The great betrayal: how America's elites are failing to confront the challenges of trade politics.

Author:Overholt, William H.

Once every couple of generations, the United States faces a single great challenge that will determine much of its fate for decades. This generation's challenge is the vanishing of manufacturing employment. U.S. elites are failing the challenge.

Manufacturing employment is disappearing the way agricultural employment once did. In the early United States, almost the whole population worked on farms. By 1870 it was down to 50 percent, and now 2 percent. The decline did not occur because the United States "lost" the jobs or because some other country stole them through unfair practices. It occurred because American agriculture became so efficient.

Now manufacturing is becoming extraordinarily efficient. Contrary to Washington political rhetoric, U.S. manufacturing output continues to rise at about the same rate as it has done historically (Figure 1), and Americans make the world's most sophisticated manufactures--the best airplanes, the best computer chips. That Americans make computer chips rather than cheap socks is a success, not a collapse.

Because of rising efficiency, manufacturing employment has declined since 1977. More importantly, manufacturing employment as a share of total employment has declined continuously since World War II (Figure 2). This efficiency-driven trend started before Japan was a major exporting power, continued through the 1990s when Japan's economy was a mess and China's currency was overvalued, and will persist as long as the United States has rising productivity.

Once U.S. politicians blamed the decline on unfair Japanese competition, now on Chinese. Globalization does indeed cause some job loss, but only a fraction. We now have more than a decade of studies by leading scholars, mostly clustering around findings that the percentage of job declines attributable to globalization is in the mid-teens. The most recent studies have come up with numbers from 13 percent (Ball State researchers) to 21 percent (Autor and colleagues, focusing on the distinctive period after China joined WTO and when the digital and robotics revolutions hit full force). So most of the decline is caused by better technology and better organization. Combining the studies, a fair estimate is that one "lost" job out of six or seven is caused by globalization. Moreover, the globalization job losses just constitute an acceleration of something that will eventually happen anyway.

These trends of manufacturing success and job declines caused mainly...

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