Technology & Trade
Commentary

The End of the Factory and Why Trade Policy Should Care

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By William Reinsch: 

Michael Schuman had an interesting piece in Bloomberg View last week that deserves some discussion. In brief, he analyzed the decline of manufacturing jobs in the United States, compared the decline to gains in other jobs, and then discussed whether it matters. His answer was to those who have lost their jobs, yes, of course, but to the economy as a whole not so much:

“Listening to our political leaders, you’d think everyone on the planet works in a factory. Donald Trump wants to stop China and Mexico from “taking our jobs” by preventing factories from moving there — and he’s willing to launch a trade war to do so. Michael Short, a spokesman for the Republican National Committee, recently claimed that a loss of 264,000 manufacturing jobs under President Obama was “a stark reminder of the failure of his policies,” as if the nearly 10 million other jobs added on Obama’s watch didn’t matter.

This obsession with factories threatens to undermine sound economic policy. The notion that economic strength should be measured by how many assembly lines one country hosts compared to another is based on outdated thinking. And frantic attempts to save factories are a distraction from the real challenge of preparing economies and workers for the demands of the 21st century.”

From an economic perspective, Schuman is correct. Our economy has long been moving away from manufacturing and toward services for many reasons, most of them having little or nothing to do with trade. A look at other mature economies shows the same evolution. Not only are these jobs gone, but they are not coming back, Donald Trump’s 45% tariff on China notwithstanding. Schuman doesn’t mention the fact that this is a jobs effect, not a production effect. We are producing more “stuff” than ever, but we are doing it with fewer people. It would not be correct to describe this trend as the “deindustrialization” of America.

He is also right that this trend is likely to accelerate, again not because of trade policy but because of technological change. He cites automation, robots, and artificial intelligence as the culprits, although the most important one is likely to be 3-D printing, which over time is going to revolutionize the manufacturing process and eliminate the assembly line for many items.

He goes astray, however, when he confines the harm of this trend to those who have lost manufacturing jobs. Obviously, those are the primary victims, and his prescriptions of education and job retraining are remarkably similar to what I suggested recently. There are, however, two other related consequences he ignores that need to be addressed.

First, there are obvious implications for trade policy. Our presidential candidates, as well as many of those down-ballot, have chosen to blame trade for what has been happening. This is wrong, and it imperils the pursuit of policies that would actually do some good in terms of job growth, like TPP and TTIP. Clearly, we need to have a more honest discussion about what is going on in our economy where our politicians and thought leaders, including those in the business community, acknowledge the pain and suffering these changes have caused; and where labor, NGOs, and the workers themselves, acknowledge that blaming the foreigners misses the point, and there are other reasons for what has happened to them.

That is not a new thought. Many others have made the same point, without any more impact than my making it is likely to have. The point that is made less often — which is by far the more difficult — is the acknowledgement that we need manufacturing jobs to provide employment and good wages for those who do not have, and will never have, the skills that are now necessary to thrive in our complex global economy. The reality in any economy is that not everyone is college material, and there will always be some old dogs who cannot be taught new tricks. In other words, it is fine — and important — to talk about education and adjustment assistance, which are essential to our long term competitiveness, but we also need to recognize that even if we do those well, there are still millions of Americans who will be left behind.

To put that in political terms, those left behind are the group that is, in my view, the engine of the Trump train. They may be focusing on the wrong solution — trade policy — but the fact remains that the other solutions are wrong for them as well. Unless we come up with something better and more relevant, our political divide will remain, and smart trade policies will be imperiled.   
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William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.

Photo credit: jblaha via Flickr
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