President Obama hates inequality and loves manufacturing. Today, he's hosting an event touting the creation of two new hubs designed to boost manufacturing in the Chicago and Detroit areas. So it's a real pickle why he wants to pass sweeping trade deals with Asia and Europe. Economists have found that offshoring has savaged the American manufacturing industry and widened inequality. It's that concern that has driven the top Democrats in Congress, including Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, to block Obama's trade agenda -- opening a major rift in the party ahead of the mid-terms.
It's a hard circle to square. For a moment, take congressional Democrats out of the picture. On the surface, it seems as if Obama is his own enemy on this. Consider this simple chart from a landmark paper by David Autor, David Dorn and Gordon Hanson. The chart shows fairly plainly that as Chinese-manufactured goods have been increasingly imported into the United States, the percentage of the population working in manufacturing has declined. It gets worse after 2007, when the recession hits. And given that manufacturing jobs in general pay higher wages than other types of jobs, the trend has fueled higher inequality.
It's hard to argue with the idea that the trade deals will likely hurt U.S. manufacturing. The winners and losers are pretty clear. American factories are going to face higher competition from countries that have a comparative advantage in manufacturing -- because of low wage workers, state subsidies or other factors. People in the Midwest are going to be hurt the most, because that's where manufacturing workers live. On the other hand, it's going to be a boon for educated folks on the coasts, who tend to be benefit from trade.
But the story is not so simple. On the whole, trade is likely to benefit the country, said Hanson, one of the authors of that landmark paper and a professor of economics at the University of California, San Diego. "There are a whole bunch of middle income folks who aren’t exposed. They are in parts of the country that benefit from trade liberalization," he said. "They’ll get cheaper physical goods and there’s the increase in economic activity in their regions. If you own a coffee shop in Seattle, you're delighted to see expanded trade in Asia."
Hanson makes the point that there are so few Americans working in manufacturing today that the number of Americans affected by the trade deals would not be so substantial. "I think today, given the size of the manufacturing sector, for the median person I would expect that you’d see mildly positive net benefits," he said. "That answer might have been different 30 years ago when manufacturing was a bigger part of the U.S. labor force."
So, there's an answer for why Obama supports the trade deals: They're going to help Americans overall. And the traditional manufacturing jobs that will suffer -- there aren't that many of them around anymore anyway. As for Obama's fighting for manufacturing jobs on the stump, consider that that they "will involve robotics and 3D printing and other activities," Hanson said, and those are not "terribly labor intensive and so there's probably not a big increase in demand for factory workers."
Democratic politicians have a different view of the matter. They see manufacturing dying, directly affecting voters in competitive states. "The swing voter might be someone who the net effects of the trade deals might be negative -- at least when you’re looking at it from a Democratic perspective. Outcomes in elections don’t depend on the median voter in California or Massachusetts or New York," Hanson said. "Those are all areas that would do well with expanded trade through much of the income distribution. The median person in the middle of the country, in our former industrial heartland -- that is the person who would be negatively affected."
I made this map to illustrate the point. The "blue" states have more than 10 percent of their working population in manufacturing. Where are they located?