China, in the Kitchen, with a Candlestick

Lawmakers are going to have to start pointing fingers in the right direction if they have any hope of solving the country’s unemployment issues. “

By Alex Benedict

     Though the slowdown of industrialization—a shift from a manufacturing goods-based economy, to a more service-based economy—has made the GDP “lighter,” according to Alan Greenspan, the former chairman of the Federal Reserve, President Trump’s desire to shift jobs back to the U.S. may reverse this phenomenon. However, the existence of such a problem to fix, and the achievability of his “plan,” or lack thereof, is up for debate.

 

US and the Global Economy

     After the signing of the North American Free Trade Agreement in 1994 by the United States, Canada, and Mexico, manufacturing jobs in the U.S. increased marginally. The trade agreement reduces tariffs between the three countries and makes it easier for domestic companies to invest in one of the other two economies. Under the agreement, U.S. exports to Mexico and Canada increased 258 percent, especially in agricultural and manufactured goods. If President Trump were to eliminate or renegotiate NAFTA, as he had promised time and time again during his campaign and presidency, the result would likely not be beneficial to American workers.

 

     The United States also plays an enormous role in the global economy. In 2008, the U.S. produced approximately 19 percent of the worldwide manufacturing output, and about 22 percent of U.S. manufactured goods were exported.  According to the National Association of Manufacturers, U.S. multinational corporations employed 22.4 million people domestically, while 5.4 million people were employed abroad. This data has remained relatively consistent in the 9 years since.

 

An Important Clarification

     The expansion of foreign trade has had negative effects on some domestic manufacturers, but international trade, overall, has allowed for companies to export more of their products. Arguably the greatest benefits of manufacturing overseas are that labor costs can be reduced by almost 80 percent, and companies can find workers willing to become skilled in their respective fields. While the United States is prosperous, the economies of many other nations, such as China, India, and Pakistan, by virtue of their large work force, allow for workers to be paid lower wages.

 

     Thus, while the import of Chinese goods has increased 14 percent since 1992, overall imports from all Asian countries decreased by 19 percent. President Trump has claimed throughout his campaign and thus far into his presidency that trade with China is the largest culprit for the displacement of U.S. manufactured goods, when in reality, China has only replaced other countries as the United States’ trading partner.

 

The Real Culprit

     The turn of the 21st century marked the shift in US manufacturing job opportunities. Between 2000 and 2007, manufacturing positions in the U.S. dropped 20 percent. And the availability of these jobs has since consistently decreased every year. As per a study conducted by Ball State University, 85 percent of the 5.4 million manufacturing jobs lost in the U.S. during this time can be attributed to technological change, not international trade. Advances in technology have allowed for jobs that were previously performed by humans to be replaced by machines. Thus while production efficiency was greater, and production was higher, there were fewer physical workers employed in the work force.

 

     The majority of blue-collar manufacturing jobs have been most affected by the shift towards technology in recent years, but this is not to say that technology is leaving white-collar jobs alone; these professions—surgeons, salespeople, and analysts, for example—are being challenged as well. Many experts agree that though technological change may take away old jobs, it always naturally opens up new avenues of employment. These advancements may displace workers in many manufacturing jobs, but this progress also stimulates both the need for, and the training of, highly skilled worker in manufacturing and in other fields.

 

Blind to The Enemy

     Many members of Congress like to argue that foreign trade is to blame for the decrease in domestic manufacturing jobs. They are joined by President Trump, who has recently threatened companies that move U.S. manufacturing jobs abroad with a “big border tax” — a suggested 35 or 45 percent of the price of the good manufactured. But this gesture would likely only harm the U.S. economy, potentially even sinking it into depression. If it costs foreign countries more money to import their goods into the U.S., imports will decrease, and in turn cause American exports to decrease as well.

 

     Nearly all retailers and consumers would be affected by such a move. The tariff could have profound effects on foreign firms’ desire to invest in the U.S., as companies are always looking for the option with the lowest trade barriers. Not to mention that if imports are restricted, many Americans will be left with less disposable income, since a large proportion of lower income Americans rely on the cheap price of imported goods.

 

     All the while, President Trump’s businesses source many of their products from China and other countries where wage laws allow him to manufacture what they need at minimal costs. How’s that for hypocrisy?

Citations

Image: http://i2.cdn.turner.com/money/dam/assets/150512043017-jobs-threatened-by-robots-780×439.jpg

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