9.12.16

THE TRADITIONAL COMPARATIVE ADVANTAGE.

In the United States, that has been producing knowledge-intensive products using advanced technology.  Still is, notes Econ Log's Scott Sumner.
When people say they are upset about trade, I think that what really bothers them is that automation is allowing us to produce 85% more manufactured goods with far fewer workers. That transition has been painful for many workers, but it's not about trade---except in one respect.

Trade allows the US to concentrate in industries where we have a comparative advantage (aircraft, chemicals, agricultural products, high tech goods, movies, pharmaceuticals, coal, etc.) We then import cars, toys, sneakers, TVs, clothing, furniture and lots of other goods. It's likely that our productivity is higher in the industries where we export as compared to the industries where we import. So in that sense, trade may be speeding up the pace by which automation costs jobs. But probably only slightly; in previous posts I've shown that even within a given industry, such as steel, the job loss is overwhelmingly about automation, not trade.

Why do so may people blame trade? Cognitive illusions. It seems like imports would reduce aggregate demand, and that this would reduce employment. Those effects are highly visible. It's human nature to demonize foreigners. But even Paul Krugman rejects that argument, at least when we are not at the zero bound.
But factor-augmenting technical change augments different factors of production differently, and the political economy gets interesting.
When farm work was wiped out by automation, uneducated farmers generally found factory jobs in the city. Now factory workers are being asked to transition to service sector jobs that have been traditionally seen as "women's work". Even worse, the culture is pushing back against a lot of traditionally masculine character traits (especially on campuses). The alt-right is overtly anti-feminist, and Trump ran a consciously macho themed campaign. This all may seem to be about trade, but it's actually about automation and low-skilled men who feel emasculated.
It's more complicated than that: the industrial technology as the United States became more productive in agriculture was one that lent itself to Fordist division of labor, and nearly anyone could do the work. The techniques involved in designing and building the advanced technology goods of today seem less favorable to such an outcome, although perhaps the presence of reserve armies of people willing to work for less will induce that innovation.  The culture wars are likely of second-order importance, if that.

2 comments:

David Foster said...

"But probably only slightly; in previous posts I've shown that even within a given industry, such as steel, the job loss is overwhelmingly about automation, not trade."

There are something like 100 million manufacturing workers in China. Surely at least 50 million of these are producing for export, to the US and other countries. Considering that there is also a lot of export-oriented manufacturing in countries such as Vietnam and Mexico and Bangladesh, it seems safe to assume that there are at least 80 million non-US workers producing for export and half of those, or 40 million, are producing goods destined for the US.

Even considering that a US worker is far more productive, due to education, investment, better processes, etc, I don't see how it could be argued that those 40 million workers do not represent displacement of at least several million US manufacturing workers who would be required to produce those good absent the imports.

Surely automation and offshoring *both* have an impact on employment; it's not one or the other.

Stephen Karlson said...

Yes, both do, and, whatever estimate you have of overseas workers producing goods bound for the United States is also an estimate of overseas workers not producing goods for consumption in their home countries.

Thus offshoring and automation both have effects on employment, and attempts to protect U.S. workers from overseas competition can have adverse effects on U.S. workers producing for export. That's what always cracked me up about Mr Trump complaining about cars coming off of ships, and beef (or wood for chopsticks) being stowed on ships. How else do you produce a car in a forest?