Welcome to the new world order. After years of liberalization, globalization is in retreat. Populist political victories and backroom deals to strongarm encourage firms to keep manufacturing jobs at home are our new realities.
One could argue the revolt is deserved. Proponents of globalization promised voters the benefits (cheaper goods, faster innovation), but none of the cost (job dislocation, uncertainty) of more porous borders.
Anytime we are promised something for no cost we, should be wary. And we should be equally wary of the simple solutions being peddled around by globalization’s foes.
The real threat to manufacturing jobs
In the US, politicians advocating for less trade and less immigrant labor frequently ignore a far bigger force for the economy to reckon with: technology, which has killed enormous numbers of routine, low-skill jobs over the last 20 years (It also created new jobs for skilled workers, so the net effect has been little change in employment levels.) Much of this job loss hit the manufacturing sector. Because technology is global, the fallout is not unique to America, the UK, or their trade deals. Take Germany, which exports more than it imports. Between 1973 and 2010 German manufacturing’s share of employment fell 15.7 percentage points; a slightly larger drop than manufacturing employment in America.
Technology killed certain jobs and created new ones, resulting in a more polarized economy. But trade eliminated some jobs too. Those were the conclusions of economists who have teased out how many American jobs have been lost to technology and how many to trade.
Their study also found trade specifically with China, did destroy jobs. US regions susceptible to competition with Chinese manufacturers still have elevated levels of unemployment. But simply cutting off trade with China (or inciting a currency war) won’t bring those jobs back. Supply chains are deeply intertwined now across regions, and manufacturing takes different skills than it used to.
And anyway, China is different
No economic model works in all conditions. And many aspects of trade with China in the last 30 years are unusual, unlikely to be repeated, and may even diminish over time.
A country as large as China opening itself up to trade as quickly as it did is a one time, historic event. Between 1987 and 2007, Chinese imports (as a share of total US expenditure on goods) increased from less than 0.2 percentage point to 4.8 percentage points. No other country has the potential to shake up global markets with that much growth, that fast.
Now that China is getting richer its labor is more expensive. Currency manipulation for the purpose of boosting exports will be more expensive, and undesirable, to maintain. And there’s already evidence of jobs coming back to the US or going to countries with even cheaper labor costs than China.
This is a long game
Trade with China in the last 30 years may merely have been hastening a process already long in the works, where high-wage countries shift out of low-skill manufacturing. Even Chinese workers are losing their jobs to technology, now. This process is never going to be painless, but it is inevitable. Perhaps we can slow it down through less trade, but this won’t stop technology from continuing to polarize the economy.
Trade can accelerate job loss, but it also brings the latest technology and with it, the next generation of jobs. Firms in different countries share the latest innovations and incorporate them into their production. It might be tempting to shut out the process to save jobs, but that only dooms a protected industry to be uncompetitive and eventually obsolete. Short-sighted protectionism can explain why America no longer makes televisions.
It could be argued that dragging out a big economic transition gives us more time to prepare and invest in retraining. But that is not what happens—because it is too hard to anticipate what skills people will need. Instead, shielding workers from competition only ensures they will always be second-tier, and lack access to new technology, innovation, and progress, as investment migrates to more competitive markets. Even saved jobs are never saved forever.
No doubt, economics transitions are messy and have a human cost. But the alternative is stasis and subjecting another generation to a chronic fear of redundancy. Attempts to preserve what we have, through tariffs and other kickbacks, are expensive and generally for naught. The money would be better spent helping people who are displaced and assisting the next generation in finding their place in the new economy.