getting really annoying.

    • #22

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