NAFTA and MANUFACTURING EMPLOYMENT
President Trump is not alone in blaming NAFTA for the decline in US manufacturing employment over the last several decades. Many people on all sides of the political spectrum believe the same thing. But as this chart demonstrates the economic data tells a very different story.
In the decade after NAFTA came into being, manufacturing output growth actually accelerated to an average annual growth rate of 3.7% as compared to an average annual growth rate of 2.9% in the decade before NAFTA was implemented. However, while manufacturing output growth actually accelerated, the average annual growth rate of manufacturing employment weakened from -0.4% to -1.3%. This was because the rate of growth in productivity or output per employment jumped about 50% from 3.3% to 5.0%. The big jump in the growth of output per employee or productivity was the dominant factor in the drop in manufacturing employment. Automation or information technology accounted for virtually all of the weakness in manufacturing employment after NAFTA. NAFTA was a factor, but it was clearly a relatively minor factor. The way NAFTA contributed was for low productivity industries like textiles and autos to move abroad while high productivity industries like semiconductors grew rapidly so that the composition of US manufacturing changed drastically. Because of this, Trumps policy of bring jobs back from overseas is almost certain to fail.
The important question is not why his policy will fail. Rather, it is what will Trump do after it becomes obvious to everyone that it has failed.
If you want to blame the trade deficit for the drop in manufacturing employment, it obviously played a role. But Mexico only accounts for some 5% to 10% of the US trade deficit, so even on this basis, NAFTA played a very minor role in the drop in US manufacturing employment.
You can repeat this:
over and over again and it will fall on deaf ears. Trump does not care and he will take back the low productivity industries like textiles just to make the point he did something no matter how small the impact.
The trade deficit is an entirely different problem. The trade deficit cannot exist without debt. If we make $100 in goods, and buy $110 in goods, we must have a $10 trade deficit. But where did we get the extra $10? We only made $100 worth of stuff, so how did we get $110 to buy stuff with?
We borrowed $10.
The trade deficit is the result of our collectively going into debt to buy stuff.
“The big jump in the growth of output per employee or productivity was the dominant factor in the drop in manufacturing employment. Automation or information technology accounted for virtually all of the weakness in manufacturing employment after NAFTA.”
Why isn’t the big jump in productivity caused by the movement of low-value assembly tasks to Mexico which bot (a) left higher value tasks behind and (b) gave manufacturers a cost advanatge which expanded their markets?
You are conflating output with cost. Two different topics. I could and have moved production to Mexico and China and not seen increased output when using the same number of people. The only difference was a lowering of Overhead cost followed by a miniscule decrease in Labor cost per part.
You really need to check your math.
Hint: This is a word problem.
Show me how I am wrong.
$ is not a constant.
I do not understand, EMichael. Give me an example of how we can make $100 of stuff and buy $110 of stuff without going into debt.
“You are conflating output with cost. ”
No, I’m saying that the numerator of productivity (output) was reduced much less than the denominator (employee hours) by the movement of low value assembly to Mexico. That caused productivity measurement to record a big boost while employment fell. That cost savings allowed manufacturers to be more competitive and expand their markets/production.
The manufacturing that was left was always more automated than the manufacturing that went to Mexico. It wasn’t a massive wave of automation that caused your charts to change as they did, but a change in manufacturing mix.
So, the problem I continue to have with the robots caused the employment decline in manufacturing is it’s presented compared to our historical past.
However, as some have, when you look at it as relative to world manufacturing growth and the shifts of location of that growth, the picture becomes a bit different.
Out of curiosity, I googled: China manufacturing growth since NAFTA and found this via an article in the Guardian: http://repositorio.cepal.org/bitstream/handle/11362/37000/1/RVI110DusselGallagher_en.pdf
In the simplest terms, do look at table 9 on page 99: Share of international automobile output. I realize those numbers need to take into account that auto use in China has risen, however to go from 48.5% in 1961 to 10% in 2010 is a lot of jobs. Yes, it shows the US reduced to 15.4 in 1991 but grew to 23.2 in 1999, but Japan was declining then. So, robotics as to growth/job decline, ok. But, declining from that high to 10 in 2010 while China goes from .2% in 1991 to 23.5 in 2010 our manufacturing job lose is do to robotic?
I also found this article from the Wharton School: http://knowledge.wharton.upenn.edu/article/naftas-impact-u-s-economy-facts/
” At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. ”
So, I get it’s not all NAFTA’s fault, but it is an easy starting point for the labor class to use to make issue of the fact that trade (which NAFTA is all about) has not been good.
I suggest telling people robots did it to them is not the best argument to use if the goal is to get the labor class to vote in a way that policy ultimately returns the freedom of capital movement to the level of the inherent restriction there are when one earns their money from labor and not money.
Let me just add this report via PIIE (granted not necessarily the best):
“The first column in table 1 shows that, excluding private firms and the self-employed, urban manufacturing employment soared from 32.4 million in 2000 to 52.4 million in 2014….Thus, as shown in columns 3 and 4, respectively, between 2003 and 2014 total urban manufacturing employment doubled and the share of the urban workforce employed in manufacturing rose from 15 to 20 percent. In addition, there are a significant number of manufacturing workers in rural areas, not reflected in the data in the table. Workers in private firms and self-employed engaged in manufacturing in rural areas rose from 14.5 million in 2003 to 23.6 million in 2014.”
And they ask the question I am asking: Why does China not exhibit the trend of declining manufacturing employment as well?
Responding with that there was faster internal growth but also: Finally, the liberalization of the economy associated with China’s entry into the World Trade Organization (WTO) in 2001 led to a huge surge in China’s share of global exports and particularly its share of global manufacturing
(link is external)
exports, which tripled from 6 percent in 2000 to 18 percent in 2012. In contrast, over the same period the US share fell by half, from 18 to 9 percent.
So, robots. Helped the US manufacturing stay price competitive, but did not actually help it grow at a pace relative to consumption on this planet. China has captured that.
To the labor class, loss of the blue collar job is do to trade and NAFTA is the first trade deal experienced in a populace way. You know, like a NAFTA became the pop music of trade.
Of course, that labor was convinced and voted for those who would take away their sway within this “free market” is only now being realized by labor. I speak of unions.
We raised payroll taxes in the early 80s. Look at the graph, see any coincidence?
The payroll tax increase (the Greensoan Commission) then signaled to management that labor costs needed to be controlled, and managerial sense became dominated by this focus. In Germany, labor and management cooperate and neither side sees labor just as a cost that must be controlled over and above other factors.
The logic of this is faulty. Manufacturing output growth in high productivity industries did not preclude continuing production in lower productivity industries. Autos is autos. Whatever the productivity growth it has is what it has. You don’t say, “I don’t care about auto manufacturing because it’s not keeping pace in productivity with other industries.” You might say that if we had a labor scarcity. Last I knew, that’s not exactly what we have.
You went to an awful lot of trouble before you admitted that Mexico accounts for 5% to 10% of US trade deficits.
In 2015 our trade deficit with the world was $745.66Billion.
Trade deficits in 2015 (Amounts in Millions of dollars):
Country———Imports—————Deficit———— Deficit as a Percent of Imports
Canada ——- 296,155.6————15,546.6———-—— 5%
China———- 483,244.7———- 367,172.9——-—— 75%
Germany—- 124,820.5———— 74,849.7 ——-—- 60%
Japan———— 131,364.1———- 68,921.5 ——-—- 52%
Mexico ——- 29,6407.9 ———- 60,662.8 —-—— 20%
See this webpage and choose country: https://www.census.gov/foreign-trade/balance/index.html
What would the US labor market look like if the trade deficit as a percentage of imports was %5 or less for all countries.
If President Trump is successful then our trade deficit with Mexico will be less than it is currently. And so will our trade deficits with China, Germany, Japan, and others.
Only the morally bankrupt believe that buying more cheap imported goods will make you happy. Much better to have a society made up of people earning a decent paycheck.
In fact, if we had a deliberate policy of exporting industries with low productivity, by definition it would be a a policy of deliberately exporting as many jobs as we could.
Is that what we want for a prosperous and civil society?
No Jim, the trade deficit is driven by the gap between domestic saving and investment and if Trump is successful the federal deficit will soar and so widen the gap between domestic saving and investment and the trade deficit.
Basic international economics that Trump will not be able to change.
By the way Jim, if you are going to calculate Mexico’s share of the trade deficit you divide the imbalance with Mexico by the entire deficit, not just
If that is the level of your analytical ability it is no wonder that you are a Trump supporter.
NAFTA also helped spur more “consumer” exports to Canada from the US. The bigger issue that was already building was Asia as it provided a large human component to labor. US consumers wanted cheaper prices and Asia gave it to them.
NAFTA is a big nothing. Just like CAFTA. Asia is the main factor.
JimH, you represent why people fail. The US needs capital controls,industrial policy and higher marginal tax rates. Not regressive, profit boosting import tariffs that lower gdp per capita. Getting rid of the trade deficit in a shrinking economy is not going to work(and just the fact the economy is shrinking will reduce the trade deficit). But that is what Trump and de Rothschild want. Why would they want that? Oh, I think it is called “Shock Doctrine”. Create a artificial crisis in the auto-sector, demand worker cuts. See, Trump can do that. Raise tariffs, bk auto companies right when the lending boom is ending and sales are going to fall anyway.
i’d venture that most everyone in those Great Lakes states that surprisingly went for Trump knows of a factory whose production was moved to Mexico…
so a better question is does anyone have a record of Mexico’s manufacturing employment since NAFTA was enacted?
Gee, I thought I was pretty clear that 20% of Mexican imports to us represented a trade deficit. Sorry that my English did not match your jargon. But I did not care for your way of presenting the data either.
Perhaps you are just upset that the real economy has betrayed your models and theories.
Or perhaps you would be happier if we continued do the same thing over, and over, and over again.
I support the President, whoever he is and whatever party. Too bad that is a minority view today.
By the way, I voted for President Obama, twice. Too bad he couldn’t run again.
So, Mexico is a smaller problem than China so we should do nothing about Mexico. Your idea about higher marginal tax rates doesn’t upset me, we have survived those before. Can not say the same for capital controls and industrial policy.
The auto companies don’t need any help from anyone, they will build more cars than they can sell, lease too many cars which will be dumped back on the market after three years, and just generally foul their own nest. All at car prices that are too high to be supported by a lot of Americans’ wages. And sending more jobs to Mexico is not going to help to solve that problem, that just suppresses wages even more.
To all the Trumpist’s who think Trump’s protectionist trade policies and coercion of a few mfg’ers is going to fix anything:
Try to stop foreign competition.
Try to stop increasing productivity.
Jim, shipping jobs to Mexico is irrelevant. The auto companies use foreign parts to keep jobs in America despite the large labor costs due to existing capital structures and productivity. Why do you think Honda came over here in 1979? It is more like shipping jobs to America.
Trumps trade policies serve his agenda with the Breitbart/Infowars which is financed by the Lukud via the Russian/de Rothschild subs. That said, there is only so far he can go.
Again, if you want to grow manufacturing and new market it is capital controls, industrial policy and higher taxes on the rich. That is how the US built up after the Great Contraction and how they will build up again.
Trump already sounds like he is giving up on tariffs after his little meeting with Republicans and Corporate bosses. Shock doctrine and anti-Bush/Cheney politics can only go so far in such a short period of time.
The fact Trump’s ties to zionism are coming out, is a problem for him. NAFTA is going to be deck chair city if the Mexicans don’t bolt.
Imports from Mexico have ~40% US manufactured content in them. Most foreign autos in the US have a large percentage of US content in them. If you start to attack various countries such as Mexico and Canada, you are hurting yourself. Canada imports are about 25% US manufactured content.
Employment due to Nafta ? Two border states that trade extensively with Mexico, California (692,000 jobs) and Texas (463,000 jobs) have the most…Detroit (alone) exports $10.9 BILLION in cars and car parts to Mexico (part of the total of $20 BILLION worth of cars and auto parts exported to Mexico).”
In comparison to China’s 4%, our two neighbors represent strategic alliances.
re: “Trumps trade policies serve his agenda with the Breitbart/Infowars which is financed by the Lukud via the Russian/de Rothschild subs.”
can you provide a cite for that? or even part of it?
“I support the President, whoever he is and whatever party. Too bad that is a minority view today.”
While I appreciate that sentiment, JimH, it is very difficult to separate the President from his policies. Many people who do not want Trump to succeed simply mean that they think his policies will hurt America and so want him to fail to get those policies enacted.
Jim, you can not create a deficit with only one side of the data.
It takes two, both imports and exports to create a balance and the difference between the two is the .balance.
It is the standard term used by economist and statistical agencies in every country in the world.
Maybe you should go help Trump investigate alien abductions– that should be right up your alley.
Bill, while i have no doubt that there were net economic benefits from NAFTA, i’m equally certain there were losers as well as winners, something many in Michigan know…Mike shows that US manufacturing employment was flat to down over the entire span, and since trade with Mexico was only 5 to 10% of the aggregate deficit, there’s no apparent job impact we can pin to NAFTA there…i wanted to look at employment on the other side of the border, and see how it was affected….i found that info difficult to find, since it seems most reports on Mexican employment aggregate manufacturing jobs with “industry”, which would include oil & gas drilling and construction…i did find one graph that shows a 20%, 5 million job jump in Mexican manufacturing employment in the first few years after NAFTA, but they never reached their prior peak, and i find the rest of the period inconclusive, not knowing much about Mexican business cycles:
click on the MAX tab…it only goes up to 2011…
“Go into the link” ~200,000 job impact for Michigan.
I think the president should support the views of the People, not the other way around.
For a much more comprehensive approach to the impact of NAFTA you can read what Brad Delong had to say about it.
One of the factors that makes the analysis more difficult is that in the 1990s, early 2000s the rapid growth of US imports from China displaced many of US imports from Mexico. Chinese competition did significant damage to Mexico. In recent years as Chinese labor became more expensive, Mexico has regained much of the ground it lost to China. Interestingly, the recent sharp drop in the Mexican Peso should actually make Mexico much more competitive in the US and other markets. So if we do not get political interference, the US trade deficit with Mexico — that peaked in 2007 — is likely to surge over the next few years.
Since I was out here, I fixed your comment. What you said about regaining ground is in that link I gave to The Rage also.
The link is here for those comments supporting Spencer’s comment on China and Mexico in 2001. Page 35. This is also the link for US content in Mexico /Canada imports. 40 pages of documentation on Trade with Mexico. There is an opportunity to export out of China to Japan and Europe duty free. Little disclaimer . . . I am automotive having worked for the Japanese, Koreans, and the Germans. Hope this is ok Spencer.
“When China joined the WTO in 2001, it consolidated its position as a popular location for offshore production due to extraordinarily low labor costs. Total compensation in the manufacturing industry, including wages and benefits paid both directly to employees and through taxes, totaled less than a dollar per hour. In 2003, average hourly compensation in China was just 62 cents, while in Mexico’s manufacturing sector it was $5.06.94 Many Mexican maquiladoras shut down and relocated to China. In fact, between October 2000 and March 2002, maquiladora production declined by 30%.95
Since the early 2000s, Mexican manufacturing has recovered. At the same time, economic growth in China has caused wages to rise. China’s hourly compensation costs in manufacturing more than doubled between 2003 and 2008, rising from 62 cents to $1.36 per hour. Over the same period, Mexico’s wages rose just 21%, from $5.06 to $6.12 per hour.96 While the dollar amount of the rise in labor costs was actually greater in Mexico during this period, the rate of growth suggests wages will occupy an ever-greater portion of production costs in China, a factor that, over time, could erode its competitive advantage. Still, if wages were the only factor, it would make more sense for U.S.-based companies to offshore their manufacturing to China.
Several additional factors, however, have helped keep Mexico’s factories competitive. Because of geographic proximity, shipping goods between the U.S. and Mexico is cheaper (especially with the currently high fuel costs) and substantially faster than shipping to and from China.” “Economic Ties Between The United States and Mexico,” Christopher E. Wilson, Woodrow Wilson Center for Scholars.
That should be “Mexico has regained (not lost) much of the ground it lost”
You should also read what Dani Rodriks has to say.
New Deal Democrat rebuts Delong:
i had partially read DeLong’s long piece defending NAFTA earlier, but i had to take it with a large grain of salt, as DeLong had worked on that and other trade agreements when he was in the Clinton treasury, and he’s always been reflexively defensive about what was done during those years..
The language used to describe our free trade treaties and the results, has gotten us to where we are today!
In 1994 our trade deficit with the world was $150,627.0Billion.
In 2008 our trade deficit with the world was $816,200.0Billion
In 2015 our trade deficit with the world was $745.66Billion.
And that allowed a candidate like Donald Trump to win the presidential election in 2016!
I thought he was unelectable! He should have been unelectable!
But just enough of Americans living in the rust belt states of Indiana, Michigan, Ohio, Pennsylvania, and Wisconsin voted against the status quo.
All of the assurances that free trade would be a rising tide that would lift all boats were false. There were winners and there were losers. Multinational corporations were big winners. Many American workers were big losers. And they voted.
People like you made Donald Trump the President.
Seriously, you are going to say this? “People like you made Donald Trump the President.”
Correction to my last comment.
In 1994 our trade deficit with the world was $150.63Billion.
In 2008 our trade deficit with the world was $816.20.0Billion
In 2015 our trade deficit with the world was $745.66Billion.
When a person tells you that they lost their job because the factory moved to Mexico (usually noting they helped pack the stuff up or trained the people that would be working in Mexico), telling them that robots did it to them just is not going to fly.
When, as with today’s news, the meme that is developing is that putting on a tariff like tax is only going to raise the cost to the American people and thus you really don’t want to undo NAFTA like policy, you are not solving the problem. You are only acknowledging that our nation is a consumption economy.
People get the consumption part. What they are not getting, because the “brains” of the economic profession are not addressing it, is why they don’t have the money to consume?
We all know that part of the argument for tariffs is that it creates a policy of making it here.
So, one question is: If you make it more costly to ship your stuff into America (the worlds consumers) is the rational decision for a business one that says it will ignore the American market as to deciding not to sell in America? That is, it will not build a factory in America in order to get around the cost of being outside America?
This is how the labor force is thinking I believe. Or at least something like it.
Was our economy always 70% consumption driven? Is that the norm for an economy that is providing the means for people to sustain their lives with the minimal of risks from living? Is it sustainable over centuries?
That last question I believe is being answered currently with a big No.
Lastly, as long as the memes are robots and it will cost you more, then the argument that cutting taxes is the way for labor to earn a living will still seem reasonable. And we all know (here at AB I believe) that it is not.
– “robots did it to them just is not going to fly.” Tell me who is going to say such?
– ” only going to raise the cost to the American people and thus you really don’t want to undo NAFTA like policy” Does it make sense to tax 40% US manufactured content in the product coming back from Mexico? A tariff was not the answer and withdrawing from the global economic will not fix it either. I just gave you part of the solution.
– “more costly to ship your stuff into America” Rather than ship cars to America, Toyota assembles cars here. Why do you think this is? We do the same for Buick in China.
– “cutting taxes is the way for labor to earn a living will still seem reasonable” Since the sixties better throughput improved output which also includes Robotics. Automation was bigger over that time period than China’s entry into the WTO. There is more than just robotics and China. I would read Sandwichman a bit. Cutting taxes is not going to improve income dramatically.
“Seriously, you are going to say this? “People like you made Donald Trump the President.” ”
Hillary Clinton could not bring herself to speak out against the free trade treaties made since 1994. Anyone should have understood that to be a rust belt issue. But were the Democrats really supposed to side against all those intellectuals in the economics schools who favored free trade treaties?
The voters in the rust belt states of Indiana, Michigan, Ohio, Pennsylvania, and Wisconsin voted against the economic status quo. (75 electoral votes)
They voted for a candidate that said such obnoxious things that the voters did not want to defend him in public. As a result, the pre election polling was dramatically wrong.
Those who created and defended the free trade treaties made since 1994, created the economic status quo that the rust belt voters were against.
Any intelligent being should have understood that changing the economy in a way which adversely impacted American voters could not go on forever.
Inadvertently or not, they made Donald Trump the President. He could never have gotten elected without that issue.
I thought he was unelectable from the beginning! He should have been unelectable!
Some might think that most of the 31 percent who voted for Trump with incomes under $50,000 came from whites who lost their manufacturing jobs and had trouble finding comparable employment. But they would be wrong. Clinton bested Trump among voters in households with incomes below $50,000 by 12 percentage points. This lead could only have occurred if the number of non-college-educated whites in this income range – who voted overwhelmingly for Trump – is relatively small. Since the raw exit polling data aren’t public, estimates of the distribution of these 31 percent can be made on the basis of demographic data and voting patterns of the different populations. A likely division is something like this: 7 percentage points of the 31 percent were elderly whites; 8 percentage points were college-educated whites; 12 percentage points were non-elderly, non-college-educated whites; and 4 percentage points were non-whites. This division is consistent with the voting patterns and the income levels of each of the populations and results in Trump winning whites with incomes under $50,000 by 20 percentage points. Clinton got more votes among those with incomes below $50,000 because 37 percent of this group was non-white and she won them by 67 percentage points.
Run, I believe I have been saying it here in my post for year, that cutting taxes will not improve income, it is not the answer so I don’t understand your response there.
When people read post and hear as noted on Maddow last night that robots are the reason manufacturing jobs have declined, it is saying to those who lost their job do to it being shipped out that it was the robot that did it.
Tax 40%? Of course not if that only results in adding to the cost of the product. Thus my question, is that all it would do? Is that 40% import resulting in export of comparable size vs our import/consumption?
Is America withdrawing from global trade by finding a mechanism that equalize the advantages to manufacturing outside the country if cost is the issue? If not tariffs (and I’m not saying it is THE solution) then what? If a company can produce for less plus shipping outside the country is the solution to undo all our regulation and reduce taxes (resulting in a reduction of our tangible assets which is 76% of our wealth generation)?
Toyota is building cars. According to this: https://www.cars.com/articles/the-2015-american-made-index-1420680649381/ only 10 vehicles built in the US by all MFG’s meet the 75% US content now. That’s a lot of manufacturing down the line that is not done in the US anymore and that is the job the laborer lost. You know, those 1 or 2 factory Midwest towns?
All I’m pointing out, is what I asked for when the crap hit the fan: Can we please broaden the discussion now? Spencer’s article was an argument that robots are the cause for job loss in manufacturing based on manufacturing having risen.
You know I have read Sandwichman and have even blogged here on similar topics.
There was a problem with your link, here is the corrected one:http://washingtonmonthly.com/2017/01/18/trump-and-the-revolt-of-the-white-middle-class/
I read the article. It is using national polling data.
The rust belt states’ 75 electoral votes gave this election to President Trump. This national poll can not give us any particular information about those states.
But I did take a look at the CNN exit polling data for the states. (Links were in the article)
My first impression is that the independents in those states voted more for Donald Trump. I am surprised by the number of independents polled.
State———————— Democrat ————- Republican —————Independents—— Independents % of total polled
Indiana—————C=84% T=13%——- C=6% T=92%———— C=36% T=53%———— 28%
Michigan———— C=88% T=9%—-—- C=7% T=90%————C=36% T=52%———— 29%
Ohio—————— C=87% T=12%——- C=7% T=90%———— C=37% T=51%————- 29%
Pennsylvania -—- C=87% T=11%——- C=9% T=89%———— C=41% T=48%————- 20%
Wisconsin——— C=91% T=7%——— C=6% T=90%———-— C=40% T=50%————— 30%
Donald Trump got the majority of the polled earning $30,000 and over in Michigan, Ohio, and a tie in Wisconsin. In Indiana he got the majority of the polled earning ANY THING UNDER $200,000. In Pennsylvania he got the majority of the polled earning over $50,000.
This conflicts with the article which uses the national poll.
They don’t call them rust belt states for nothing. Their reduction in wages has been going on in the aggregate for 25 years anyway. How do you capture that in a poll. “Financial situation compared to 4 years ago” is useless.