The US is the global leader in technology, space, information, biotech, and innovation in general. That’s more than good enough.
Factories Aren’t the Future
The Wall Street Journal article Factories Aren’t the Future inspired my lead chart.
Politicians of all stripes promise to restore manufacturing to its historic role as a source of good jobs for Americans. They blame trading partners like China, Germany and Mexico for unfairly stealing those jobs. They blame corporations for outsourcing those jobs. They blame unions for hampering manufacturing companies’ growth. Democrats blame Republicans. Republicans blame Democrats. Voters pine for a golden age in our immediate rearview mirror when most Americans had high-paying, stable manufacturing jobs.
The facts tell a different story. According to the Bureau of Labor Statistics, manufacturing’s share of nonfarm employment declined from roughly 32% in 1947 to approximately 8% at the end of 2023. Yes, there was a slight increase in the rate of decline around 2001, when China entered the World Trade Organization. But you have to stare pretty hard to see the effect. In any event, that effect is trivial compared to the long, slow, inexorable decline in the importance of manufacturing as a source of U.S. jobs.
Has the decline in manufacturing been the catastrophe portrayed by various politicians? Hardly. Inflation-adjusted gross domestic product per capita increased from around $15,000 in 1947 to about $66,000 in 2023. Real per capita disposable income rose by a similar rate. So it isn’t true that our prosperity depends on having most people work in the manufacturing sector—quite the opposite. Technology has dramatically raised labor productivity in manufacturing. Automakers here and abroad need far fewer employees now than they did in 2000 to make better cars than they used to. That’s a powerful force reducing employment in the auto sector—and the same is true in many other industries.
The wrong answer is to pine for a mythical golden age that never existed. Pittsburgh is now a thriving center of education, research and health services. It didn’t get there by trying to bring back the 1950s.
Chart Notes
- Manufacturing employment peaked at 19.460 million in the third quarter of 1979.
- Manufacturing employment is now 12.955 million, down 33.4 percent.
- Real GDP was $7.03 trillion in the third quarter of 1979.
- Real GDP is now $22.2 trillion, up 215.8 percent.
Why the Economic Effects of Taxes (Including Tariffs) Matter
The Tax Foundation comments Why the Economic Effects of Taxes (Including Tariffs) Matter
Tariffs have a net negative impact. Yes, they divert business toward protected domestic producers, but they generate losses for consumers and unprotected businesses of a greater magnitude. For instance, recent tariffs on steel and aluminum led to annual production increases worth $2.8 billion for protected firms but led to a larger $3.4 billion annual average in production losses for downstream industries. Elsewhere, estimates have shown that while tariffs can save jobs in protected industries, they do so at very high costs (e.g., about $650,000 per steel job saved). That is crucial information for policymakers to have when deciding whether to impose tariffs.
When it comes to tariffs, for example, nearly all the new tariff revenue raised under the Trump administration was used to bail out farmers and ag producers harmed by retaliatory tariffs. We’ve also modeled the estimated effects of Trump’s new tariff and tax proposals and compared the trade-offs of each tax policy change for economic output.
Trump Tariff Synopsis
- Trump put tariffs on China.
- US consumers and importers paid the price.
- China retaliated. US farmers were hurt by China’s response. So
- Trump gave all the money raised by the tariffs to the farmers.
- And we paid $650,000 per steel job saved.
It worked so well that Trump is going to put 60 percent tariffs on China. All trade with China will stop and the result will be massive inflation.
I what way does any of that make any sense?
Related Posts
September 26: Trump Claims Tariffs Will Reduce the Trade Deficit. Let’s Fact Check.
Trump proposes 60 percent tariffs on China. Would that reduce the trade deficit? Where? How?
October 1: Trump vs Frederic Bastiat: Who Is Right About Tariffs?
Previously, I discussed tariffs and the trade deficit. This post is about Trump’s proposal to use tariffs to fund projects.
October 5: Buy American Provisions Cost $125,000 Per Job Created
“Buy America” sounds great. But it’s costly and about to rise steeply.
I propose a new slogan: “You can get better, but you can’t pay more!”