Terms of Trade
MANY FORCES helped propel Barack Obama to victory in the presidential election in 2008: the financial crisis, an unpopular war in Iraq, dissatisfaction with President Bush -- not to mention his own considerable merits. But when Americans told pollsters the country was on the wrong track, they were also expressing unease about its long-term economic and social strength -- its capacity to sustain a broad middle class upon which community, country and democracy itself rest. And at the heart of that anxiety is the loss of the good-paying manufacturing jobs that, both in reality and in collective imagination, made America great. Hence Mr. Obama's promise of 5 million new "green" jobs that "pay well and can't be outsourced."
A new study from the Congressional Budget Office shows just how precipitous the recent decline in manufacturing work has been: 22 percent since the 2001 recession. Hit particularly hard were the textiles and apparel industries, which shed nearly 60 percent of their positions between 2000 and 2008; the motor vehicles sector lost more than 32 percent. The study will provide some ammunition for those inclined to blame free trade for American industry's plight: The CBO argues that much of the relative decline in U.S. manufacturing was due to imports. Indeed, though U.S. manufactured exports rose 58 percent between 1999 and 2007, that increase was swamped by a simultaneous rise of 78 percent in manufactured imports.
But, properly understood, these numbers actually offer support for free trade. As the CBO also shows, foreign competition had a double effect on American jobs: Imports replaced U.S. products, but they also forced remaining manufacturers to get more efficient. Thanks to rapidly rising productivity, these firms could generate more output with fewer workers, but at least they survived. Without the spur of global competition, U.S. companies could have continued producing at higher costs, depriving other, potentially more competitive segments of the economy of the resources they needed to expand. Overall, trade helped the country grow richer -- with much of the gain accruing to consumers in the form of lower prices and greater quality.
The CBO's data show that, while the loss of manufacturing jobs in the first decade of the 21st century was especially sharp and sustained, it is hardly a brand-new phenomenon. In fact, the United States has been gradually going out of the manufacturing business for nearly half a century. As a share of total employment, manufacturing work declined from about 19.5 percent in 1958 to 10 percent now. This country emerged from World War II as a kind of planetary workshop, supplying cars, steel, chemicals and just about everything else for a world that was mostly poor and politically weak. That artificial dominance was bound to fade; today, our economy still leads the world, but billions of working-age men and women, from China to Peru, stand ready and able to produce things that once came only from Detroit or Pittsburgh. Millions of them have been lifted out of poverty as a result. The challenge for the United States now is to find new engines of growth, profits and jobs -- whether in manufacturing or some other sector. We hope that the Obama administration helps U.S. firms adapt. But we hope it also understands that no one can abolish economic reality -- and that it would be futile to try.