Protectionist rhetoric heats up in lock-step with the Presidential election race, particularly as the candidates make their way through the Rust Belt. Fears that the declines in manufacturing employment in America portend economic doom are nothing new. That globalization and the increased reach of foreign trade have contributed relatively little to the loss of American manufacturing jobs seems to have done nothing to mollify protectionist sentiment. As we pointed out in an earlier commentary, roughly 300,000 jobs are lost each year due to globalization and the relocation of American manufacturing to international locations. But over 2.4 million jobs are destroyed each month due to factors other than globalization. Thus, the short-term economic costs of globalization due to job loss amount to little more than one percent of the overall job losses in America each year.

The U.S. continues to produce the largest share of world manufacturing output despite the fact that manufacturing employment as a share of overall employment has fallen steadily since World War II. The chart below shows that manufacturing’s share of employment peaked at 39 percent during World War II, and in February 2008, dipped below 10 percent for the first time in modern history.

How can this be? Remarkable increases in American productivity due to technology, capital investment (in no small part because we run merchandise trade deficits), and entrepreneurialism mean that “America” can produce far more goods today with far fewer people than at any point in its history. To wit, American manufacturing output reached an all time high last year, as did revenues, profits and worker compensation.

The second chart, below, shows that real manufacturing output has increased in lockstep with the decline in employment. During this time of manufacturing’s “decline” real per-capita income has increased over four-fold. Both this escalation of living standards and the hollowing out of manufacturing employment began long before both the enactment of NAFTA in 1994 of the last time the U.S. ran a trade surplus in 1975.

Rapid technologoical advancements and the accumulation of capital from both home and abroad mean that American factories are churning out more goods than ever. And the goods produced by U.S. factories are not the mere "trinkets and baubles" the punditry condemns Americans for consuming from Chinese factories, but rather the medicines, food products, transportation equipment and other myriad goods that require the expertise of a highly-skilled workforce to produce.

Thankfully, our children will not have to work long hours on an assembly line to produce the goods that Americans desire. The incredible productivity of our manufacturing sector has freed up the ultimate resource - millions of people - to pursue careers and vocations that did not exist a mere generation ago. And the freeing of these incredible resources is sure to bring new goods and services (and related careers) that are unimaginable to our current generation. Let us hope that bad policy does not prevent the creation of such widespread opportunity in order to preserve the political and economic interests of the few.

Bookmark this article: