Connecting Dots: a Sluggish Economy and Millions of Jobs Lost to China

Dave Johnson

Economic growth is slow, the trade deficit is too big, and these dots are connected.

First, the stalling economy. As Wonkblog recently reported on what it called “a long period of tepid expansion under the Obama administration,” GDP growth has averaged about 2.1 percent since 2010.

The Wall Street Journal and The Financial Times both blame the trade deficit for some of this sluggishness. How did we get here?

With Bill Clinton’s help, China joined the World Trade Organization (WTO) in 2001. China had what the business world considered a comparative advantage: a government that allowed low wages with scant labor rights or environmental protections. During George W. Bush’s administration, U.S. companies closed as many factories as they could here. Instead of just shifting manufacturing to Mexico, as began to happen once NAFTA went into effect, they moved as much production as they could to China as fast as they could.

The Economic Policy Institute (EPI) looked at the resulting trade deficit with China, and concluded,

Growth in the U.S. goods trade deficit with China eliminated or displaced 3.4 million U.S. jobs between 2001 and 2015…The trade deficit with China has more than quadrupled since the country’s entrance into the World Trade Organization (WTO), rising from $83 billion in 2001 to $367.2 billion in 2015. This rise has led to job losses in every state (and the District of Columbia) and congressional district.

Three-quarters of those lost jobs―2.6 million of them―were in manufacturing. Daniel Marans reported on EPI’s analysis, writing at the Huffington Post,

To come up with his figures, (EPI’s Robert E.) Scott first calculated the net U.S. goods trade deficit with China by industry, subtracting the value of American exports to China from Chinese imports to the U.S. over the period he examined. Using official data, he then estimated how many jobs it would take for those industries to generate the equivalent of that amount if the those goods were produced domestically instead.

…Workers directly affected by trade with China typically must settle for lower-paying jobs. Displaced workers lost a total of $37 billion in wages in 2011 alone, according to a 2013 analysis by Scott…And that figure likely understates the impact, since the threat of offshoring to China also diminished the bargaining power of workers whose jobs remained in the United States.

Would Those Jobs Have Vanished Anyway?

Lately Wall Street has been pinning manufacturing job losses on causes other than trade. They claim automation and other factors are the real culprits behind job and wage decline. Dean Baker, in Painful Nonsense on Trade, takes on arguments “denying that trade has cost us manufacturing jobs.”

Manufacturing Employment

Note that the level of manufacturing employment, while it has cyclical ups and downs, is nearly constant from 1970 to 2000 at around 17 million. It plunged in the early years of the last decade as the trade deficit exploded. Most of the fall in employment was before the collapse of the housing bubble in 2008. This is what happens when a trade deficit increases from around 1.5 percent of GDP, the mid-1990s level, to almost 6.0 percent of GDP at its peak in 2005–2006 (over $1.1 trillion in today’s economy).

Clearly, automation is killing American jobs, but more manufacturing should still be happening at home for many reasons. The trade deficit is draining us. The supply chains would come back. Even the transportation jobs moving things to and from factories would be here. The tax revenue would return.

As Baker puts it,

I would also add that the dollar policy and the trade deficit were central to the imbalances that led to the housing bubble and the collapse that followed. In other words, someone could quite rightly blame our dollar policy for the Great Recession. This is not a small matter.

There is reason after reason to counter excuse after excuse. Trade deficits are hurting us. It’s time to balance trade.

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