Blame robots, more than trade with China, for U.S. manufacturing job losses

Nov. 25, Robert Lawson, Jerome M. Fullinwider chair in Economic Freedom, SMU Cox School of Business, SMU Dallas, for a Letter to the Editor about factors contributing to the perception that U.S. manufacturing is down because of competition from China. Published in the South China Morning Post under the heading Blame robots, more than trade with China, for US manufacturing job losses: https://tinyurl.com/aawby6jc

U.S. manufacturing is down because of competition from China, right? It is true that employment in manufacturing is down from over 30 per cent of the workforce in the 1950s to under 10 per cent in recent years. Likewise, the value of manufacturing output as a share of the economy has fallen from over 25 per cent to about 10 per cent. People usually point to these figures, and rising trade numbers with China, to conclude that trade with China is killing US manufacturing.

By Robert Lawson

But these numbers are misleading. The value of manufacturing output is based on both the prices and the volume of manufactured goods. The rise in manufactured goods prices has not kept pace with the rise in prices of other goods and services in the economy.

A 2017 study by the St Louis Federal Reserve found that if you adjust for this, the actual volume of manufacturing in the US as a share of the economy has been fairly constant at around 12 per cent for decades.

No one argues that trade with China has caused this productivity boom; the real cause is continuing innovation of manufacturing processes that is replacing workers with capital machinery. So, if you must blame someone or something for manufacturing sector job losses, blame the robots not trade with China.

Recent calls from politicians and pundits from both political parties to use government-directed industrial planning to “beat the Chinese” thus miss the mark.

First, trade with China isn’t the problem; in fact, there really is no problem. Second, industrial planning has failed literally everywhere it has been tried.

An aggressive stance against China in these domains may be warranted, but returning to the failed 20th century idea of industrial planning to revive U.S. manufacturing won’t fix the problem.

Robert Lawson, Jerome M. Fullinwider chair in Economic Freedom, SMU Cox School of Business, Southern Methodist University, Dallas