Trump and Manufacturing Employment

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If you think that Trump’s actions, to keep manufacturing in the US, are going to have a significant impact on manufacturing employment, don’t hold your breath. If you think these actions will help the economy you are wrong.

The reasons are twofold:  structural change in manufacturing processes worldwide and the negative impacts of tariffs and the resulting trade wars.

Structural Change

Manufacturing employment is falling worldwide. This is due to robotics and automation. See Bloomberg: Why Factory Jobs Are Shrinking Everywhere. Also see Slate : Nothing Will Bring Back Manufacturing Employment.

So Trump keeps a few plants from moving offshore and saves a few domestic jobs. But, because these plants are mostly automated, employment is not affected very much. Further it is likely that their production is no more efficient and perhaps less efficient than than if the plants were moved overseas:

Costs are one of the main reason for moving a factory offshore. But if it is cheaper here owners keep it here. This is born-out by the Bloomberg article which reports that “the U.S. has become the second-most-competitive manufacturing location among the 25 largest manufacturing exporters worldwide.” This is good news but there is bad news. Since 1970 employees working in manufacturing have fallen from more than a quarter to one in 10 and these jobs are not coming back. Automation is not going away.

Tariffs & Trade Wars

In addition to structural change in manufacturing, imposing tariffs on foreign production in order to protect domestic industries and motivate companies to produce in the US has serious short and long run consequence: The tariffs potentially result in trade wars that according to Krugman disrupt the existing economic structure, which is built on elaborate international supply chains.

…In the long run, a new structure with shorter chains would be built. But in the meantime, some industries, some factories, would end up becoming sudden losers — in the US as well as in developing countries.

The Bottom Line

The Trump policies will have minimal effects on employment and will surely reduce economic growth. They are in fact Fake Policy. It would be far more productive to focus on how to retrain and reemploy the workers who have been moved out of manufacturing because of the automation that is occurring here and worldwide.