Donald Trump: Errors in Diagnosis and Cure Robert Z Lawrence - - PowerPoint PPT Presentation

Donald Trump: Errors in Diagnosis and Cure

Robert Z Lawrence

Albert L Williams Professor of Trade and Investment Harvard Kennedy School

Agenda.

• Introduction: Why Manufacturing Employment matters
• Part1: Deindustrialization in the USA
• Part 2: Is Trade Protection the Answer?
• Implications.

US Manufacturing employment since 2000 down almost 6 million

Devastating Consequences. Manufacturing jobs were important especially for less- educated men in the USA. Deindustrialization said to be key in black urban problems and many cities in the midwest.

MasterCard Presentation

For Many the explanation is trade. Especially with Mexico and China

0.01 0.02 0.03 0.04 0.05 0.06 0.07

US merchandise imports, 1978–2008

Industrial Non-OPEC other

Ratio to GDP (current dollars) OPEC = Organization of Petroleum Exporting Countries Source: Bureau of Economic Analysis

Older White Men Are the Most Negative on Free Trade Deals

March 6, 2017 www.pewresearch.org 6

Good thing Bad thing

% %

TOTAL Population 51 39 White men men 40 40 52 52 18-29 56 35 30-49 41 51 50 50-64 64 34 34 63 63 65 65+ 33 33 55 55

Free trade agreements between the U.S. and other countries have been a __ for the United States

• Note: Whites include only those who are not Hispanic.
• Source: Pew Research Center Survey, March 17-27, 2016.

Trump Supporters View FTAs as Bad for U.S.

March 6, 2017 www.pewresearch.org 7

• Note: Based on registered voters. Don’t know responses not shown.
• Source: Pew Research Center Survey, March 17-27, 2016.

Registered voters who say free trade agreements have been a __ for the United States 43% 53 34 67 40 46 31 38 47% 38 56 27 48 44 58 55 All voters Rep/Lean Rep Dem/Lean Dem Trump Cruz Kasich Clinton Sanders Bad thing Good thing Among Republicans/ ns/Le Lean n Rep, Rep, support t ... Among Democrats ats/Le /Lean n Dem, support t ...

Tru rump Su Supporters Sa Say They Have Been Har armed by y Fr Free Trad ade

March 6, 2017 www.pewresearch.org 8

• Note: Based on registered voters. Don’t know responses not shown.
• Source: Pew Research Center Survey, March 17-27, 2016.

Registered voters who say free trade agreements have __ the financial situation of their family 39% 48 32 60 36 42 29 36 42% 36 48 26 45 42 51 46 All voters Rep/Lean Rep Dem/Lean Dem Trump Cruz Kasich Clinton Sanders Definitely/ Probably hurt Definitely/ Probably helped Among Republicans/ ns/Le Lean n Rep, support t ... Among Democrats ats/Le /Lean n Dem, support t ...

Yet the Trend in US manufacturing share of employment has not changed.

0.05 0.1 0.15 0.2 0.25 0.3 0.35 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 share

Source: Bureau of Labor Statistics

Manufacturing share in establishment employment, 1961–2010

Fitted trendline Share Forecast

And Typical! ! Decline in manufacturing share of employment is similar across advanced economies

Share of employment in manufacturing, 1973–2010 (percent)

Country 1973 1990 2000 2010 Change (1) (2) (3) (4) (4) - (1) United States 24.8 18.0 14.4 10.1

• 14.7

Canada 22.0 15.8 15.3 10.3

• 11.7

Australia 23.3 14.4 12.0 8.9

• 14.4

Japan 27.8 24.3 20.7 16.9

• 10.9

France 28.8 21.0 17.6 13.1

• 15.7

Germany 36.7 31.6 23.9 21.2

• 15.5

Italy 27.9 22.6 23.6 18.8

• 9.1

Netherlands 25.3 19.1 14.8 10.6

• 14.7

Sweden 27.6 21.0 18.0 12.7

• 14.9

Source: Bureau of Labor Statistics.

Even Countries with large trade surpluses in manufacturing!

So others point to technology: especially automation

But What About Demand?

Source: Boppart. (2014) Share of Goods in US Consumption Spending 1950 -2010

Consumption Shares in Goods: Falling In all industrial countries

Manufacturing and Services are complements. Cheaper manufactured goods increases demand for services!

Rapid productivity growth is reflected in prices

0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Measures of relative manufacturing productivity and prices, 1960–2007

index (1995 = 1)

Productivity relative to GDP Price of goods relative to GDP (inverse)

Spending on goods relative to services: Prices fall but Quantities rise slowly

• 0.4
• 0.2

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Log Scale (2010 = 0)

Prices Quantities Values

Declining shares of nominal spending on goods relative to services US spending on goods relative to services, 1960–2010

Consumption Spending Share on Goods by Quintile

Richest Poorest Source: Boppart (2014) Econometrica

Manufacturing employment, actual and without trade deficit: different levels, similar decline after 2000

5 10 15 20 25 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

actual and adjusted manufacturing employment (millions)

Manufacturing employment, actual and adjusted for the manufacturing trade deficit, 1990–2010

Employment without trade deficit Actual manufacturing employment Edwards and Lawrence (2013)

Examples of peak manufacturing shares

Peak Share Per capita Income (2015 ppp dollars) USA 1953 25 percent $17,977 UK 1961 32 percent $ 15,214 South Africa 1981 17 percent $11,776 Brazil 1986 15.4 percent $11,492 China 2010 19.2 percent $9,876

BRICS Manufacturing Employment Share far Below US and UK at same levels of GDP Per capita

0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.54 0.59 0.64 0.68 0.71 0.76 0.80 0.84 0.87 0.94 1.04 1.11 1.30 1.52 1.70 1.83 1.93 2.13 2.42 2.51 2.70 2.95 3.09 3.29 3.54 3.65 3.80 3.91 3.99 4.11 4.19 4.30 4.48 4.70 4.89 4.94 5.17 5.28 5.47 5.93 6.51 7.12 7.93 8.65 9.57 10.12 10.63 10.94 11.40 12.03 12.75 13.17 14.08 14.77 15.39 16.25 16.69 17.94 18.79 usa uk brazil india safrica china

Log GDP Per Capita Share

Conclusions:

• Trade a small share of overall

displacement

• Most deindustrialization in

advanced countries due to the interaction of technological change and inelastic demands in response to declining prices and income growth. Closing the trade deficit would mean more manufacturing jobs… …but it’s like walking up a downward escalator

I-Phone: Made in the World

$11, U.S. While America doesn't make much of what goes into the iPhone, it's always better to innovate than to fabricate; just see Apple's profit $61, JAPAN. It doesn't innovate as much as the U.S., but its tech prowess means a lot of high-end manufacturing value stays there $7, CHINA. Often more of an assembly line for other nation's wares, work here accounts for only 3.6% of an iPhone's production cost $48, UNSPECIFIED $30, GERMANY $23, SOUTH KOREA

Source: Time Magazine, “Adding Up the iPhone,” May 16, 2011.

The other $320? Apple’s profit.

Even the USA BOEING is made in the world.

China: Manufactured Exports in 2012 40 percent of Value Imported.

US Car Seat by ADIENT