What Donald Trump got wrong about US manufacturing

Winston Mok says his promise to bring back jobs to America is misguided, as the sector is in fact thriving – on hi-tech manufacturing – and any attempt to roll back globalisation would only hurt the US economy

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A Zippo employee loads brass lighter cases onto racks at the company’s plant in Bradford, Pennsylvania. US manufacturing is in fact thriving, with output reaching a historical high in 2016. The increase was achieved with fewer workers through productivity gains from technological advances. Photo: Bloomberg

Published: 1:35pm, 5 Apr 2017Updated: 5:34pm, 30 Sep 2019

Can President Donald Trump bring manufacturing jobs back to the US, as he promised in his presidential campaign? New jobs, perhaps. But not old jobs. And certainly not by starting a trade war with China. To think through how manufacturing jobs may be created in the US, it is important to first get a few facts and concepts straight.

First, US manufacturing is thriving. Standing at a historical high in 2016, US manufacturing output has grown by 45 per cent in real terms in the past two decades. The increased output was achieved with fewer workers through productivity gains from technological advances. The share of manufacturing in the US economy has remained little changed in the past 50 years. In contrast, after peaking a decade ago, manufacturing’s share in the Chinese economy has been declining. Manufacturing’s share of employment in China started falling even earlier, two decades ago. In fact, declining manufacturing employment is a global trend.

Second, the US has lost only limited manufacturing jobs to China in the recent past. Even before the rise of China as a manufacturing powerhouse, the US had been losing jobs to East Asia for decades. In the past decade or two, many of these jobs were consolidated from other parts of East Asia to China. In the process, these other Asian economies moved up the technology ladder to higher-value components.

When a laptop or smartphone is imported from China to the US, most of the value, other than the margins captured by brand owners or retailers, is contained in the critical components – made in Japan, Korea or Taiwan – in these devices. The value added by China can be very small. Some of the apparent US trade deficits with China are really indirect trade deficits with its allies – Japan, Korea and Taiwan – embedded in these products assembled in China.

Trump’s rants on trade ignore massive US surplus in services

A woman wearing a protective mask walks past a billboard in Beijing in March. China may be fairly described as enjoying unfair cost advantages, with its poor pollution controls and worker rights protection. With development, however, these social costs are becoming increasingly unacceptable. Photo: AFP

Third, China may be fairly described as enjoying unfair cost advantages, with its poor pollution controls and worker rights protection. With development, these social costs are becoming increasingly unacceptable, and China has made improvements in these areas. But closing these cost gaps won’t bring jobs back to the US.