Deception of the manufacturing jobs | The Economist

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Business policy via Twitter is a new development in economics but we may all have to get used to it over the next four (or eight) years. Donald Trump’s tweets on the auto industry (and his proposed corporate income tax cuts) may have persuaded Ford to keep a plant in Michigan, creating 700 jobs. But the problem with such a headline is that there are thousands of companies in America, and jobs are being created or destroyed every day; it is impossible to intervene in all these situations. Even in cars, for example, GM has recently added 3,300 stops, almost five times more than Ford added.

History suggests that creating a large number of manufacturing jobs will be a loss factor. In 1979, the peak for American manufacturing jobs was reached at 19.5 million. The recession in the early 1980s caused that number to fall but 17m-18m jobs were regular in the 1980s and 1990s. Since the turn of the millennium, however, the total has fallen unrepentantly, with the 2008-09 recession proving that a coup de grace. The low was just under 11.5m in early 2010. As the economy recovered, some jobs returned and a peak of 12.3m was reached early last year. But since then, the numbers have been declining again.

The same type of decline has been seen throughout the developed world, indicating that this is not a problem unique to American economic policy. This report from the Transportation Research Service sets the context; America’s share of global manufacturing value added fell 12 percentage points between 1993 and 2014 but Japan’s share fell 14 points over the same period. It is no surprise that China has taken the majority of the market share. In terms of employment, the decline of 31% in America between 1990 and 2014 compared to a 25% fall in Germany, 33% decline in France and Sweden, 34% in Japan and 49% in the UK.

The problem is not just China but technology. Industries such as automobiles and steel tend to be plagued by overcapacity. There can be good times in the cycle (American car sales are setting new records, for example). The recession of 2008-09 made people postpone their purchases but they eventually gained confidence; cars wear out and need to be replaced. But of course there will be decline; research suggests that consumer budgets are stretched, forcing them to buy money for a car today over six to seven years, delaying the next car purchase. A competitive market means that car manufacturers must continue to invest to add new features while keeping prices down; that could mean replacing people with machines. It also means that a lot of the added value in a car comes from the software that runs it; jobs that tend to go to college graduates or are not available in rusty states. In Britain, our recent piece showed that the share of low-skilled manufacturing jobs has fallen since the 2008 recession and foreign-born workers make up 17% of the total, similar to banking. The service sector adds more than 30% of added value in American manufacturing and more than 40% in France and Italy.

And herein lies the problem of targeting manufacturing jobs that account for only 10% of American employment (in percentage terms, there has been an almost uninterrupted decline since the 1970s of 26%). Slapping on tariffs to punish manufacturers who export jobs makes little sense in a world of global value chains; every dollar of Mexican goods exported to America has 40 cents of American goods embedded within it. Worse yet, the resulting disruption to trade in services, not to mention the higher prices consumers would have to pay, would far outweigh the positive effects of keeping a few jobs. in America.

The markets seem to be very naive about all this; far more than they would have done if President Bernie Sanders had threatened retaliation against American businesses. But we have seen individual stocks take a hit (Boeing, for example) when they came into Mr. Trump’s Twitter firing line. Ultimately, one thinks, the unpredictability of the attacks will worry investors.

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