The woes of American manufacturers have become a familiar story: Companies moved their operations overseas to take advantage of inexpensive labor. Cheap imports displaced U.S.-made goods. And Americans who could once rely on the steady paycheck of a factory job suddenly found themselves out of work and out of luck.
It is a story that has helped fuel the presidential campaign of Donald Trump, who has called for the United States to pull out of the free trade deals that defined the last generation of economic policy. It has also forced Democratic nominee Hillary Clinton to distance herself from an alliance with Asian countries that she helped craft. Both parties’ platforms strike a skeptical tone on the benefits of free trade.
Like any good story, that narrative is rooted in truth. But it is far too simple of a tale.
In an op-ed for the Los Angeles Times, Daniel Griswold of the Mercatus Center at George Mason University offered an important reminder that American manufacturing is actually at a peak, not a trough. The output from U.S. factories is roughly two-and-a-half times what it was in the early 1970s, according to government data. Industrial production hit an record high just before the Great Recession and is nearing that level again.
“America remains a manufacturing powerhouse,” Griswold said in an interview. “It’s just a different mix of stuff than we were making 20 or 30 or 40 years ago.”
Clothes, toys and steel beams may come from overseas, but the United States is refining oil, producing new medicines and building plenty of cars, airplanes and heavy machinery that are shipped around the world. American factories now add a record $2.4 trillion of value to the economy, Griswold said.
Free trade has not held back the manufacturing industry, he argued; it has allowed it to thrive. More than half of goods imported are not destined for store shelves but for the factory floor, materials to be used so that American factories can make even more stuff. Here’s the explanation from his op-ed:
Access to expanding global markets allows U.S. manufacturers to enjoy economies of scale, reducing their per-unit production costs and enhancing their competitiveness. The additional revenue can be reinvested in research and development, leading to new products and expanding market share. This is why U.S. jobs in trade-oriented industries typically pay 18 percent more than non-trade-connected jobs.
The problem is that the country has achieved this massive expansion in manufacturing output with fewer and fewer workers. Government data shows manufacturing employment has dropped from more than 19 million in 1979 to about 12 million today, a whopping 37 percent decline.
Griswold says the real culprit is technology. Automation and sophisticated machinery means that factories do not need as many workers. However, it also means that those they do employ are better-educated and better-paid than previous generations of assembly-line workers.
The upshot is that proposals to bolster American manufacturing by raising tariffs and abandoning trade agreements won’t solve the underlying problem, Griswold said. Instead, federal policy should focus on training and education for unemployed workers
“Donald Trump and others have tapped into real pain in the labor market,” he said in an interview. “People have lost their jobs that they had for years, and there isn’t an obvious alternative for them.”