Under Trump, manufacturing job growth slows to a trickle
from Dean Baker
Donald Trump put manufacturing jobs at the center of his economic platform in 2016. He endlessly harped on the loss of relatively good-paying manufacturing jobs.
He blamed this job loss on “terrible” trade agreements and other countries “manipulating” the value of their currency to get an advantage in trade. He put China at the top of the list of bad actors, promising to declare them a currency manipulator on day one of his administration, which would directly lead to economic sanctions.
While Trump has engaged in considerable bluster in his trade negotiations, they have not led to much of a payoff for U.S. manufacturing workers to date. At the most basic level, instead of shrinking, the trade deficit has gotten larger under Trump.
In 2016, the last year of the Obama administration, the trade deficit was $502 billion. Through the first four months of 2019, the trade deficit was running at almost a $620 billion annual rate, more than $100 billion higher than the deficit Trump inherited.
For all his screaming about currency manipulation, the value of the dollar relative to other currencies has barely changed since Trump took office. Needless to say, Trump did not declare China a currency manipulator on day one of his administration or on any subsequent day.
While he has in fact started a trade war with China, currency values — which would directly affect our trade balance — are no longer a major issue of contention. Instead, Trump seems more focused on ensuring that China respects the intellectual property claims of Boeing and other multinational companies when they outsource factories to China.
Although the story of negotiating whiz Trump winning terrific trade deals for U.S. workers has not quite panned out, he actually could point to an increase in manufacturing jobs under his watch. Manufacturing employment increased by 471,000 (3.9 percent) in the 28 months from January 2017 to May 2019.
This is not exactly spectacular. Under Obama, in the first 28 months after the sector stopped shrinking in the Great Recession, manufacturing added 525,000 jobs. Also, the job growth probably had more to do with a rise in world oil prices leading to increased demand for drilling equipment than anything Trump did, but things were at least going in the right direction.
This may no longer be true. Manufacturing job growth has slowed to a trickle in recent months. In the last four months, the economy has added a grand total of 13,000 manufacturing jobs, just over 3,000 a month.
The story is even worse if we look at hours. The index of aggregate hours worked in manufacturing is down 0.3 percent from its January level. It is back to where it was in August of last year. It is good that manufacturers would cut back hours rather than lay off workers in response to weak demand, but it doesn’t change the fact that we are seeing less demand in the manufacturing sector.
We get the same story from other data sources. The Federal Reserve Board reports that its measure of industrial production for manufacturing has been falling since December 2018 and is now back to its level of April 2018.
Even when the number of manufacturing jobs was rising under Trump, this was not translating into substantial wage growth, as wage growth in the sector has lagged overall wage. Since January 2017, the average hourly wage for all workers has risen by 7.1 percent. The average hourly wage for manufacturing workers has gone up just 4.7 percent, barely more than the rate of inflation. In fact, the average hourly wage for manufacturing workers is, for the first time ever, slightly below the overall average, with the cross having occurred in May of last year.Forward-looking indexes show manufacturing deteriorating sharply. The Institute for Supply Management’s manufacturing index fell 0.7 percent in May to 52.1. (A figure above 50 indicates expansion.) Further, the New York Fed’s Empire State Index had its sharpest one-month drop ever in June, falling 26.4 percentage points to reading of -8.6 percent. In short, multiple indicators point to the same conclusion: The recent job growth in manufacturing may be coming to an end.
The story of weak wage growth in manufacturing is that, insofar as we do add manufacturing jobs, they are not the good-paying union jobs that we lost in the last decade. The number of union members in manufacturing did rise slightly over the last two years, but we are still below the 2015 level, and we are down more than 50 percent from the 2000 level. The lack of growth of unionized jobs in the sector means that even if we do continue to see a modest increase in manufacturing employment again, it probably would not substantially improve the wage picture in the sector.
We can speculate as to the motivations of current or former manufacturing workers who voted for Trump, but if they expected that his presidency was going to bring back good-paying jobs in the sector, they were badly mistaken. It’s not clear that they will see their MAGA hats as much compensation.
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Real-World Economics Review Blog 
In a television special about China, one patriotic Chinese commentator said:
“China’s population is four times bigger than that of the USA, therefore China’s economy should be four times bigger than the USA’s.”
On an equality basis he is justified. Why shouldn’t Chinese people, on a per capita basis, have the same wealth as citizens of the USA? On a realism basis, we would have to question how this would or could come about. If we were to ask Scotty of Star Trek fame what he thought of this proposition he might well say, “The biosphere cannae’ take it, cap’n!”
The other realism basis which indicates the difficulty of achieving this outcome (China’s Gross Income being four times that of the USA) is that of Realpolitik. China’s economy on real measures (and probably even on PPP measures) has already surpassed the US economy. The majority of the US polity is still in denial about this fact. The perception of an entity used to superiority usually lags behind the reality of any downward curve when a decline in relative power is occurring. At some stage perception will catch up with reality, at least somewhat unless complete insanity takes over, and there will be a belated and shocked realization that the US is falling behind very substantially. This leads to the so-called “Thucydides Trap” postulated by Graham Allison. It was Thucydides who wrote: “It was the rise of Athens and the fear that this instilled in Sparta that made war inevitable.”
The relative shift of manufacturing from the USA (and the rest of the globe) to China is part of this picture. The simple reality of global labor arbitrage under globalized capitalism more or less ensured this relative shift of manufacturing to China and S.E. Asia more generally; also some shift to places like India and Brazil. These indications suggest that the decline of the US in manufacturing will continue, first in relative terms, due to labor arbitrage, and eventually in absolute terms due to biosphere limits. How will the USA react to this relative and then absolute decline? The short answer is probably “not well”. It’s doubtful any country would react well.
In a world of limitation and contraction, the apparent benefits of international trade (comparative advantage) may not hold. Where large continental and sub-continental powers possess considerable domestic resources, the attractions of autarky may come to outweigh the attractions of trade based on comparative advantage. Exploiting comparative advantage in necessities (food, energy) implies a necessary surplus in the exported items. When a surplus is no longer achievable, domestic political pressures will drive the need to keep food and energy production for home consumption. This could also apply to raw materials in general. Both Realpolitik (power politics) and resource/energy shortages could provide an impetus towards autarky. Trade wars may become more and more geared to create real shortages in targeted countries and not just be attempts to retain manufacturing. This is a gloomy but realistic prognostication I think. In relation to China and the USA, which is best placed to run a semi-autarkic economy and exploit its hemisphere of hegemonic power? That may be the question. I’m not advocating this trend, I’m warning as to its possibility. How would we prevent it?
“The relative shift of manufacturing from the USA (and the rest of the globe) to China is part of this picture. The simple reality of global labor arbitrage under globalized capitalism more or less ensured this relative shift of manufacturing to China and S.E. Asia more generally; also some shift to places like India and Brazil. These indications suggest that the decline of the US in manufacturing will continue, first in relative terms, due to labor arbitrage, and eventually in absolute terms due to biosphere limits. How will the USA react to this relative and then absolute decline?”
Ikonocast, don’t the people who study the economic Standort America, have any idea about how to manage their affairs? I write about this all the time in comparative works, about what role expertise can have in shaping a balanced economy. With you, all the results are inevitable, what would you think was “inevitable” in 1945 as far as Japan’s economic prosperity was concerned, or in China, or in Germany. People in unorthodox and orthodox economics are failing the test of prescription. I’ve written a reflection about economics and the shop floor that has been published in Spanish in the University of Alcala, is being published in the rwer, and in Management Revue (end of this year). We let the financialization people financialize economic study; no wonder we live in a post-industrial haze.
Given the sensitivity of profits to wage costs and the desire of capitalists for high profits above all else, it should have been predictable that global labor arbitrage effects would shift manufacturing to (some) populous low wage countries when other impediments (e.g. capital controls) were removed; that is to say after Western government policy became market fundamentalist. Of course, different policies could have been pursued at times past but they were not… so here we are. Given the policies and systems in place, the outcomes were close to inevitable.
Processes involving the laws of thermodynamics and entropy seem especially likely to involve inevitability. I will die. The sun will “die”. Economies will collapse if they run short of energy, raw materials and places (including the atmosphere and oceans) to dump wastes safely. World economic stagnation and decline is inevitable given the limits to growth. We have already overshot these limits as shown by global footprint analysis.
Our economies cannot deny the laws of thermodynamics. Increasing order in the global economic system is purchased at the cost of increasing disorder and breakdown in climate, ocean and ecological systems. These breakdown costs are becoming increasingly severe and obvious; climate change, oceanic food chain collapse and the 6th mass extinction.
Most economists (and policy makers) of the last 50 years see no difference between potato chips and microchips, favor unrestricted globalization, and celebrate the loss of US manufacturing jobs as a desirable evolutionary step toward a purely service economy. But human culture is invented by many people. Many of whom have never read economics and don’t spend much time with policy makers. They insist we pay attention to the basics. And the basics in this case is manufacturing. US manufacturing was a fundamental force in creating and advancing the nation’s economic, strategic, and social power. US manufacturing rapidly rose during the last decades of the 19th century, consolidated and modernized during the pre–WWII decades, played a big role in enabling the world’s first mass consumption society after 1945, and as a result of beliefs and policies explained at the beginning of this paragraph started declining post-1974.
I believe that no advanced modern economy can truly prosper without a strong, diverse, and innovative manufacturing sector whose aim is not only affordable, high-quality output but also to provide jobs for more than a minuscule share of the working population at good wages. The notion that manufacturing does not have to be a major concern of effective economic policy or an important part of long-term national aspirations for those societies we call “postindustrial” is embedded deeply in today’s economics and almost every variety of think tank. So is the corollary that low-cost foreign suppliers can cover any need in a global economy. These notions have two sources. First, the growth imperative of modern economies is incompatible with the second law of thermodynamics, entropy. For any rational society, accessible material at low entropy and minimized entropic degradations should be the foremost goal. Our current understanding of entropy makes it clear that not every society, and sometimes none of them can grow to near their maximum. The second line of reasoning leading to low concern about manufacturing’s declining fortunes, and one much more common and widely accepted, understands that trend as an essential component of a highly desirable evolution marked by a steady decline in the sector’s contribution to the national economic product—and by the opposite trend of an inevitably rising importance of services. These two trends, one downward, one upward, characterize all modern economies.
Manufacturing is not the only economic sector that has been interpreted as increasingly unimportant when compared to services. Agriculture, fisheries, and forestry are also treated thus. But this simply does not work. We need only consider a few examples to see why. What would the EU economy be without French or German farming? Is it possible to replace all the food in any affluent populous country by imports? What consequences would follow from the loss of US farm exports, the world’s largest source of traded grains and meat. Last, but not least one of the services invented to economically displace manufacturing is financial services. An invention that nobody outside of the financial services community wanted or needed. That has led to massive wealth and income inequality. Particularly, in nations without enough will or resources to regulate this crazy quilt of greed, lying, and arrogance.