Don’t worry about US Manufacturing

When you go to the large discount stores or the mega-lumber stores, it seems like nearly everything on the shelves is made in China.  It’s hard to find anything manufactured in the United States.  US manufacturing employment peaked in 1950 and has been in decline ever since.  The United States runs large and continual trade deficits with other nations due to the fact that they buy fewer goods from us than we buy from them.  Falling manufacturing employment, coupled with trade deficits, has prompted outcry from protectionists, urging the US government to subsidize American businesses at taxpayer expense or to impose tariffs on foreign goods, all in the name of protecting American jobs. While subsidies and tariff protection seem like cures for our ills, they are foolish and damaging to the United States of America.

First of all, if we were losing our manufacturing jobs to the Chinese, we would expect employment in manufacturing to be falling in the United States and rising in China.  Since 2000 we have lost 3.5 million manufacturing jobs in the United States.  However, the Chinese lost over 4.5 million manufacturing jobs during the same period!  In fact, over the past fifteen years manufacturing employment has declined in nearly every developed country.  Why?  Because of improved technology and efficiency in manufacturing worldwide.  On the manufacturing line robots and computers increasingly do what men used to do.  In nearly every manufacturing process machines have replaced men, regardless of whether the manufacturing takes place in China or the United States.

Let’s look at how technology has affected employment in agriculture.  Whereas 100 years ago 40% of the American labor force was employed in farming, today only 2% of our workers produce all the food we can eat!  Over the past 100 years, rather than wringing our hands over the loss of farming jobs, we have embraced the wonderful technological efficiencies in our farming sector and have freed up people who used to farm so that they can engage in other activities that benefit our economy.  If someone were to propose that the US government take tax dollars and hire 50 million Americans to work on farms, he would be rightly branded as an idiot.  After all, why would the American taxpayer want to employ people to work on farms where they are not needed?  Isn’t our economy much better off to have these people doing other types of work?

While it may be hard to see at first, it is obvious to most economists that manufacturing employment is following the same historical path as employment in agriculture.  Each year we manufacture more and more goods with fewer and fewer workers.  Where do those workers go?  They move into the technology and service sectors of our economy, where they can be more productive.  Some argue that jobs in product development and marketing are somehow inferior to those in manufacturing.  This simply isn’t true.  Let’s take the iPod Nano, which retails for about $200.  There are about $94 dollars worth of parts in the Nano.  These parts are sent to China, where a Chinese manufacturing firm is paid $8 to assemble and package each Nano.  The Nano’s are then shipped to the United States and other countries, where Apple sells them for $200 each.  Let me ask you a question?  Would you rather be employed by Apple, a company that innovates and markets the Nano with a markup of $100 per unit, or would you rather be employed on an assembly line in China working for an employer that gets $8 per unit?

Clearly the real money is found not just in manufacturing, but also in design, innovation, and marketing.  There will always be huge profits and possibilities for firms that create and market things like iPods, Google, Razor phones (Motorola), Dreamliners (Boeing) and computer software (Microsoft).  Employees in such firms benefit due to the fact that these companies are constantly innovating and picking up the superior sales and profits inherent in innovation.  Furthermore, the above-mentioned companies sell their products worldwide.  The United States is the world’s most innovative economy by far.  Whereas the manufacturer in China lives in constant fear that Apple will find another firm in Malaysia to assemble its iPod Nano for $6 per unit, American employees of Apple and Ebay can look forward to a bright future as their companies bring new innovations to the world economy.

Tariffs will not help US manufacturers.  They will only invite retaliation in the form of increased tariffs on American goods sold in China and other Asian countries, denying American firms access to the world’s largest and most rapidly growing consumer markets.  American companies are among the most competitive in the world.  Faced with possible extinction, even traditional manufacturers like Ford and General Motors are making great strides to reduce costs so that they can better compete in the global economy.  I’m betting both firms will succeed, but if they don’t their workers will not just “go away”.   They will find employment with existing and soon to exist American firms that continue to innovate and market themselves successfully in an increasingly prosperous and competitive world.

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