Blame robots, more than trade with China, for US manufacturing job losses

By Robert Lawson.

"US manufacturing is down because of competition from China, right? It is true that employment in manufacturing is down from over 30 per cent of the workforce in the 1950s to under 10 per cent in recent years. Likewise, the value of manufacturing output as a share of the economy has fallen from over 25 per cent to about 10 per cent. People usually point to these figures, and rising trade numbers with China, to conclude that trade with China is killing US manufacturing.

But these numbers are misleading. The value of manufacturing output is based on both the prices and the volume of manufactured goods. The rise in manufactured goods prices has not kept pace with the rise in prices of other goods and services in the economy.

A 2017 study by the St Louis Federal Reserve found that if you adjust for this, the actual volume of manufacturing in the US as a share of the economy has been fairly constant at around 12 per cent for decades.

“Productivity growth” is the term economists use to describe a situation when manufacturing output grows to keep pace with the overall economy but manufacturing employment and manufactured goods prices fall. The US economy is still a manufacturing power. It just doesn’t use as much labour or charge as much for the manufactured goods in these times. We are getting more for less.

No one argues that trade with China has caused this productivity boom; the real cause is continuing innovation of manufacturing processes that is replacing workers with capital machinery. So, if you must blame someone or something for manufacturing sector job losses, blame the robots not trade with China.

Recent calls from politicians and pundits from both political parties to use government-directed industrial planning to “beat the Chinese” thus miss the mark.

First, trade with China isn’t the problem; in fact, there really is no problem. Second, industrial planning has failed literally everywhere it has been tried.

This is not to say that the amazing growth in the size of the Chinese economy over the last 40 years, which incidentally was a result of the country’s abandonment of Mao’s centralised industrial planning, is of no concern. The Chinese military represents a growing threat in the East Asian region and increasingly throughout the globe. Furthermore, Chinese economic and diplomatic power is being exerted in ways that should concern US policymakers.

An aggressive stance against China in these domains may be warranted, but returning to the failed 20th century idea of industrial planning to revive US manufacturing won’t fix the problem.

Robert Lawson, Jerome M. Fullinwider chair in Economic Freedom, SMU Cox School of Business, Southern Methodist University, Dallas"