The de-industrialization that wasn't
Brink Lindsey takes on the job loss rationale for protection in a new Cato Institute briefing paper, "Job Losses and Trade. A Reality Check.". Is the U.S. de-industrializing?
- "It is true that manufacturing’s share of gross domestic product has been gradually declining over time—from 27.0 percent in 1960 to 13.9 percent in 2002. The percentage of U.S. workers employed in manufacturing has likewise been falling—from 28.4 percent to 11.7 percent over the same period. The primary cause of these trends is the superior productivity of U.S. manufacturers... output per hour in the overall U.S. nonfarm business sector rose 50 percent between 1980 and 2002; by contrast, manufacturing output per hour shot up 103 per-cent. In other words, goods are getting cheaper and cheaper relative to services. Since this faster productivity growth has not been matched by a corresponding increase in demand for manufactured goods, the result is that Americans are spending relatively less on manufactures. Accordingly, manufacturing’s shrinking share of the overall U.S. economy is actually a sign of American manufacturing prowess.
Exactly the same phenomenon has played out over a longer time period with respect to agriculture. In 1870, 47.6 percent of total U.S. employment was in agriculture; by 2002, the figure had fallen to 1.7 percent. In the future, manufacturing will in all likelihood continue down the path followed by agriculture: as strong productivity growth reduces the price of manufactured goods relative to services, manufacturing’s share of the overall economy will continue to fall. People who bemoan this prospect don’t recognize economic progress when they see it.
International trade has had only a modest effect on manufacturing’s declining share of the U.S. economy. It is true that imports displace some domestic production; on the other hand, exports boost sales for U.S. manufacturers. Since the United States now runs a trade deficit in manufactured goods, the net effect of trade at present is to reduce the size of the manufacturing sector. Over time, however, the effect of the trade balance on manufacturing’s share of GDP has not been large. As mentioned above, manufacturing’s share of GDP declined from 27.0 percent to 13.9 percent between 1960 and 2002; if trade had been in balance throughout that period, the estimated decline would have been from 26.5 percent to 16.0 percent. The basic picture thus remains the same even when the effects of trade are eliminated: a steady, relentless drop in manufacturing’s share of economic activity."
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