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John Murphy: How U.S. Manufacturing Jobs Depend on Trade Agreements

John Murphy U S Chamber Of Commerce
February 24, 2015

U.S. factory workers see brighter prospects, higher pay thanks to trade.


Critics of trade in the United States often point to shrinking factory employment over the past four decades as proof that free trade agreements (FTAs) cost U.S. jobs. Yet while the forces of globalization have unleashed new competitive challenges, U.S. manufacturers have been among the principal beneficiaries of America’s FTAs, which support higher-paying jobs for their workers.

The positive impact of trade on U.S. manufacturing is clear when you look at it from the perspective of how much value is added on U.S. shores during the manufacturing process — an approach that avoids the double counting that can otherwise result along manufacturing supply chains. U.S. value-added manufacturing rose by 58 percent between 1993 and 2013 in real terms, according to the U.S. Department of Commerce. This represents the continuation of a long trend: U.S. manufacturing value-added has grown eightfold since 1947 in real terms.

Contrary to popular misconception, the U.S. share of world manufacturing output, on a value-added basis, has remained fairly steady at approximately 20 percent for about four decades. American manufacturers were hammered by the painful 2007–2009 recession and a steep fall in demand. But throughout the preceding two decades, U.S. manufacturers set new records for output, revenues, profits, profit rates and return on investment.

Factory workers benefit as well. Manufacturing jobs tied to exports pay wages that are typically 18 percent higher than those that aren’t, according to U.S. Department of Commerce research.

The United States has even recorded a trade surplus in manufactured goods with its FTA partner countries for each of the past five years, according to the Commerce Department. This surplus reached $27 billion in 2009 and had expanded to $61 billion by 2013.

What’s Behind the Job Losses?

However, the number of Americans employed in manufacturing has declined since the 1970s. When NAFTA entered into force in January 1994, U.S. manufacturers employed 16.8 million workers, according to the Bureau of Labor Statistics. That figure rose over the next four years to top 17.6 million in 1998, but sharp job losses in U.S. manufacturing in the recessions of 2001–2002 and 2007–2009 brought the number of Americans employed in manufacturing to a new low of 11.4 million in early 2010. Since then, manufacturing employment has recovered, climbing to approximately 12 million by the end of 2014.

Where did the lost manufacturing jobs go? Not to Mexico — or China. Survey data from the federal government consistently show that less than 1 percent of layoffs is attributable to offshoring. Further, a RAND study found that China shed 25 million manufacturing jobs between 1994 and 2004 — 10 times more than the United States lost in the same period.

Rather, most of these jobs have been lost to a country called “productivity.” Technological change, automation and widespread use of information technologies have enabled firms to boost output even as some have cut payrolls.

This productivity revolution is a complex phenomenon. Critics of FTAs are correct when they say that manufacturing employment hit a peak and then began a steady decline. However, the peak was in 1979, long before the United States negotiated its first FTAs.

More recently, U.S. manufacturers have enjoyed steady growth, aided by the expansion in U.S.exports to FTA partner markets. Consumers and businesses in those 20 countries purchased $658 billion of U.S. manufactured goods in 2013 — a sum representing nearly 48 percent of all the exports produced by the 12 million Americans employed in manufacturing.

Do the math, and you’ll find FTA markets generate export revenue of $54,800 for each American factory worker. Compare this with the average annual earnings — including pay and benefits — of an American manufacturing worker: $77,506. How could manufacturers make their payrolls without the revenues they earn by exporting to FTA markets? The short answer is, they couldn’t.

The principal rationale for FTAs is to unleash new flows of mutually beneficial trade between Americans and the citizens of these 20 countries — and do so in a way that is fundamentally fair.

With regard to American manufacturers, and their workers, these FTAs have been a big success.

Watch Wednesday’s trade event, Keeping Our Edge: Jobs, Exports and Global Competitivenesshere.

(Top image: Courtesy of Thinkstock)

This piece also appears in Republic 3.0.

John Murphy is Senior Vice President for International Policy at the U.S. Chamber of Commerce.

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