Posted on 02/07/2017 4:56:55 AM PST by Tolerance Sucks Rocks
It’s well-known among people who bother to learn the facts that U.S. manufacturing output continues to rise despite the reality that the number of Americans employed in jobs classified as being in the manufacturing sector peaked in June 1977 and has fallen, with very few interruptions, ever since.
Nevertheless, some people – for example, the Economic Policy Institute’s Robert Scott – continue to insist that the loss of manufacturing jobs in the U.S. is largely due to increased American trade with non-Americans. Other studies find empirical evidence that labor-saving innovation rather than trade is overwhelmingly responsible for the loss of manufacturing jobs.
Were I forced to choose between these two alleged competing sources of manufacturing-job losses – trade versus labor-saving innovation – I’d go unhesitatingly with the latter. If trade were the main source of American manufacturing-job losses, it would be very difficult to explain the continuing rise in American manufacturing output. But I believe that asking “Are most American manufacturing-job losses due to trade or to labor-saving innovation?” misses the bigger, or a more fundamental, point – namely, the answer to this question doesn’t matter because trade and labor-saving innovation are, economically speaking, identical to each other.
Trade is Innovation
Trade by its very nature is labor-saving. I could bake my own bread with my own hands and my own pans in my own kitchen. But to do so would take more of my own time than is required for me to earn, by teaching economics, enough income to buy bread from a baker. My specializing in teaching economics and then trading for bread saves me some of my labor.
Or I could bake my own bread by using a fancy bread-making machine that sits on my kitchen counter. But I can’t make such a machine myself; I must trade for such a machine, as well as for the inputs – including the electricity – that it requires to produce yummy bread. So it might fairly be said that any bread that I produce in my own home with my incredible bread machine is the result of trade.
Either way – trade with a baker, or my use of the incredible bread machine – I get bread in exchange for less labor than I would have to use to supply myself with bread were I unable to trade with a baker or to use this machine.
What difference does it make if labor is saved by dealing directly with a machine or with another human being?
Recall David Friedman’s report of car production in Iowa (here as related by Steve Landsburg, with emphasis added by Don Boudreaux):
There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.
International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans’ well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars. Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.
The task of producing a given fleet of cars can be allocated between Detroit and Iowa in a variety of ways. A competitive price system selects that allocation that minimizes the total production cost. It would be unnecessarily expensive to manufacture all cars in Detroit, unnecessarily expensive to grow all cars in Iowa, and unnecessarily expensive to use the two production processes in anything other than the natural ratio that emerges as a result of competition.
That means that protection for Detroit does more than just transfer income from farmers to autoworkers. It also raises the total cost of providing Americans with a given number of automobiles. The efficiency loss comes with no offsetting gain; it impoverishes the nation as a whole.
There is much talk about improving the efficiency of American car manufacturing. When you have two ways to make a car, the road to efficiency is to use both in optimal proportions. The last thing you should want to do is to artificially hobble one of your production technologies. It is sheer superstition to think that an Iowa-grown Camry is any less “American” than a Detroit-built Taurus. Policies rooted in superstition do not frequently bear efficient fruit.
In 1817, David Ricardo—the first economist to think with the precision, though not the language, of pure mathematics—laid the foundation for all future thought about international trade. In the intervening 150 years his theory has been much elaborated but its foundations remain as firmly established as anything in economics.
Trade theory predicts first that if you protect American producers in one industry from foreign competition, then you must damage American producers in other industries. It predicts second that if you protect American producers in one industry from foreign competition, there must be a net loss in economic efficiency. Ordinarily, textbooks establish these propositions through graphs, equations, and intricate reasoning. The little story above that I learned from David Friedman makes the same propositions blindingly obvious with a single compelling metaphor. That is economics at its best."
To repeat an especially important insight: “International trade is nothing but a form of technology.” That is, trade – intranational and international – itself is an innovation. Finding specialists with whom we can profitably trade requires transportation and communication – both of which today are, as it happens, greatly facilitated by advanced machinery. Yet other, less obvious innovations are involved – for example, the supermarket. The organizational form of the supermarket lowers consumers’ costs of learning about and acquiring groceries. (Superstores, such as Walmart, lower those costs even further.) In international trade, the seemingly simple box that we know today as the shipping container is a labor-saving innovation that dramatically reduced the costs of ordinary men and women from around the globe to trade with each other. Ditto the giant, magnificent modern cargo ship.
Our ability to trade is enhanced by technological innovations. Thus, innovations help us to save labor both directly (as with an incredible bread machine on my kitchen counter) and indirect (as with the shipping container that better enables me to acquire goods assembled by workers who live thousands of miles distant from me).
The bottom line is that trying to measure what proportion of some number of job losses is due to innovation and what proportion of those job losses is due to trade is rather pointless: from one valid perspective, all of the job losses are due to innovation; from another valid perspective, all of the job losses are due to trade. But from any perspective, the very fact that particular jobs are lost means that labor is saved.
Republished from Cafe Hayek.
“will hurt small businesses and consumers by making imports more expensive.”
Cheap imports hurt small businesses more because no one has a job to buy their products and services. So what if they can manufacture their products cheaper, as no on is buying.
Besides, small, business are hurt the worst because they usually are light manufacturing and cheap imports kills that segment of the market.
Thanks.
Dude. The cars are made in China. For the reasons I mentioned earlier, and that you dismissed. I will admit, the $12k profit-sharing check is fatter that I got (but I’m not complaining—I still have a manufacturing job even though protectionists are trying to put me on the street).
You've enlightened no one. Maybe you have brought someone to join you in the sewer. I have no control over it . . . all I can do is point out, time and time again, that quoting Marx might make you feel smart, but it makes you look stupid.
“Jeepers. And I mistakenly thought context was my friend. That’s what I get for responding to your comment about the Marx quote. That’s ok, it’s late . . . backpedal all you want.”
It’s never too late, my friend!
Your sophistry lies in that you seem to believe that Marx’s qualifiers “alone” and “revolutionary” implies that he was against Free Trade, despite voting for it.
I know it’s easy to project John Kerry onto Marx, a common error, but for you to then claim that I, clearly an anti-Free Trader, am somehow a follower of Marx, who voted for Free Trade, (before you imagined he was against it), is a clear violation of critical thinking.
and Cato points out in detail in their policy paper that Reagan’s actions didn’t match his free trade rhetoric.
Good to see you resorting to your old standby of tossing mud.
Interesting. The story says China is now GM's largest market, and that GM makes most of the cars it sells in China in China, the exceptions being mostly Buicks.
Can I get you a tissue, or something? Let me brew you a cup of tea. Stop clutching your pearls.
Please see my #143.
” Someone posts the Marx quote, and just tries to walk away from it.”
Ok, you got me! I’m a closet Marxist, and all these years (since 1998) posting on FR against big fedgov, global warming, high taxes and the Clinton’s have all been just a clever ruse!
All just a part of my dastardly plan to Co-op FR and turn it into a Soros/Marxist tool for the glorious Glorious Revolution.
How did you ever find me out?!
“I can do is point out, time and time again, that quoting Marx might make you feel smart, but it makes you look stupid. “
If quoting Marx make one look stupid, how does agreeing with Marx make one look?
By the way, I should add . . . apparently Reagan fooled Buchanan, but not Cato. [snort]
Nah, but be sure to wash your hands, you don’t want to spread e-coli around.
“See, this is where things get fuzzy for the people who post that Marx quote in the first place. I can try to explain to them that it doesn’t mean what they think it means,”
The fact that you have this superior understanding of Marx that no else here possesses and yet you are unable to convey this knowledge coherently must be soo frustrating for you.
I do sympathize.
(or run away—you did not, and I respect you for that).
“Never give up, never surrender.”-Commander Taggert
If they succeed, will it be by killing exports, raising the cost of your inputs, tanking the economy, or all three?
U.S. auto production is mainly oriented to domestic sales. China probably produces many cheap cars that are exported to other Asian countries that don’t have their own production facilities and wouldn’t be a market for U.S.-built cars anyway because they couldn’t afford them. It’s easy to forget that a Ford Focus would be considered a luxury car in much of the world.
Let's look at our trade Mexico as a perfect case in point.
In 1994 -- the last year we had a trade surplus with Mexico -- the U.S. exported about $51 billion of products to Mexico and imported about $49.5 billion from Mexico ... for a trade surplus of about $1.5 billion.
In 2016, the U.S. exported $231 billion of products to Mexico and imported $294 billion from there ... for a trade deficit of around $63 billion.
How did the U.S. exports to Mexico increase from $51 billion to $231 billion over 22 years if so much of our production capacity was moved there?
“How did the U.S. exports to Mexico increase from $51 billion to $231 billion over 22 years if so much of our production capacity was moved there? “
Is that all manufactured goods? Or is a big chunk of that “petroleum product” and/or raw materials?
I know since 2004 our petroleum exports to Mexico have tripled and our imports of petroleum products have been cut in half.
Are you suggesting the Ford, Carrier, GM, et al have NOT moved some production to Mexico?
Seems that would be an outlandish claim.
My understanding that "goods" would include any physical commodity that fits into the standard commodity classification codes -- including manufactured products, raw materials, etc. I say this because trade figures generally list "goods" insofar as they are distinct from "services."
Exports of petroleum products to Mexico may have tripled, but keep in mind that since 1994 Mexico and Canada both surpassed Saudi Arabia as the largest foreign sources of crude oil for the U.S. -- and the crude oil imports from Mexico would be included in those figures as well. So this is one industry that actually turns the whole "manufacturing is going to Mexico" argument on its head. The U.S. imports a raw material from Mexico and sells back a finished product!
Are you suggesting the Ford, Carrier, GM, et al have NOT moved some production to Mexico?
Not at all. Are you suggesting that other companies didn't build new production facilities in the U.S. since 1994? In the auto industry alone there must be dozens of new plants that have been built in the U.S. since then -- mostly by foreign manufacturers like Daimler-Benz, BMW, Hyundai, Volkswagen, Kia etc.
Less than a million cars and commercial vehicles manufactured in China in 2015 were exported. Better grasp for another straw.
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