One does not need to look farther than the United States’ presidential campaign to understand why the country is experiencing a popular reaction against international trade.
In place of showing leadership and articulating a constructive alternative to the attack on trade, senators Barack Obama and Hillary Clinton are intensifying it.
The anti-trade narrative of these candidates is based on practiced and discredited assertions meant to mislead and confuse. First is the assertion that the competition with imports explains the reduction in the manufacturing sector of the United States, including the loss of jobs. Second is the argument that the commercial treaties, for example the North American Free Trade Agreement (NAFTA), has caused an increase in the United States’ trade deficit, which means that we are losing in respect to trade.
But the United States’ manufacturing sector is not in decline. In reality it is the contrary. Production, income, and earnings of the sector all achieved records in 2006 and the preliminary information for the government indicates that new records were achieved in 2007. US factories continue on as the most prolific in the world, producing 2.5 times the value of Chinese production.
Employment in the manufacturing industry has been reduced, but this isn’t anything new; it arrived at its highest point in 29 years, in 1979. Earnings in productivity, and change from an emphasis in manufacturing toward products of greater value, which require more technology for its production, have reduced the demand of traditional handmade manufactured products.
Between 2000 and 2003 there had been a pronounced recession in the manufacturing sector, during which 2.8 million jobs were eliminated in the sector. The two candidates use these statistics in order to say that 3 million manufacturing jobs have been lost since 2000 due to bad commercial agreements, like NAFTA, as if these trends were going to continue. This is incorrect.
Between 1979 and 2007 the number of jobs in the US manufacturing sector was reduced from 19.4 million to 14 million or a 192,857 annually. During the period of recession between 2000 and 2003, the rate of reduction of jobs accelerated to 933,333 annually. But between 2004 and 2007, the decline was only at 100,000 annually. In other words, the period of severe employment reduction ended five years ago (before the last presidential campaign). In the last four years, the rate of reduction in manufacturing employment has been much lower than the average of the last 28 years.
If trade had had something to do with the loss of these 2.8 million jobs between 2000 and 2003, imports were not at fault. Imports for manufacturers didn’t increase at all during these three years. US exports, however, were reduced by 11 percent during this same period. If trade had something to do with the loss of 2.8 million jobs, it is more feasible that a deceleration in exports, and not an increase in imports, would explain some of the decline.
NAFTA went into effect six years before 2000 and has been in effect 4 years after 2003. If NAFTA was at fault for the loss of jobs between 2000 and 2003, then it should have obtained credit for the great improvement in the manufacturing sector during the 1990’s and for the increase in the sector since 2003.
If something could be said about the trade deficit, it is that trade agreements have been a form of moderating it. Between 2000 and 2007, the general US deficit in manufactured products doubled from 300 billion to approximately 600 billion. But with the countries of NAFTA, the deficit had been relatively and consistently small, around 40 billion annually. With all the countries with which we have a treaty of free trade, the deficit has been still lower, around 25 billion annually since 2000. And with the countries of CAFCA, the manufacturing trade passed a deficit of 1,000 million annually between 2000 and 2005 to a surplus of around 1,000 million annually during the two years since the treaty was implemented.
The fixation on the balance of trade is wrong in all manners. The important questions are if the economy is growing and creating good jobs and if the appropriate investment is being carried out in order to finance future growth. Since 1993 (the year before NAFTA) the size of the US economy has grown by 54 percent in real terms; a net of 27 million new jobs have been created, production of workers has gone up 39 percent and the real compensation has gone up 23 percent. This economic expansion occurred while the imports increased from 589 billion in 1993 to 1.9 trillion in 2007.
Imports are essential, not only for the consumers, but rather also for the US producers who depend on components, crude materials and equipment of capital made abroad. And while the demand from the US has decelerated, the importance of reliable markets and growth abroad has never been so evident. US exports were stronger than ever in 2007.
Trade-as important as exports-has been vital to the success of the manufacturing sector in the US and for its economy in general. Whoever will be the next president knows this. The problem is that the two candidates continue expecting something else.