Originally created 05/21/05

Myths abound about international trade



The topic is international trade. Once again, newspaper editors and the rulers of the airwaves are spewing out vile comments about just how rotten international trade is, and about how much ordinary Americans are made to suffer by cheap imports from China, Canada, Central America and other foreign places starting with "C" or any other letter of the alphabet.

NEVER MIND, in case nobody has noticed, that American consumers like these foreign-made products. No Chinese company, and certainly not its government, force-feeds American consumers. We buy this stuff voluntarily. While nearly 3 million U.S. manufacturing jobs have been lost thus far during the George W. Bush administration years, 300 million American consumers have benefitted from lower prices.

Lower prices mean that consumers' income stretches further, and these savings permit us to buy more goods and services than otherwise would have been possible. Who provides the additional goods and services that we can purchase because of the extra money in our pockets that cheap imports generate? The answer: American workers in the service industries.

The jobs we lose in one sector of the economy are merely shifted into another. Just like at the beginning of the last century people were (wrongly) worried about losing agricultural jobs to the ascendancy of industrial jobs, now people are (wrongly) worried about the decline of industrial jobs to the ascendancy of service jobs.

Let us look at some numbers. In 1980, when President Ronald Reagan won his first U.S. presidential election, jobs in the goods-producing industries, including manufacturing, made up 26.8 percent of all nonagricultural jobs, and the other 73.2 percent of jobs were in the service industries, including government jobs. (Agriculture provided only 3.4 percent of all jobs then, and only 1.6 percent in 2004.)

BY THE END of the George H.W. Bush years, in 1992, jobs in the goods-producing industries were down to 20.3 percent and service-related jobs were up to 79.7 percent of all nonagricultural jobs. And another 12 years later, in 2004, the share of jobs in goods-producing industries relative to all nonagricultural jobs had dropped to 16.7 percent, while service jobs rose to 83.3 percent.

In other words, from the start of the Reagan years to the end of the first Bush administration - 12 solid Republican years - goods-producing jobs were lost at a faster rate than since then. (The intervening Clinton years saw a rise in goods-producing, including manufacturing, jobs.) The job losses in the goods-producing industry in the George W. Bush years are merely a continuation of a long-standing trend. China today does absolutely nothing to us that has not already happened in the past.

BUT AREN'T U.S. service jobs lesser paying than U.S. goods-producing jobs? No. It is a common but false belief that all service jobs involve hamburger-flipping. Apart from government-related jobs, service jobs are those in the business and finance; health and education; leisure and hospitality; and the vast computer, electronics, and information-related industries.

I don't have numbers going back to 1980, but I do have numbers going back to 1984. Then, average compensation in private, goods-producing industries was 3 percent higher than in private, service-producing industries. By 1990, compensation in both sectors was dead even. And by December 2004, average compensation in services edged out average compensation in goods production by a bit more than half a percentage point. That trend is sure to continue.

MEANWHILE, AVERAGE income in the United States has gone up dramatically. On a per-person purchasing-power basis - i.e., adjusted for population growth and for price inflation - disposable personal income rose by 27.2 percent between 1980 and 1992, and by a further 26.3 percent since then. Every dollar of disposable income the average American had in 1980 has turned into $1.61 by 2004.

Isn't the loss of goods-producing industries, especially of manufacturing, a danger to our national security? No, not unless you believe that the United States is going to go to war with all potential suppliers simultaneously. The national security argument is an old canard to restrict trade, drive up prices, and gauge U.S. consumers. In fact, the U.S. defense industry is falling all over itself to outsource jobs and defense technology to other countries - and still the United States is without doubt not only militarily the strongest country in the world today, but it is pulling away in military capability from everybody else as well. Even in the military, what counts is not brawn, but brain. Pieces and components can always be obtained from multiple sources elsewhere; what counts is how you design a weapon system and how you put it together. And that's a service job.

None of this denies that manufacturing has been in a particularly steep decline since the George W. Bush years or that China might as well free its foreign-exchange rate - economists favor free markets after all - but trying to hang on to manufacturing at the beginning of the 21st century is like hanging on to agriculture at the beginning of the 20th century. It betrays an unnecessary fear.

WE SHOULD BE happy that these jobs are migrating offshore. It provides jobs and income elsewhere in the world (much more effective, incidentally, than taxpayer financed "foreign aid") while permitting us to shift our own labor resources into more productive, more rewarding and higher-paying jobs than our parents and grandparents had.

After all, who really still wants to till the soil or work on the assembly line? Not me, not you and not our kids.

(Editor's note: The writer is a professor of economics at Augusta State University.)