Bill Owens: The Truth About Manufacturing Job Loss

May 16, 2017

The failure of numerous administrations to connect the dots in terms of manufacturing job loss truly confounds me. First, let’s gather the facts (not fake facts, but facts as defined by Webster) about manufacturing job loss, when viewed through the prism of China’s entry into the World Trade Organization (WTO). All of this came to mind as I continued to ponder President Trump’s back and forth on whether or not China was a currency manipulator, or whether to tear up or renegotiate NAFTA. Understanding, to at least some degree, President Trump’s desire to secure China’s cooperation relative to North Korea, abandoning a trade issue to entice China seems at best short sighted.

Now back to the facts. Approximately 3.5 million manufacturing jobs were lost between 2001 and 2007 (need I note, that was during a Republican administration), with another 2.6 million following the financial crisis from 2007 to 2010. The latter amount of job losses is consistent with the amount of jobs lost during the Great Recession.

There is ample evidence that China has been manipulating its currency, at least as far back as 2000 and probably further than that, in an effort to artificially support its exports, to the  detriment of the economies which purchase those exports. We also know that China entered the WTO in December 2001.

Let’s connect the dots. In 2001, China entered the WTO and received favorable tariff and other trade terms from other member countries, including the United States. At that time, China also had low wages, low cost for the construction of factories, weak labor protections, and a host of other incentivizing benefits for a manufacturer to move to China. Now add in currency manipulation, and you have created a stew of benefits to aid companies moving their manufacturing offshore—thus the resulting loss in the U.S. of a massive amount of manufacturing jobs and manufacturing capacity.

The U.S. has recently seen the return of about 1.6 million manufacturing jobs over the last four or five years, which has been supported by manufacturing efficiency, particularly as it relates to automation (robots). thus, there has been a relatively small recovery of overall manufacturing jobs. We also have to take into account that many of the jobs that moved to China were low-skill, low-product-cost goods, leaving little incentive for the return of those jobs to the United States, or any other mature economy. 

What does all of this have to do with NAFTA? Mr. Trump and others have blamed NAFTA for the significant manufacturing job loss in the United States. I think if one reflects on the facts, and connects the dots, it becomes clear that this is a more complex conversation than it has been reduced to. In my view, it is highly likely that China is virtually the sole culprit. This is not to say that the corporations who moved their factories overseas don’t share some responsibility; however, that becomes a very complex analysis due to economic realities—if you continue to produce higher-cost goods, they will likely not sell, so that manufacturer closes and the jobs are lost anyway.

A summary of what we face might be a simple syllogism: a) join WTO and tariffs are reduced; b) enhance currency manipulation; c) capture the market.

If NAFTA is renegotiated, careful thought should be given as to how we treat goods coming from China, and at the very least (even though Mr. Trump now says they are not a currency manipulator), we need to make sure that there are quick triggers that will allow for tariff increases based upon currency manipulation in all NAFTA countries. It is obvious to me—I hope it is obvious to you.  

Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.

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