Protectionism Will Not Relieve The Plight Of The Working Class
Donald Trump is worried about working-class men in this country.
He’s not wrong to be worried. “The problem of labor market non-participation is particularly severe among men,” writes Eli Lehrer, president and co-founder of the R Street Institute, for National Affairs.
Since the 1950s, the percentage of men who are in their prime working years who do not work has more than tripled. Since then, while men’s workforce participation rates have consistently fallen, women have increased their labor participation. In 1948, women made up less than a third of the workforce. Today, women comprise almost half of all workers.
In 1950, a quarter of all workers worked in manufacturing. In 2015, that number was 8%.
Why? We have outsourced and automated most of our low-skill jobs.
So if outsourcing is the problem, isn’t insourcing the solution?
“People who are not economists often believe, incorrectly, that the United States can never compete with countries like China, where labor costs are a fraction of those here,” Bruce Bartlett wrote presciently for the New York Times in 2013. “This leads them to think that tariffs and import restrictions are an appropriate policy response.”
Donald Trump is among these people. He blames international trade, which he derides as “globalism,” for the plight of the low-education American male. He’s promised to jettison any trade deals that might result in job losses for American workers.
One problem with Trump’s analysis is that robots have done at least as much, if not more, to eliminate agricultural and manufacturing jobs in the US than outsourcing.
“Job losses due to automation and robotics are often overlooked in discussions about the unexpected rise of outside political candidates like Trump and Bernie Sanders,” Moshe Vardi, an expert on artificial intelligence at Rice University, told GeekWire.
A recent study showed that 85% of the job losses in manufacturing from 2000 to 2010 resulted from productivity growth, not outsourcing. The Center for Business and Economic Research at Ball State University found that in that period 5.6 million factory jobs disappeared, but trade accounted for just 13% of those job losses.
And the robots aren’t done yet. Up to 47% of all US jobs could be automated within the next two decades, according to estimates by Oxford University researchers.
The second problem is that trade enriches the US.
Global trade makes us richer by making our workers more productive.
Global trade means that even if the factories are located in different countries, they can still compete with each other. Which means China’s innovations can incent US productivity.
At the same time, as global trade incentivizes greater worker productivity, it lowers the cost of producing goods. You cannot do one without the other.
“America’s workers benefit immensely from access to goods and services made in other countries. On average, access to these goods provides a 29 percent increase in the purchasing power of the average American household. The 500 largest US companies earn about half of their combined revenue from their international operations. The average US worker earned $1,300 more annually over the past two decades owing to US access to international markets.”
If trade is so great, why don’t people like it more?
Because the drawbacks are brutal, readily apparent, and easy to understand while the benefits are less intuitive, more complicated, and harder to measure. You can see a closed factory and a lot of “For sale” signs. You can’t see productivity gains.
People see and feel the negative impact of global trade when their factory closes and they can’t sell their house because everyone else is trying to move away at the same time because there’s nowhere else to work in their tiny town.
As horrible as that is for the people impacted, most people do get other jobs. In the 1800s, 80% of the US labor force worked on farms. By 1945, 16% of the total labor force worked in agriculture. In 2014, that number was less than 2%.
When agriculture labor shrank to almost nothing, what happened to all those workers and all those farms? “Obviously mechanization didn’t destroy the economy,” author and entrepreneur Martin Ford told WIRED. The vast majority found more productive ways to spend their days, and the fields found more productive uses as well.
We’re producing more than ever before.
Manufacturing employment has been falling for more than 30 years, but US manufacturing output is near its all-time high. According to the LA Times, over the last 20 years US manufacturing has seen real, inflation-adjusted output increase by almost 40%. “Annual value added by US factories has reached a record $2.4 trillion.”
Rather than race to the bottom to depress wages, US businesses have instead poured their resources into building robots that help make American workers get more done in less time. Instead of making shoes and shirts, American factory workers refine petroleum, produce prescription drugs, fabricate metals, work with plastics, and build cars, planes, and aerospace equipment.
The US has better technology and our workforce has more skills and education than China. That means we offer the world millions of better-quality, more consistent products than China can offer at the same price. And we’re better paid as a result. Total manufacturing payrolls have risen over the last decade even though we’ve employed fewer workers.
Most people do not notice, recognize, or appreciate economic growth.
Free trade is like air. You don’t notice it until it’s gone, but when it’s gone, you notice in a hurry.
None of this is mere theory. We know how trade restrictions work because we’ve tried them before.
Europe tried it. In the 18th century, various countries implemented a trade theory called mercantilism. Instead of competing to achieve the highest productivity and the lowest prices, countries competed to see who could make trading with them least appealing. Not shockingly, the result was higher prices and lower productivity.
Perhaps thinking that what worked long-term for no European country ever would work for the US, Herbert Hoover signed the Smoot-Hawley Tariff into law in 1930. It artificially raised prices for imported goods in order to protect US businesses from overseas competition. Unfortunately, America’s trading partners did not appreciate the American government making it more difficult for Americans to buy their goods. So they artificially raised the price of American-made goods. In the end, according to Ben Bernanke, “Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression.”
“In the 19th century, this penchant for industrial protectionism and mercantilism became guild socialism, which mutated later into fascism and