Global Trade and Rebirth in American Manufacturing

Criticizing free trade as the cause of decline in U.S. manufacturing jobs has become the politically expedient modus operandi for many. Such explanations, however, ignore the real reason there are fewer manufacturing jobs in America: increased efficiency. The good news is that while America’s highly-efficient manufacturing sector explains the cause of manufacturing job loss, it also presents an opportunity to grow manufacturing jobs at home through exports abroad.

The loss of any job is a hardship to the worker and the worker’s family, and when a worker loses his/her job due to no personal fault, the emotional toll can be all the greater. However, competition from overseas is not to blame for such manufacturing job losses according to a United Nations study, as explicated by Mark Perry in last week’s Wall Street Journal. The leading cause of manufacturing job loss is increased manufacturing efficiency. In short, where four laborers may have been required to make a widget in decades past, only one is required now.

Perry points out, “In every year since 2004, manufacturing output has exceeded $2 trillion (in constant 2005 dollars), twice the output produced in America's factories in the early 1970s.” He later continues, “The average U.S. factory worker is responsible today for more than $180,000 of annual manufacturing output, triple the $60,000 in 1972.”

Despite these numbers, many labor union leaders and politicians insist that we have lost manufacturing jobs due to competition from overseas. The sector-concentrated job losses that are caused by our lack of a comparative advantage are far more visible than the larger, yet more diffuse job gains from international trade, so it is easy to understand why this narrative takes hold.

Nonetheless, it is irresponsible and damaging to U.S. economic and job growth to claim free trade is the reason we have lost manufacturing jobs – particularly because free trade agreements can help spur economic growth, including growth in the manufacturing sector. For instance, from 1993-2006, following the implementation of the North American Free Trade Agreement, U.S. manufacturing output rose by 58%. In the preceding period of 1980-1993, manufacturing output only rose by 42%. If we are to make up for the manufacturing jobs lost to increased efficiency, it is clear that we will have to increase manufacturing output by exporting more products to consumers abroad.

Free trade agreements support skilled manufacturing jobs as well as jobs in America’s service and agricultural sectors. The solution to American job growth, then, is not to promote less-efficient manufacturing techniques or to prevent U.S. companies from exporting their goods and services abroad. Rather, the solution is to recognize and export goods and services in which we have a comparative advantage globally – including high-tech and highly-skilled manufactured products.

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