Friday, December 9, 2016

Europe has a massive and growing trade surplus, and is hemorrhaging manufacturing jobs

By Scott Sumner.

"Noah Smith linked to the following recent paper in the AER, by Justin R Pierce and Peter K. Shott. :
Abstract: This paper links the sharp drop in US manufacturing employment after 2000 to a change in US trade policy that eliminated potential tariff increases on Chinese imports. Industries more exposed to the change experience greater employment loss, increased imports from China, and higher entry by US importers and foreign-owned Chinese exporters. At the plant level, shifts toward less labor-intensive production and exposure to the policy via input-output linkages also contribute to the decline in employment. Results are robust to other potential explanations of employment loss, and there is no similar reaction in the European Union, where policy did not change.
It's very possible that using cross sectional data, job loss in America is more closely linked to China trade than job loss in Europe. But that doesn't tell us anything about the macroeconomic factors driving the overall loss in jobs. In fact, Europe has lost jobs in manufacturing just as fast as America:

Screen Shot 2016-12-08 at 9.46.35 AM.png
It's a bit hard to see all the lines, but the decline in the US has been similar to the decline in Europe. Germany has seen the second sharpest decline (after the UK), while Italy has seen the smallest loss of manufacturing jobs. Interestingly, Germany and the UK have two of Europe's healthiest overall job markets, and Italy has by far the worst employment situation of the countries on this graph. Manufacturing jobs don't equate to a healthy job market.

It's true that the data only goes up to 2008, but this graph shows that Europe suffered a massive job loss in the Great Recession, just like the US (down roughly 12% in Europe, roughly 13% in the US).
Screen Shot 2016-12-08 at 9.54.08 AM.png
As I pointed out in my Chinese rust belt post, manufacturing jobs are declining almost everywhere; it's a global phenomenon that has little or nothing to do with trade deficits. Indeed Europe's current account surplus is well over $300 billion, larger than any other single country, including China. If even a massive trade surplus doesn't prevent US-style job losses in manufacturing, then Trump's plan has essentially zero chance of success.

I'll say it again, the argument that job loss in manufacturing is due to trade deficits rather than automation is simply innumeracy."

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