Trade and Manufacturing
One of my commenters asks the obvious question: why no discussion of trade in a discussion of the decline of manufacturing?
Several answers to that.
First, advocates of using trade policy as a lever to promote American industry should realize that our trade policy is already designed to do just that – just not the industries they prefer. One of the biggest agenda items on international trade agreements these days relates to extending the American IP regime around the world. This is a big deal for leading American industries like software, entertainment, pharmaceuticals, and agribusiness. So, to a certain extent, the trade agenda we have is exactly the kind of export-promoting agenda protectionists claim to want.
However, those industries aren’t in manufacturing, and probably don’t do as much to promote a broad base of high-wage employment – particularly among non-college-graduates – as traditional manufacturing did.
Second, America still imposes some tariffs – and provides a lot of subsidies – in areas that do little to promote high-wage domestic employment, and do a great deal of harm to developing countries. Agriculture and textiles are two good areas to point to in this regard. Ironically, these are also industries devoted to importing cheap labor from abroad. This is not an accident – low-wage sectors aren’t seeking protectionism to protect American jobs, but to protect their own profits, which would be further enhanced by low-skilled immigration. We’d be better off not protecting these industries, and seeing them move overseas and employ people there.
Third, you don’t have to be a doctrinaire free-trader – and I’m not – to recognize that everybody can’t win at the mercantilist game. Somebody has to absorb the exports. Export-led development has worked well for a variety of Asian countries able to take advantage of the American free-trade umbrella, but every one of them eventually hit a point where they caught up with the West industrially, and it was at precisely that point that the export-led model began to run into trouble. Germany – a country that, in general, I think we could learn a lot from – is facing the limits of their own export-led model right now vis-a-vis the rest of Europe, with which it runs a persistent trade surplus.
The goal, it seems to me, should be free and balanced trade. A persistent and large trade deficit or surplus is a sign of serious economic imbalances. Whether the deficit or the surplus country benefits most is a matter of dispute – I suspect it depends on the totality of the circumstances – but both stand to lose badly when the imbalance reaches a crisis of unsustainability. In any event, I don’t think the efficient solution is simply to make such imbalances illegal, as Warren Buffett has suggested, but that doesn’t mean we shouldn’t be seeking policy levers to restore balance to trade. An industrial policy that aims to help the country keep moving the country up the value chain – within both the manufacturing and tradable service sectors – while minimizing the degree to which the government picks specific winners makes sense to me as a framework, because the only way to generate high-wage jobs – which is ultimately the goal here – is to keep moving up the value chain, but I don’t think our government – or any other government – has a great track record at picking national champions, or running companies.