Wed, Mar 01, 2017 - Page 9 News List

How imports boost employment

Moving high-cost, low-skill manufacturing back to the US might prove to be counterproductive in the long run

By Anne Krueger

One last consideration is that exporting countries would have to correct their balance of payments if their export earnings drop significantly. For example, if the US decides to curtail imports, many of its trading partners would reduce their imports, too, because they will no longer be able to finance them. Export earnings finance imports for most of the world, so if US imports drop, US exports would fall by approximately the same amount.

If that happens, export industry jobs would be lost, together with the jobs created by imports. Even if some of the longshoremen, truckers, head office employees and others find new jobs in the industries that replace import servicing sectors, they would likely have to take a pay cut.

Given these dynamics, why has manufacturing as a share of overall employment in the US decreased? Import competition and preferential trade arrangements such as the 1994 North American Free Trade Agreement share the brunt of the blame these days. However, neither of these became relevant factors until long after manufacturing employment — which peaked in the late 1970s — had already started to decline.

One partial explanation is that companies have subcontracted more services, so the share of direct employment in manufacturing might appear to have fallen, even though the number of jobs associated with a firm’s production might not have changed.

However, most analysts attribute the decline in manufacturing employment to improved productivity. US businesses had no choice but to develop or adopt new techniques, processes and technologies to stay competitive. For manufacturing employment to have kept up with the sector’s increased output and value added, the demand for manufactured goods would have had to rise much faster than it did, or Americans would have had to choke off productivity growth. The latter option is the surest way to make the US poor again.

Anne Krueger, a former World Bank chief economist and former first deputy managing director of the IMF, is a senior research professor of international economics at Johns Hopkins University’s School of Advanced International Studies.

Copyright: Project Syndicate

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