Manufacturing has played a leading role in the nation’s economic recovery, adding 504,000 jobs between February 2010, when manufacturing employment fell to its lowest point, and October 2012. These 504,000 jobs constituted 11.1 percent of the 4.5 million jobs created in that period. However, this relatively recent manufacturing boom comes on the heels of more than a decade of sharp declines in manufacturing employment. Between March 1998 and October 2012, the United States lost 5.7 million manufacturing jobs, nearly a third (32 percent) of manufacturing employment; most of these job losses were due to the growing U.S. trade deficit. Taken together, these trends highlight the manufacturing sector’s importance to the U.S. economy and recovery, as well as the role of trade deficits in eliminating U.S. manufacturing jobs.
This paper argues that reviving U.S. manufacturing requires eliminating a jobs-destroying U.S. trade deficit in goods by ending currency manipulation and investing in a series of coordinated manufacturing policies. It also estimates the economic benefits of ending currency manipulation on trade, jobs, and public budgets in the United States and in Ohio, one of the nation’s preeminent manufacturing states.
Global currency manipulation1 is one of the most important causes of growing U.S. trade deficits, and of unemployment and slow economic growth in the United States and Europe. Currency manipulation distorts international trade flows by artificially lowering the cost of U.S. imports and raising the cost of U.S. exports. This leads to goods trade deficits that displace U.S. jobs, particularly in the manufacturing sector. The U.S. goods trade deficit could be reduced by between about $190 billion and $400 billion over the course of three years (modeled in this paper as having started in 2011)2 by eliminating global currency manipulation. Without any increase in federal spending or taxation, the United States would reap enormous benefits. As this paper explains, over three years a reduction in the U.S. goods trade deficit of this magnitude would:
- \tCreate between 2.2 million and 4.7 million U.S. jobs (equal to between 1.4 percent and 3.0 percent of total nonfarm employment)
- \tReduce the national unemployment rate by between 1.0 and 2.1 percentage points
- \tCreate about 620,000 to 1.3 million manufacturing jobs (27.5 percent of all jobs created by eliminating currency manipulation)
- \tIncrease U.S. GDP by between $225.0 billion and $473.7 billion (an increase of between 1.4 percent and 3.1 percent)3
- \tShrink the federal budget deficit by between $78.8 billion and $165.8 billion (reductions that would continue as long as the trade balance remained stable), as growth in output expands tax receipts and reduces safety net payments
Because Ohio’s strong manufacturing sector would experience above-average gains through the increased demand for traded manufactured goods, reducing the U.S. goods trade deficit by between about $190 billion and $400 billion via the elimination of global currency manipulation would have enormous benefits for the state. This paper explains that over three years it would:
- \tCreate 94,900 to 199,700 jobs (equal to between 1.6 percent and 3.4 percent of total Ohio employment)
- \tReduce Ohio’s unemployment rate by between 1.3 and 2.7 percentage points
- \tCreate 36,100 to 75,900 Ohio manufacturing jobs (equal to 38.0 percent of all Ohio jobs created through ending currency manipulation)
- \tIncrease Ohio GDP by between $8.3 billion and $17.4 billion (an increase of between 1.9 percent and 3.9 percent)
- \tImprove the fiscal position of Ohio state and local governments altogether by between $1.7 billion and $3.7 billion (improvements that would continue as long as the trade balance remained stable), as output growth leads to increased tax revenues and spending reductions
But currency manipulation is only one of many demand-side constraints on manufacturing job growth; other countries’ dumping practices, insufficient U.S. investment in infrastructure, and other factors have also been barriers to the recovery of U.S. manufacturing. Supply-side constraints also play a role: The United States and its domestic manufacturers are competing in an environment where many other countries, including Germany, Japan, China, and Korea, operate comprehensive manufacturing and labor force development programs to support their traded goods industries; the United States does not.
Thus, ending currency manipulation would still leave the United States with a goods trade deficit, which stood at $738.4 billion in 2011. Under the model utilized in this paper, it would be between $360.9 billion and $564.3 billion (equal to between 2.3 percent and 3.6 percent of U.S. GDP) after three years. Fully eliminating the goods trade deficit requires implementing policies that will help restore demand for U.S. goods and boost supply-side supports. As detailed in this paper, such policies include:
- \tGreatly expanding investments in manufacturing R&D and technology diffusion programs
- \tProviding public financial support to small and medium-sized manufacturers
- \tDeveloping school-to-work job training systems for non-college-educated workers, including apprenticeship programs modeled on Danish and German models
- \tDeveloping new trade policies that support fair, balanced, and sustainable trade
- \tPlanning and implementing manufacturing and traded industry strategies, including establishing an institution akin to Japan’s Ministry of Economy, Trade, and Industry4
- \tMaking massive investments in infrastructure, for example by meeting the United States’ $2.2 trillion worth of infrastructure needs over the next five years
- \tGreatly expanding public and private investments in green and renewable energy technologies
Such steps could lead to the complete elimination of the U.S. goods trade deficit, which would allow U.S. manufacturing to recover most or all of the market share and employment lost since the late 1990s.