Trading On Myths

There is a relatively heated policy debate about the relative impacts of trade and automation on job creation. It’s an argument with rather obvious implications for policymaking, not to mention politics: one of Trump’s most successful campaign themes (a deviation from a longstanding GOP position) was his promise to “renegotiate” or terminate the trade agreements to which the U.S. was a party.

That attack on trade pleased many  working-class voters who were–and remain–convinced that changes to America’s workforce and the disappearance of well-paid manufacturing jobs can be attributed to those trade agreements. The reality is more nuanced, to put it mildly.

Whatever the relative impact of trade vis a vis automation, Trump is dangerously wrong about NAFTA, as the Brookings Institution has recently documented. (And yes, I know he’s “dangerously wrong” about pretty much everything, but this post is a discussion of trade policy.)

The title of the post is fairly self-explanatory: The trade deficit isn’t destroying jobs, but tearing up NAFTA will.

Here’s the reality: All advanced economies, regardless of changes in their trade balances, lost manufacturing jobs. The figure below shows the change in the share of workers in industry (which includes mostly manufacturing) versus the change in the trade balance as a share of total output for all Organization for Economic Cooperation and Development countries between 1995 and 2010. The data point for the U.S., indeed, fits the White House narrative: During that period, the U.S. lost manufacturing jobs while its trade balance deteriorated (as all other countries in the lower left panel). However, that is not the story for most countries. In fact, Mexico increased its share of workers in manufacturing even though its trade balance also deteriorated during that same period. But most, importantly, most countries—in the lower right panel of the figure—lost jobs in manufacturing even if their trade balance improved. In short, the White House is trying to sell a fallacy that the trade deficit has destroyed American jobs.

Other research suggests that approximately 100,000 net job losses are attributable to NAFTA; that’s equivalent to about 0.1 percent of the U.S. labor force. On the plus side of the ledger, NAFTA has allowed U.S. companies to access new markets for their exports and reduce their costs of production. That has created more jobs, not fewer.

As the author of this report points out, there are better ways to help American workers–a more robust safety net facilitating transition to other jobs, or to early retirement, for example. We can argue about the approaches most likely to be helpful; what we shouldn’t be doing is basing policy on inaccurate data and (sorry!) “fake facts.”

After this round of negotiations, the likelihood of NAFTA overall surviving this process keeps decreasing. The U.S. government is walking on thin ice by keeping their focus on wrong facts. And if NAFTA collapses, it will bring down those who the administration is allegedly trying to protect: American workers.



  1. Isn’t Trump’s primary objection to NAFTA that it doesn’t increase his already overly massive personal fortune and he and his family use as few American workers in any of their vast business holdings as possible?

    There is also the basic reason that he is an idiot and has no idea what he is doing or why he does it.

  2. The graph suggests that Ricardo’s law makes sense, but it omits one important factor (because it is limited to two dimensions), namely the effect of automation on industry employment.

  3. Ho-hum. Much ink has been applied to automation and its effect on employment. Now we need to think more about the trillions that could have been spent on human needs instead of stuffing the carpetbags of the unproductive oligarchs who then carelessly left us with dizzying debt.
    It’ll get worse before the people will again resort to revolution.
    Aux armes citoyens!! But not the way of the NRA.

  4. Pat,

    “The graph suggests that Ricardo’s law makes sense, but it omits one important factor (because it is limited to two dimensions), namely the effect of automation on industry employment.”

    This is a portion of an article this morning from on Pat’s point.

    “Since award-winning physicist Stephen Hawking first warned that artificial intelligence (AI) could spell the end of humanity, other experts have echoed his cataclysmic forecast. In the meantime, for many workers, the day-to-day impact of digital technologies is much more pedestrian, if sometimes almost as threatening. Yet, alongside the risks, trade unions believe that if managed in the right way, digitalisation could offer new and less arduous job opportunities and better working conditions.

    At present, however, online platforms, robotisation and crowdwork are increasing the likelihood of job destruction in industry, precarious work with no social protection, labour market segmentation, involuntary self-employment and lack of employer accountability; workers’ rights and the ability of trade unions to organise and represent the most vulnerable are being undermined.

    Digitalisation is on everyone’s lips, often spoken of as an irresistible force for change. We are told that in its scale, speed and complexity, the Fourth Industrial Revolution (Industry 4.0) is unlike anything humankind has experienced before. These changes are transforming the nature of work in Europe and around the globe.”

  5. Pat is right. The blunt truth stripped of trade myths and political maneuvering is that automation destroys jobs (or at least jobs primarily those performed by humans). When Trump was running on “I’ll bring good-paying jobs back from China” I was trying to stem this obscuring of fact by citing time and again in my blogs a study which showed that 83% of the jobs he was talking about never left – that they were automated – and that the remaining 17% of the jobs that did “go to China” would, if returned, be of the repetitive sort subject to automation here upon their reappearance. I was trying to blunt his myth-making but to no avail as he narrowly prevailed in a swath of industrial states in our north who bought his blather and elected him.
    I think transition between jobs and a more robust safety net are essential in the perhaps near future if we are to avoid civil commotion and loss of social cohesion, but let’s be honest. Such attempts to meet the ravages of accelerating automation will need many more such initiatives as we redefine capitalism to include human welfare that will make past welfare schemes look medieval by contrast, as in, who owns the fruits of the new economy? Wall Street? How do we distribute the income and wealth resulting from automation? If the people have no wherewithal, what happens to aggregate demand in the marketplace? Can private enterprise survive social crises sure to come? Are “market economies” a thing of the past and, if so, how will a new marketplace assess risk, if any, in this brave new economic world? Will overproduction and underconsumption unless adjusted by government cause permanent deflation a la the Great Depression? I can think of many more such questions, ones for which I have no answers at this time. I can only hope at this juncture that brilliant economists like Stiglitz and Piketty are giving some attention to the coming conundrum of how this mixture of automation and humans can work for humans. Right now I have only questions and no answers, but those smarter than I (and they are legion) may solve this oncoming riddle before its impact brings about human misery and social upheaval. I sure hope so.

  6. This graph tells just enough of the story to be dangerous. As does every article I’ve read on the subject, and every post I’ve seen on the subject.

    The articles I see use data that either cannot integrate with other factors or cannot control or segregate from other factors related to this subject. Almost all the statements are broad summaries that do not even try to eliminate or integrate the MYRIAD CLUTTERS OF RANDOM ACTIONS taking place outside the arena of the data, which nevertheless have a large effect on the data and skew it, first one way and then the other, and then skew it all over again. This subject is like politics and art; it has too many loose ends to be properly studied.

    One can only do what most of us do–take a best-informed position (with all those dangling data) and hope that events and reactions to events prove we were right. Or…

    …Or (imitating philosophy) knowing that we have no data to rely on, we could however move logic on this subject along a path using stepping stones so commonly accepted that data is not needed.

    First, no one disputes that robot-like automation takes SOME human jobs, but because of dangling data we cannot cite exactly how many jobs.

    Second, no one disputes that building robot-like automation creates SOME jobs, but because of dangling data they cannot cite exactly how many jobs.

    Third, no one disputes that trade/outsourcing takes SOME human jobs, but because of dangling data we cannot cite exactly how many jobs.

    Fourth, no one, especially Walmart, disputes that trade/outsourcing CREATES some jobs, but because of dangling data they cannot cite exactly how many jobs.

    Fifth, no one disputes that each of the two policy actions and reactions above–trade/outsourcing and automation–have both a reductive-effect and an increase-effect on jobs outside a studied industry–jobs in handling, transporting, marketing, and pricing over a broad array of support and service industries–but again because of dangling data they cannot cite exactly how much of an effect.

    Whether knowing or not knowing all the above, no one can yet solve the jobs equation, even in round numbers, with accurate enough computations to learn whether X = + or -.

    In fact, I think, working the problem correctly would take so long that by the time the answer came out the chute of our most powerful computers, progress will have changed so many things so fast and so enormously that our answer while correct is no longer valid, because the question will have changed. What we do know, which is actionable, is that X (the total effect on jobs of robot-like automation and trade/outsource policy) is a very large number with heavy consequences.

    I am convinced that many other problems resulting from progress and innovation are just as difficult to solve, and we are going to have to get used to jumping off tall buildings and growing wings on the way down. In other words, as a nation, we push ahead (the jump off tall buildings) with whatever miracle innovations and cursed policies that accrue to us, and trust our ability to adjust (the growing of wings), an adjustment which includes the grit to suffer the consequences–permanent or temporary.

    The trick is in the push ahead. We cannot let the speed of innovation dictate the pace of our movement. PACE is the best answer I can come up with. Though innovation, with help from automation and outsourcing, can produce an engine and a chassis that enables a modern motorcar to speed along at 130 mph, and faster, we are smart enough to realize that there is an appropriate pace for the road we see ahead. We certainly do not let ‘er rip at 130 mph in the Alps.

    A friend of mine (an ex-GM worker) has emphasized that going global with industry and marketing and labor would be much wiser if paced at a speed that enables adjustments along the way.

    Our progress has crossed a line; it is no longer enough to just guide our capitalist engine, simply helping our leaders choose a direction, while ignoring pace, and then blissfully let’er rip is a strategy for disaster.

    I think science, innovation and commerce has come to the point where pace is going to be the most important decision that entities all over the world–churches, transportation, industry, education, corporations, exploration, medicine, cities, counties, states, and nation–will have to make, and luckily, PACE is within our power to regulate…if we want to.

  7. Gerald has good questions. We need answers. Here are a few more thoughts.
    * Persistent trade deficits can lead to persistent shortfalls in aggregate demand (remember the circular flow of money within an economy) leading to job losses. Our policies that support a “strong dollar” may also be a problem that is not much discussed.
    * In our trade deals, we put our working class in competition with workers throughout the world. But we protect our doctors, lawyers and others in the professional classes. We may all benefit from freer trade but only one segment pays the price in lost employment or lower wages.
    * In our “free trade” agreements agreements, we impose our strong and long intellectual property policies on other countries. These economically act the same as an increase in tariffs for the affected products. The effects are to increase income inequality and lower demand for other goods and services.

  8. Larry – Thoughtful piece. Yes, pace is important as it suggests our time for accommodation may be limited. It’s not time for Luddites, and yet Luddites need to eat. I welcome any every bodies’ views on the coming crisis. What’s your view, Marv?

  9. The basic premise is: Anything coming from Trump’s mouth is probably wrong, a lie or a self-serving missive.

    Automation has been around for centuries. This complaint about automation destroying jobs has also been around for centuries. Funny thing, though, jobs keep getting created by innovation and so-called progress. When the mentality of the economists stalls and becomes “conservative”, progress stops. BTW, who builds the robots? More robots?

    The history of manufacturing shows a couple things: (1) When countries stop making stuff and start making trade deals, they decline as a vigorous economy. Start with the 17th century Dutch. (2) Programs that re-train workers displaced by automation coupled with the development of new industries and technologies, almost always works to absorb those labor “casualties” of automation.

    The worst part of NAFTA was the “encouragement” to off-shore manufacturing jobs by U.S. manufacturers. This is yet another Republican gift that keeps on giving. As with most capitalists, Republicans and Democrats who are “influenced” by corporations, do their best to keep labor under the boot of wage controls. Profits come first. Excessive profits come before that. Labor? Not so much. Since NAFTA, most union shops have been closed and moved off-shore. Why? The stockholders don’t want to pay union scale wages, so they just eliminate the U.S. jobs and those pesky unions go away.

    Capitalism does NOT care about people, only money. It’s that simple. Un-regulated capitalism accelerates the failure of economies and societies by destroying the very consumers that make the economy go. Sound like Marx? You bet. History is proving his prophecies correct. Ask the rust belt people how well NAFTA, etc., is working out for them. Cleveland, my home town, had a population of around 800,000 when I moved to California. Today, that population is down to less than 400,000 and is one of the poorest and most crime-ridden cities in the country. How has NAFTA worked out for Cleveland. Oh, and Cleveland manufacturing was one of the leading utilization centers for automation…beginning with the WW II period.

    Any more questions?

  10. we seen this affair start in the 70s with more jobs going to japan, western europe. but some of the reasons are not of mainstream,and union workers can attest to some of the moves that made this happen, first, when indusrty needed to update its prossess, it didnt, it allowed the mills,machinery,and buildings to be used up till it all became too expensive to operate, with that thought, dont be fooled, the corp survival mode was is action, they already knew of sources to rely on for its products to remain stable, lower wages,rebuilding in foriengn countries who welcomed them for jobs alone,and some palm scracthing. the fact of, allowing the updates to wither in our economy,was a travisty. all the so called America first was only from the worker,wheras the companies saw only profit,and a congress that would back it. guess who owns alot of that stock? and guess whos out of work? not congress. its a been a plan. U.S.Steel saw this coming at first, but, found its new imports a better profit margine,over supporting some winy ass union workers who, worked and died for that job. yes, were all out classed now, we did fight, but with lieing politicials supporting this economic collapse of the working class, we now have our own working class poverty. Americas best, kicked to the curb, to profit wall strees greed.. maybe that universal pay is a answer, but ya gotta get a congress with bernies ideals,not wall streets. as long as theres little to offer the working class to get above the present, we only here depresion,and never seeing our American dreams.we want a fair wage for the work we do, not some CEOs seminar where they learn to oppress us,and gain the money for themeselves. maybe if we had a tarrif,no WTO, and the SEC did thier job, we would all be better off. tell congress to find a room downtown and work like we do..

  11. I have always thought that an under considered aspect of business policy is that there are many issues that affect business that are outside of government control (some outside of anybody’s control) but claiming solutions always fools people desperate for income so attracts votes. Also pretending to solve popular but intractable problems is such a good place to hide from dealing with bigger problems that are hard to solve because they interfere with the flow of campaign funding from the donor class. Like all magicians politicians employ copious diversion and we the people love our squirrel chasing. America’s nemissis Donny Johnny Trump is a master of squirrel production.

  12. Vernon, I agree with most your comments especially, “Capitalism does NOT care about people, only money. It’s that simple”. Capitalism found a happy home in the Third World and or in countries where human rights, labor rights, clean and clean water were non-existent.

    Chicago my home town area has a similar story, to your Cleveland. The south side Chicago steel mills are now all gone. Thousands of jobs were lost. The human cost must have been immense but, books and stories on what happened to the workers are very few. How did they cope???

    A good article I keep bookmarked is NAFTA’s Impact on U.S. Workers. The article makes the following points:

    NAFTA affected U.S. workers in four principal ways. First, it caused the loss of some 700,000 jobs as production moved to Mexico.

    Second, NAFTA strengthened the ability of U.S. employers to force workers to accept lower wages and benefits. With NAFTA, corporations also could more easily blackmail local governments into giving them tax reductions and other subsidies. (Think Carrier)

    Third, the destructive effect of NAFTA on the Mexican agricultural and small business sectors dislocated several million Mexican workers and their families, and was a major cause in the dramatic increase in undocumented workers flowing into the U.S. labor market. (Good deal here for the Capitalists – The undocumented workers could be exploited.)

    Fourth, and ultimately most important, NAFTA was the template for rules of the emerging global economy, in which the benefits would flow to capital and the costs to labor. The U.S. governing class—in alliance with the financial elites of its trading partners—applied NAFTA’s principles to the World Trade Organization, to the policies of the World Bank and IMF, and to the deal under which employers of China’s huge supply of low-wage workers were allowed access to U.S. markets in exchange for allowing American multinational corporations the right to invest there.

    Back in 1969 when I was drafted and later sent to Vietnam as a combat infantryman, the narrative was we were fighting to stop Communism. How odd now, my computer, monitor, keyboard and printer are all made in Communist China. I recently purchased two new shirts, they were made in Communist Vietnam. I bear no grudge against the Chinese or Vietnamese working class.

  13. Dear Languor,

    Yes, NAFTA is a bad deal…but for all labor worldwide, not just in the U.S. BTW, the influx of Mexican immigrants has dropped way off in the last few years. In fact, there seems to be a net LOSS of Mexican immigrants. Gee. I wonder who will pick our lettuce and fruit.

    We are in big trouble and in my last essay (Tremr) I mentioned some of the things that are making us more of a third-world company than a global power. I never imagined this in my lifetime.

    BTW, I was a combat medic from 1965-1971. No combat. Whew!

  14. Monotonous – And I bear no grudge against the Japanese and Germans with whom I was involved in WW II. They were the victims of flag-waving warlords just as we were recently exploited by fear of WMD during the Bush-Cheney regime, but, gotta keep the fight going – the shareholders and executives of Boeing and other big “defense” contractors (also big campaign contributors) demand it. Profit is the overriding motive wrapped up in flags, fear and sloganeering.

  15. “Trading On Myths” is the perfect title for this blog…and all pacts, treaties, contracts, agreements, et al.; because people appear to expect perfection…THEIR personal version of perfection and full satisfaction in any deal they enter into. It is more than expected of this government; it seems to be demanded, never more than with our current leadership – or LACK of leadership . Voters by the millions trooped to polls on November 8, 2016, to vote for Donald Trump, believed to be a highly successful business leader who could and would resolve all problems whether it is a problem or not. Trump doesn’t understand any benefits NAFTA may produce for the American people or any drawbacks it may cause for this country any more than he understands the civil and human rights protected by the Constitution. NAFTA is not the problem in this particular instance; as with every other problem since January 20, 2017; it is Donald Trump and our Republican Congress whose goal is to “deconstruct” everything in their path.

  16. mike seczney @ 10:34 am >> first, when indusrty needed to update its prossess, it didn’t, it allowed the mills,machinery,and buildings to be used up till it all became too expensive to operate.<<

    I saw this first hand at the steel mill I worked in. There were some updates, to BOF (Basic Oxygen Furnace) from the Open Hearth method. The rolling mills were circa 1920's and 1930's. This era late 1960's and early 1970's was also when environmental regulations began. The message we working class proles received from management in an an oblique manner was if the government insisted on cleaner air and water, the mill would have to shut down. Our working class blue collar neighborhoods were expected to live with pollution as a price to keep our jobs.

  17. I had some small experience with exactly this issue of trade, automatization, and how it affects an industry. About 15 years ago, after a lifetime of doing traditional dyework and printing on textiles, I decided to work with dyes that could be printed from an ink jet printer onto release paper or onto synthetic fabric – mostly because I wanted to work with Photoshop full time. I decided my learning experiments in digital printing would be on white knee high opaque nylon-spandex socks, leggings and pantyhose, available in many local stores. It quickly became evident that the experimental socks were so popular that there was no need to move on to larger items.

    At that point, I needed to find wholesale distributors of white opaque hosiery, to print my digital images onto. “Common knowledge” and the media told me that all the textile manufacturers had moved to Asia, and all the American mills had shut down. But, in fact, when I began looking for suppliers, I found that many hosiery manufacterers were located in the American southeast. What had happened?

    Old textile mills, including sock makers, had closed down, because they had lost business to cheaper Asian suppliers, most of whom were using faster machines to produce goods. But by the time I was looking, new American hosiery makers had already started new businesses. Instead of a building full of knitters, the new American businesses each had one or more extremely high speed knitting machines, each one about the size of a mid size refrigerator. The sock knitting machines came from South Korea. I seem to remember they were somewhere between $10,000 and $20,000, which is affordable for a relatively small business. You could start with one machine, a computer, some programs, and an industrial sewing machine, and bootstrap your business from tiny cottage size, to large. The Korean hosiery knitting machines, which knit tubes of various sizes, and are programmable, required a maintenance person, to keep them running smoothly, and load thread rolls on top, and a person to sew up the toes, on an industrial sewing machine. You could do it all yourself, hire help, or contract out, as your business grew. The nylon-spandex threads, or other kinds of threads, came from China, on immense rolls. Socks are designed on a CAD program, often on Adobe Illustrator, a California company, and the knitting machines were told what to do by another computer program, a RIP, similar to what I was using to run the large Epson printer I was using to print my sock designs. My RIP (raster image processor) was also made in America, by Wasatch, a company in Utah. I was probably their smallest customer. All along I was helped by large companies in every field, who sold me small orders, and gave me valuable tech support. I was the size of the sample machines, used by much larger companies.

    Automation and trade had closed old, inefficient, labor heavy mills. Manufacturing had moved offshore for a time. Then it moved back, when very small businesses discovered they could buy manufacturing equipment, and with relatively small numbers of people, could produce a lot of product. There are a lot of these small and growing businesses, using local designers, maintenance people, accountants, programmers, tags and labels, advertising, shipping, as well as machines and supplies, like thread, from other countries. Furthermore, because of the speed of producing designs and the ease of getting those designs from idea to the servers that run the product machines, all these businesses could produce more different designs for niche products than anyone could ever have done before.

    And that’s what I did, for the last decade before I retired several years ago. I bought plain white hosiery from American suppliers, and did the design and printing myself, using a combination of American made machines, suppliers, dyes, distributors, printer maintenance, tax and copyright legal help, and don’t forget, sales; and foreign made machines and suppliers – in a mixture so complex, it’s hard to untangle them, even in a tiny cottage size business like mine.

    That’s what a lot of people are doing, and often they are scaling up. I can’t tell you if more or fewer people are working overall, or if they’re just working differently. I can tell you that if politicians, who know little about what goes into various kinds of growing businesses, are making trade and tax laws that hinder, rather than help, they can unintentionally dam up the river of ingenuity that flows all the time from grassroots people who build things.

  18. The U.S. now has the distinction of greater income inequality than any advanced nation. Half the population owns 2% of the nation’s wealth. Capitalism turned in on itself – under the sponsorship of the Kochs and the Mercers – under Reagan in the 1980s. Convinced of its superiority, it is the world’s least examined and least introspective system. Any suggestions of areas for improvement are treated as heretical and probably subversive. Those hurt worst by its abuses don’t understand what is happening to them and are unaware that the current proposal for tax reform will increase their misery in unimaginable ways. Hubris and greed will end capitalism, but its death throes will be expedited by:
    – CEOs are compensated like creative geniuses even when they are criminal (Strumpf of Wells Fargo) or incompetent (Nardelli of home depot). CEOs succeed by lowering wages and eliminating jobs
    – Financial protection from financial scams for ordinary citizens is being dismantled
    – Financialization, which provides almost nothing to anyone but the financier, has replaced manufacturing as our leading industry.
    – Salaries have been flat in spending power since the 1980s while businesses have boomed and have given the rewards to executives and shareholders
    – Women earn 78% as much as men for the same work and performance levels
    – Capitalism is so unstable that we are told to shut up about the frequent occurrence of recessions and more severe failures
    – The impacts of AI, robotics, automation, etc., are permanently eliminating jobs which are not re-appearing elsewhere
    – The “free market”, which holds that individual greed makes things better for everyone, has never been free and more than a thousand congressional lobbyists are paid handsomely to assure it never will be
    – In today’s capitalism, profit is private and costs and risks are socialized
    – Nature, which underlies every aspect of manufacturing, is ignored and yet it is the vital link in economic success
    – More and more, war is a venture related to profits rather than national defense
    – Weakened unions make it impossible for workers’ voices to be heard
    – The efforts of the Kochs and the Mercers to change democracy into plutocracy succeeded under Reagan and have grown progressively more successful ever since
    – Low-to-no-cost labor is the foundation for capitalism’s success
    – Capitalism incorrectly assumes that the growth potential of planet earth’s economy is unlimited. Yet population growth, an existential threat, actually is.
    – Tax breaks are given to those with the most clout over tax laws – usually the biggest contributors to campaigns
    – Capitalism has no sense of right and wrong. Nothing matters but profits. Corruption is more often rewarded than penalized
    – Capitalism mindlessly concentrates on short-term goals rather than on survival and sustainability.

    Yet discussion of capitalism’s shortcomings is considered disloyal or treasonous. Built into this flawed system are elements of self-destruction that are ineluctable. We will fix them or be done in by them. If we continue to ignore them, we will only hasten what looks like inevitable economic collapse.

  19. The Brookings Institute is just another think tank working as the apologist for neoliberals.

    Basically,what the political and chattering want to know is why can’t the plebes be satisfied with the shitsandwich they’ve been handed?

    Neoliberals will not be happy until the invisible hand destroys everyone they feel beneath them–such as working-class folks. The neoliberals believe strongly that the working class must not just be demoralized, but be totally destroyed. Because markets!

    Btw,here’s an excellent article along the same lines..

  20. While the U.S. has lost 5 million manufacturing jobs since 2000, the net trade in goods with our NAFTA partners actually grew more favorably for the U.S. during the same period. Meanwhile our trade in goods deficit with China grew by $155b. (Just some facts)

    The problem is not trade agreements (particularly free trade) or automation. The problem is our failure to develop our work force in the face of inevitable globalization and technical change, and provide a safety net during transition and disruption.

    Trump, as we all know, is clueless.

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