President Trump and manufacturing jobs

President Trump intends to bring back manufacturing jobs. How might he do that and what would it mean for our economy and our workers?

Keeping in mind that our manufacturing output has steadily increased over the years and is now at an all time high, though the number of manufacturing jobs has steadily declined. Bringing back manufacturing jobs means rolling back and undoing the technical advances that made manufacturing workings more productive. But if we increase the number of workers in manufacturing by making each worker less productive (shelving some of the productivity enhancing technical advances), where will these workers come from? Presumably not from Mexico. They will have to give up what they were producing before in order to take the new manufacturing jobs.

Looking more carefully at such a policy reveals that it would make us poorer. Without Trump’s arm twisting (carrots and sticks—tax breaks, i.e., bribes, and/or tax or other penalties), the workers in question would be employed doing things that were more profitable (i.e. more productive and contributed more to our income) than in manufacturing. Trump would have those workers move from where they are more productive to where they would be less productive. I assume that such a policy reflects ignorance rather than malice, but what ever his motivation, the result of Trump’s protectionist threats would be to lower our standard of living.

If President Trump intends to return power from the government to the people, as he claimed in his inauguration speech, he will have to stop threatening companies to produce things in the U.S. when they would otherwise find it more profitable (cheaper) to produce them abroad and import them. Anything and everything that adds to our economy’s productivity (specializing in what we are best at and exporting it to pay for imports that other countries are better at making) increases our incomes. Trump should stop interfering with our private economic decisions and get on with the other aspects of his promises (tax and regulatory reform) that will increase our well-being.

Author: Warren Coats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My recent books are One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina; My Travels in the Former Soviet Union; My Travels to Afghanistan; My Travels to Jerusalem; and My Travels to Baghdad. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon.

3 thoughts on “President Trump and manufacturing jobs”

  1. It would be so much cheaper for the rest of society to pay manufacturers a direct “agriculture-style” subsidy for hiring drone workers, to do “meaningful” make-work. That is what our “democratic government” does for rich farmers, but in a trickle-down manner, it keeps some few old folks employed in mid-western small towns (who vote Republican).

    I hate to admit it, but I am coming to think Finland’s guaranteed income experiment is the path to explore. In a democratic system, we of the libertarian elite need to understand how to buy off the envy voters, and to defuse their main claims – about the poor “suffering” (makes me laugh, remember my grandparents).

    1. A condition on the labor subsidy I suggested above probably ought to be that the newly hired and subsidized drone worker must be over age 50. That resolves for a generation of voters the problem of slow-adaptation to technological progress by people who acquired manual-labor skills, instead of modernly important intellectual and design talent.

      If they cannot appreciate why free, open trade is better for them, we might buy political time until their children figure it out. Remember, Cobden won. The ideas of Bastiat are so clear, and Henry George put it better than most. Even Marx wanted free trade and a gold standard (go figure).

  2. A guaranteed annual income would create more social problems than it could solve in a country like ours. On the other hand, a revamped EITC – correlated not to family size but directly to hours worked (too few or too many, you get nothing) and phased out gradually as hourly earnings grew higher – could certainly help. As to the argument that “creating more jobs would lead to lower productivity per job” – this relies on a false dichotomy. Making local manufacturing in certain sectors more attractive than it has been in the past several decades could easily have the healthy side effect of leading to technological advance in those manufacturing processes. That advance will occur, anyway, of course – but if the jobs are here it will occur here — if the jobs are elsewhere it will occur elsewhere — and the pace of that advance will depend significantly upon the labor costs. In short, I distrust those who want the government to tinker too much with the economy, but I also distrust those who pretend to see no governmental influence at all upon economic direction or process.

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