HAT Manifesto Part 1/3 - Rubric Cube - 241201 revision

 

The Trade Deficit Does Not Destroy American Jobs

Mostly from article Does the trade deficit destroy American jobs? Russell Roberts, 2006.

Per Figure 1

A trade deficit occurs when exports of goods are less than imports of goods.

Until 1976 U.S. deficit was about zero, sometimes deficit or sometimes surplus but always somewhat small.

Beginning in 1976 U.S. has run a trade deficit every year.

Between 1976 and 2005 the U.S. has imported $6 trillion worth of goods more than it has exported.

Figure 1a shows more recent trade deficit data.

…

Figure 2

From 1976 to 2005 there has been no obvious impact of the increasing trade deficits on total employment.

In 2005 there were over 40 million more jobs than in 1976.

Trade affects the kind of jobs in the economy not the numbers of jobs.

The U.S. population is growing but the percent of the population working is also higher after 1976 than before.

…

Figure 3

There has been somewhat of a decline in manufacturing jobs since 1976.

Manufacturing employment surged during WWII, Korean War and Vietnam War.

Between 1965 and 2000 the amount of manufacturing jobs was fairly stable, fluctuating between 16 and 20 million jobs.

…

Figure 4

Manufacturing jobs as a proportion of total employment have indeed fallen steadily since 1976.

…

Figure 5

Manufacturing jobs as proportion of total jobs ratio peaked in 1944.

They had been declining long before the 1976 start of U.S. persistent running trade deficits and the growth in globalization.

Something else is causing this long-term trend of decreased manufacturing jobs, unrelated to globalization...

…

Figure 6

American manufacturing is not being “hollowed out.”

Manufacturing amount of product output continues to increase, the U.S. manufactures more goods now than ever before.

Manufacturing output falls with recessions but otherwise rises steadily over time.

Since 1959, the economy is 4.5 times bigger as measured by real GDP.

But manufacturing output is 4.7 times bigger over the same time period.

America produces 4.7 times more goods today than in 1959 with many fewer manufacturing workers.

Increased productivity, resulting from better educated workers working with more sophisticated machinery, is the dominant cause of the reduction in manufacturing employment, not imports.

…

Research at Ball State University in manufacturing from 2000 to 2010, determined of the 5.6 million disappeared jobs in manufacturing:

• U.S. productivity growth caused 85% of the job losses

• imports accounted 13%

…

Figures 6a and 6b show more recent information.

…

Figure 7

The U.S. has exported more dollars worth of food than it has imported, a trade surplus in food, every year since 1963.

If you argue trade deficits cause job loss, you have to argue a surplus should create job gain.

…

Figures 8 and 9

But there are fewer than half the number of workers in the agricultural sector than there were in 1963.

This despite increases in population and increases in labor force participation that have doubled the overall labor force.

The decline in the importance of agriculture as a source of employment is caused by the same thing reducing manufacturing employment: productivity.

We don’t need as many people to produce a particular quantity of food.

We can conclude trade surpluses don’t create jobs and deficits don’t destroy jobs.

…

Consider a world where every American wakes up to find a free car in the driveway, a gift from the Japanese auto industry.

In the glove compartment is a note explaining this gift will be repeated every 5 years.

…

What will be the impact from this gift on the number of jobs in America and on America’s standard of living?

It will devastate employment in the auto industry.

But will total employment fall by the number of auto industry jobs lost?

Many other industries would expand because people no longer have to pay for a car.

People will now be able to buy things they couldn’t afford to buy before the gift cars.

So the decrease in the demand for labor would be offset by an increase in demand for labor in industries other than the car market.

The American standard of living will rise in exactly the same way it would if American carmakers figured out a substantially lower cost way to make cars.

Both changes, free cars from the Japanese and innovation in the U.S., make Americans richer.

…

The same thing has happened over the last century in agriculture.

As farmers have become more innovative, we get more food at lower prices using fewer workers.

That creates wealth, not poverty.

In 1900, agriculture employed 40% of the American work force.

Today, that number is under 2%.

New and higher-paying jobs have developed to replace the lost farming jobs.

Not needing as many people farming, and manufacturing, as we once did has been very good for America.

…

It would not make any difference if that decrease in farm employment had come from

-foreigners willing to sell us food cheaply

-technological change that made agriculture more efficient

Both lead to cheaper food and fewer workers necessary to grow food in the United States.

Both increase the standard of living of the average American.

…

Is this dynamic view of the job market accurate?

Look at the data.

Imports have surged over the last 50 years.

The trade deficit has ballooned over the last 30 years.

Yet employment has grown steadily.

Per Figure 10, median household income has also grown.

…

Banning imports would eliminate the trade deficit.

But the number of jobs in America wouldn’t change – banning imports would result in us trying to make all the cars and all the steel and all the watches we used to import.

Those industries would grow, and their product prices would increase.

Other industries would shrink because there wouldn’t be enough workers and other resources available.

Our demand for many goods would fall as cars and steel and watches became more expensive leaving less money for other things.

America would be much poorer.

Trying to reach a country’s self-sufficiency is the road to poverty.

It is as if each of us had to make everything we use and consume for ourselves rather than buy almost everything from specialized businesses.

Trade lets us specialize and cooperate, and allowing others to make things for us we could only make for ourselves at greater expense.

…

Where does the U.S. trade deficit money go?

It goes to foreign investment in the U.S.

The Figure 11 top panel (a) capital account balance surplus is close to a mirror image of the pattern of bottom panel (b) merchandise trade balance deficit.

The capital account balance, foreign investments in the U.S., had been zero or close to zero for a long time, then persistent and growing surpluses since the 1980s.

Foreign investment in the U.S. assets including factories and other businesses increase U.S. wealth and jobs.

A capital account surplus allows a nation to consume more than it produces - a trade deficit.

The trade deficit and the capital account surplus are determined simultaneously by a wide array of factors, neither is the cause of the other.

A trade surplus and a trade deficit are sustainable as long as the U.S. remains an attractive place to invest relative to the rest of the world.

…

The overall result:

Our imports of capital, foreign investment in the U.S. + imports of goods and services

- are equal to -

Our exports of capital, U.S. investments overseas + exports of goods and services

…

Figure 12 shows the newly created jobs resulting from advances in technology and increased imports have led to higher mean real (adjusted for inflation) household income.

…

A helpful video: Is the US Trade Deficit a Problem?

https://www.youtube.com/watch?v=cZqeh93Kkvk

… …