Is Free Trade Causing Job Loss?

International trade figures heavily in the presidential race. Presidential candidate Donald Trump said, "Hillary Clinton unleashed a trade war against the American worker when she supported one terrible trade deal after another - from NAFTA to China to South Korea." And adding, "A Trump Administration will end that war by getting a fair deal for the American people. The era of economic surrender will finally be over." He lamented, "Skilled craftsmen and tradespeople and factory workers have seen the jobs they love shipped thousands and thousands of miles away."

Hillary Clinton has offered her own condemnations of trade and globalization. Some see her stance on trade as little more than typical campaign rhetoric. Bill Watson's Reason magazine article "Hillary Clinton's Protectionist Promises Would Do Serious Economic Damage," looked at Clinton's trade agenda. Watson concluded that for "fans of free trade and globalization, Clinton is a much more appealing candidate simply by not being horrible."

It is true that the number of manufacturing jobs in the United States has been in steep decline for almost a half-century, but manufacturing employment disguises the true story of American manufacturing. U.S. manufacturing output has increased by almost 40 percent. Annual value added by U.S. factories has reached a record $2.4 trillion. To put that in perspective, if our manufacturing sector were a separate nation, it would be the seventh richest nation on the globe.

Daniel Griswold's Los Angeles Times article tells the story: "Globalization isn't killing factory jobs. Trade is actually why manufacturing is up 40 percent." Griswold is senior research fellow and co-director of the Program on the American Economy and Globalization at George Mason University-based Mercatus Center. He says what has changed in recent decades is that our factories produce fewer shirts, shoes, toys and tables. Instead, America's 21st-century manufacturing sector is dominated by petroleum refining, pharmaceuticals, plastics, fabricated metals, machinery, computers and other electronics, motor vehicles and other transportation equipment, and aircraft and aerospace equipment.

Griswold suggests that political anger about lost manufacturing jobs should be aimed at technology, not trade. According to a recent study by the Center for Business and Economic Research at Ball State University, productivity growth caused 85 percent of the job losses in manufacturing from 2000 to 2010, a period that saw 5.6 million factory jobs disappear. In that same period, international trade accounted for a mere 13 percent of job losses.

Manufacturing job loss is a worldwide phenomenon. Charles Kenny, writing in Bloomberg, "Why Factory Jobs Are Shrinking Everywhere," points out manufacturing employment has fallen in Europe and Korea and "one of the largest losers of manufacturing jobs has been China."

While job loss can be traumatic for the individual who loses his job, for the nation job loss often indicates economic progress. In 1790, farmers were 90 percent of the U.S. labor force. By 1900, about 41 percent of our labor force was employed in agriculture. Today, less than 3 percent of Americans are employed in agriculture. What would Donald Trump or Hillary Clinton have done in the face of this precipitous loss of agricultural jobs? They might have outlawed all of the technological advances in science and machinery that have made our farmers the world's most productive and capable of producing the world's cheapest food.

There's one thing to keep in mind. Losing a job due to outsourcing or losing it to technological innovation produces the same result for an individual: He's out of a job. The best thing that we can do is to have a robust economy such that he can find another job.

History suggests another alternative to those concerned about manufacturing job loss. The Luddites were 19th-century English textile workers who protested against newly developed labor-saving technologies. They went about destroying machinery that threatened to replace them with less-skilled, low-wage laborers.

Words are not deeds. Unfortunately, a look at the record leads to the question: With free traders like this, who needs protectionists?

Consider that the Reagan administration has done the following:

— Forced Japan to accept restraints on auto exports. The agreement set total Japanese auto exports at 1.68 million vehicles in 1981-82, 8 percent below 1980 exports. Two years later the level was permitted to rise to 1.85 million.(33) Clifford Winston of the Brookings Institution found that the import limits have actually cost jobs in the U.S. auto industry by making it possible for the sheltered American automakers to raise prices and limit production. In 1984, Winston writes in Blind Intersection? Policy and the Automobile Industry, 32,000 jobs were lost, U.S. production fell by 300,000 units, and profits for U.S. firms increased $8.9 billion. The quotas have also made the Japanese firms potentially more formidable rivals because they have begun building assembly plants in the United States.(34) They also shifted production to larger cars, introducing to American firms competition they did not have before the quotas were created. In 1984, it was estimated that higher prices for domestic and imported cars cost consumers $2.2 billion a year.(35) At the height of the dollar’s exchange rate with the yen in 1984-85, the quotas were costing American consumers the equivalent of $11 billion a year.(36)

— Tightened up considerably the quotas on imported sugar. Imports fell from an annual average of 4.85 million tons in 1979-81 to an annual average of 2.86 million tons in 1982-86. Not only did this continued practice force Americans to spend more than other consumers for sugar, but it created hardships for Latin American countries and the Philippines, which depend on sugar exports for economic development. The quota program undermined President Reagan’s Caribbean Basin Initiative and intensified the international debt crisis.(37)

— Negotiated to increase restrictiveness of the Multifiber Arrangement and extended restrictions to previously unrestricted textiles. The administration unilaterally changed the rule of origin in order to restrict textile and apparel imports further and imposed a special ceiling on textiles from the People’s Republic of China.(38) Finally, it pressured Hong Kong, Taiwan, and South Korea, the largest exporters of textiles and apparel to the United States, into highly restrictive bilateral agreements. All told, textile and apparel restrictions cost Americans more than $20 billion a year.(39) The Reagan administration has stated several times that textile and apparel imports should grow no faster than the domestic market.(40)

— Required 18 countries—including Brazil, Spain, South Korea, Japan, Mexico, South Africa, Finland, and Australia, as well as the European Community—to accept “voluntary restraint agreements” to reduce steel imports, guaranteeing domestic producers a share of the American market. When 3 countries not included in the 18—Canada, Sweden, and Taiwan— increased steel exports to the United States, the administration demanded talks to check the increase. The administration also imposed tariffs and quotas on specialty steel. These policies, with their resulting shortages, have severely squeezed American steel-using firms, making them less competitive in world markets and eliminating more than 52,000 jobs.(41)

— Imposed a five-year duty, beginning at 45 percent, on Japanese motorcycles for the benefit of Harley Davidson, which admitted that superior Japanese management was the cause of its problems.(42)

— Raised tariffs on Canadian lumber and cedar shingles.

— Forced the Japanese into an agreement to control the price of computer memory-chip exports and increase Japanese purchases of American-made chips. When the agreement was allegedly broken, the administration imposed a 100 percent tariff on $300 million worth of electronics goods. This episode teaches a classic lesson in how protectionism comes back to haunt a country’s producers. The quotas established as a result of the agreement have created a severe shortage of memory chips and higher prices for American computer makers, putting them at a disadvantage with foreign competitors. Only two American firms are still making these chips, accounting for a small percentage of the world market.(43)

— Removed Third World countries from the duty-free import program for developing nations on several occasions.

— Pressed Japan to force its automakers to buy more American-made parts.(44)

— Demanded that Taiwan, West Germany, Japan, and Switzerland restrain their exports of machine tools, with some market shares rolled back to 1981 levels. Other countries were warned not to increase their shares of the U.S. market.

— Accused the Japanese of dumping roller bearings, because the price did not rise to cover a fall in the value of the yen. The U.S. Customs Service was ordered to collect duties equal to the so-called dumping margins.(45)

— Accused the Japanese of dumping forklift trucks and color picture tubes.(46)

— Failed to ask Congress to end the ban on the export of Alaskan oil and of timber cut from federal lands, a measure that could substantially increase U.S. exports to Japan.

— Redefined “dumping” in order “to make it easier to bring charges of unfair trade practices against certain competitors.”(47)

— Beefed up the Export-Import Bank, an institution dedicated to promoting the exports of a handful of large companies at the expense of everyone else.(48)

— Extended quotas on imported clothespins.

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