Many progressives, myself included, have fallen into the globalization argument trap when accounting for chronically high average levels of unemployment in the US and low overall GDP growth rates or secular stagnation. It easy enough to understand. Outsourcing and imports play a seemingly large role in the US economy. In addition, progressives and others keep harping on the same globalization themes all the time. Progressive talk show host and author Thom Hartmann, in opposing free trade agreements, has recently argued that;
"We need to demand that our Legislators in Washington,DC who we sent their to represent "We the People" implement high Tariffs on all Imports that would create a Demand in the USA putting our Hard Working Americans back to work..."
Leo Gerard of the United Steel Workers union argues pretty much along the same lines. In a Huff Post piece earlier this year, Gerard ran through a litany of layoffs by the US Steel Corporation in the first quarter of 2015 arguing that;
It’s relentless. And that’s just U.S. Steel. Other U.S. producers furloughed workers too. Steel executives told lawmakers last week that the job cuts are a direct result of foreign companies dumping steel in the U.S. market.
In a PBS interview in late 2013, Gerard called President Obama's agreement to scrap existing US tariffs against foreign steel products as a "capitulation" to the EU and Japanese steel makers who he accuses of illegally dumping steel in the US market. The implications of his argument is that American steel company bankruptcies are directly related to foreign "dumping" practices. Gerard blames the removal of the protective tariffs which he says, "...will add a lot of instability to the industry."
There may be something to what Gerard, a progressive labor leader is saying, but would tariffs remedy the problem. US steel production as a share of global production dropped from nearly half of world output at its peak in the 1950s to only 5.3% currently despite efforts at tariff protection.
Furthermore, are imports, outsourcing and foreign competition really the main cause of the chronic stagnation of the US economy? I should begin by saying this is no argument for "free trade"; like all progressives I'm perfectly aware that twenty years of free trade agreements have contributed to unemployment and poverty in places like Mexico and elsewhere in the third world causing unmanageable levels of immigration to the US. It has also harmed employment growth in the US. It has also been responsible for the drastic reduction of labor and environmental standards everywhere and the accelerated rise of global inequality. But there are more fundamental causes of these problems and better solutions than tariffs that don't work and will only serve as a distraction from the real issues.
The effect of such measures as tariffs on any manufactured product, especially steel, will only add to the already burgeoning global industrial overcapacity which, in the case of steel, has been well below 80% for a long time. The US rate hovers around 72%. Beggar thy neighbor policies have never worked in the long run and don't help workers either. What is needed to eliminate existing overcapacity and restore full employment is a massive public investment effort to put people to work building infrastructure and other things that consume steel and other processed inputs for industrial manufacturing.
This is what progressives should be focused on. Instead we have our progressive leadership joining ranks with industrial management in the call for tariffs and restructuring bailouts. Such measures, as in the case of the US auto industry came at the cost of income crushing concessions such as two tier bargaining allowing new hires to come in at appallingly low wages and acceptance of more layoffs. This is not to say the auto bailouts were bad; they saved thousands of jobs and made the economic recovery much easier. The point is that the US labor movement and other progressives must develop a clearer long term vision of what will restore a socially just, less unequal society based on real growing middle class income. Tariffs and other protections are a band aid of the worst sort and a distraction from the real tasks of progressive movement politics.
Labor historian and activist Kim Moody accurately cites the main cause of job loss in the US as being "lean production"; the combination of labor saving technology and the rationalization, reorganization and restructuring of work processes to be more efficient and less labor intensive with greater output and productivity as the end result. In a global era, lost US job creating investment to overseas locations is more than offset by foreign direct investment from abroad. Moody points out that falling profit rates in US manufacturing in the 1980s led to increased foreign direct investment abroad (FDI) abroad by US manufacturers but that this is not the real cause of a net loss of US manufacturing jobs over time. Moody points out in his 2008 book, US Labor in Trouble and Transition, that;
"...from 1980 to 2004, real manufacturing output in the US doubled. It might have grown even faster if US producers had not invested abroad, but the growth itself makes implausible the idea that overseas investment underlies the actual drop in the number of US production workers by about 4 million over those years. In fact, [for most of the time between 1984 and 2004], except in periods of recession, the flow of foreign investment into manufacturing in the US has outrun the outflow...Over the entire twenty years, the flow of investment into US manufacturing has outstripped outward-bound capital by 43%." (Moody; 2008, 19-20)
This trend has continued right up to the present moment. Over the course of the post-2009 recovery, the US has led the world in inward FDI, much of it in the US manufacturing sector. The UNCTAD's World Investment Report shows that the US is home to nearly a fifth of the world's stock of FDI. According to a 2013 joint report by the US Commerce Department and the President's Council of Economic Advisors, US affiliates of Foreign based transnational corporations "share of total U.S. manufacturing employment rose from 14.8 percent in 2007 to 17.8 percent in 2011." The report puts the US manufacturing sector as accounting for about 45% of total FDI in the US between 2010 and 2011. The current recovery has seen FDI by foreign firms offset US outsourcing during the recession. According to the report;
Between 2010 and 2011, the value-added production of affiliates rose 11.4 percent to $736 billion. This output accounted for 4.7 percent of total U.S. private output. These firms employed 5.6 million people in the United States, or 4.1 percent of private sector employment. Consistent with estimates of the investment position by industry, about one-third of jobs at U.S. affiliates are in the manufacturing sector.17 Manufacturing employment at U.S. affiliates was 2.1 million in 2011, or 17.8 percent of all U.S. manufacturing employment. Next to manufacturing, the largest industry sectors for employment by U.S. affiliates are wholesale trade, which employed 546,600 workers in 2011; retail trade with 488,500; and administration, support, and waste management, with 482,200.
The report says that there are more than five and one half million workers employed by US affiliates of foreign companies in the US manufacturing sector while a Washington Post report cites a BLS figure of 6 million US manufacturing jobs lost from 2000 to 2009 right on up until the recovery from the Great Recession. Considering even further continued growth in the US manufacturing sector over the last few years outsourcing doesn't seem to be a very plausible explanation for the decline in US manufacturing employment as a share of total employment.
US foreign direct investment outflows to foreign affiliates of US corporations in the manufacturing sector tend to average about 15% of total US FDI outflows on an annual basis. Yet they are significant, averaging hundreds of billions annually since 2000. Still, their overall impact on US manufacturing employment on balance is small. Most US FDI outflows are in the financial and services sector. A Congressional Research Service (CRS) report from late 2013 noted that increased US FDI outflows to foreign affiliates in the manufacturing sector doesn't affect US domestic manufacturing employment in the long term very much;
"Increased economic activity abroad relative to that in the United States increased overseas affiliate employment in some industries, including manufacturing. Most of this affiliate activity, however, is geared toward supplying the local markets in which they are located. In 2009, 8% of the sales of the foreign affiliates of U.S. firms was accounted for by exports back to the United States..."
Also, imports had less to do with manufacturing job loss in the US than did technology, especially considering the growth of FDI in US manufacturing over the past twenty years. Imports have displaced many jobs over time but as Moody points out even growing imports of cheap goods don't account for a significant part of the US manufacturing job loss. He points out that, "Even when Chinese imports reached 12% of total imports in 2003, their value was the equivalent of only about 3% of total manufacturing sales in the US including all imports ($152.4 billion/$4,824 billion=3.2%)" (Moody; 2008, 23) Chinese manufacturing imports tended to remain roughly at this proportion until the recession/crash of 2008 when they declined.
There is actually a much more important culprit in the jobs decline in the US, and other, manufacturing sectors besides trade and FDI. It's called labor saving technology. According to on Bloomberg's report;
The growth in imports from China had a role in that decline–contributing, perhaps, to as much as one-quarter of the employment drop-off from 1991 to 2007, according to an analysis by David Autor and colleagues at the Massachusetts Institute of Technology. But the U.S. jobs slide began well before China’s rise as a manufacturing power. And manufacturing employment is falling almost everywhere, including in China. The phenomenon is driven by technology, and there’s reason to think developing countries are going to follow a different path to wealth than the U.S. did—one that involves a lot more jobs in the services sector.
The report goes on to point out that manufacturing's share of employment in the economies of such production powerhouses as Germany, China, South Korea and Japan have all fallen dramatically. China itself has lost nearly 14 million manufacturing jobs since its total manufacturing force peaked in the mid-'90s at around 126 million. The answer; as Moody tells us "lean production" and technological advances in manufacturing. This has allowed the growth in the US manufacturing sector as a share of the economy despite its relatively low share of total employment compared with decades past when more than one in three workers was in the manufacturing sector. One report from the National Employment Law Project asserts that the US manufacturing sector has grown significantly with the recovery;
Manufacturing in the U.S. is on the rebound. Between 2010 and 2012, the sector grew by 4.3 percent.18 While the share of employment in manufacturing has shrunk rapidly in the decades since the Second World War, falling from over 40 percent of private non-farm employment in 1945 to just over 10 percent in 2013, there is a core of manufacturing work (including auto and computers) that is bouncing back and is likely to remain in the United States.
One reason is that not only have wages in the US manufacturing sector been falling behind the national average but the gap between Chinese and US wage costs per hour have fallen dramatically according to the above report. Over the past decade this wage differential shrank by about $10/hr! Jobs are returning due to this and other factors. But output per worker has increased dramatically due to productivity increases mostly brought on by new technologies. Just over the course of the recent recovery, real manufacturing output has increased by over 22% as of the first quarter of 2015, according to the St. Louis Fed. Productivity, though having slipped over the course of the recession, is generally much higher than in years past and output remains high. According to the National Association of Manufacturers manufacturing output increased from about $1.7 trillion in 2009 to over $2 trillion in 2014. Although there exceeds 12 million people employed in manufacturing, only about 6.2 million are actual non-supervisory production workers. This means more and more output is produced by fewer and fewer production workers which were three to four times greater at the peak of US manufacturing in the 1970s than they are today. Manufacturing profits, especially in the auto industry which has been producing on average over 16 million vehicles a year since the recovery of that industry, is at historic peaks.
Since the start of the current recovery profits are up as real wage levels sag. According to a Bloomberg's report; Manufacturers’ after-tax profits rose to a record $289.1 billion [in 2012], more than three times 2009’s tally, the Commerce Department reported. The Standard & Poor’s 500 Industrials Index has more than tripled since its 2009 low, and topped the broader index by 59 percentage points over that span. According to a Business Insider report in 2013, after tax manufacturing profits as a share of sales hit 8.5% after suffering significant losses before the recent recovery from the crash/recession of 2008. After 2009, post-tax manufacturing profits continued on a steady upward climb. Yet manufacturing wages are declining despite rising profits and productivity. According to the above cited NELP study, real manufacturing wages fell 4.4% between 2003 and 2013. And according to one WSJ report from 2012;
Across the country, earnings for production and other nonsupervisory workers in manufacturing averaged $19.15 an hour in April, 3.2% below their recent March 2009 peak and back to where they were in 2000, adjusted for inflation, the Bureau of Labor Statistics says. In contrast, average hourly earnings for all private-sector production and nonsupervisory workers across the economy have risen 5.3% to $19.72 since 2000.
Much of this has been caused by two tier wage agreements in many union contracts since the recovery started in 2009. The crash/recession weakened the US working class and their unions. Many new US subsidiaries of foreign and domestic manufacturers, especially in autos, locate in right to work states in the south. All together, US labor has taken a beating. The reason isn't so much globalization, although this has contributed significantly at times, but the class war waged by capital against labor at home.
Labor can't win this war by joining with the bosses for such band aid solutions as tariffs and tax holidays for business. There needs to be a massive public investment effort for full employment both to tighten the job market and strengthen labor's position and to boost income growth and domestic middle class spending power. The answer to the crisis for labor, the middle class and the economy as a whole is massive long term federal intervention to rebuild the economy and protect labor rights. Corporations will invest, even at higher tax rates and wages, if there is massive GDP growth to sustain profit rates and raise private investment. This can only come through federal intervention. Big corporations and the right often fear full employment due to its natural empowerment of the working class. A federal government committed to full employment and public spending to support it will expand the economy for everyone and pose as a counter-weight to corporate power in US society.