Panelists Ask Why Protectionism Has Increased
Panelists discussing the rise of protectionism in the U.S. disagreed on whether the decline in manufacturing jobs in the aughts was primarily due to trade, and whether a decline in manufacturing is something to be concerned about at all.
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Another panelist said his research has found that South Korea, often lauded as a country that used industrial policy to become developed, grew faster in the times when it intervened less to encourage heavy manufacturing.
The title of the Cato Institute event Oct. 6 was on resisting the tide of protectionism, but panelists didn't have specific recommendations for how to convince politicians to turn away from protectionism. Adam Posen, president of the Peterson Institute for International Economics, scolded both President Joe Biden and President Donald Trump for being seduced by the "macho" image of manufacturing. "Donald Trump and [former USTR] Robert Lighthizer never met a service export they cared about," he said, as all their focus was on "something you can drop on your feet."
Posen argued this is merely nostalgia, and showed that manufacturing employment declined at the same rate in Japan and Germany as it did in the U.S., even while they were running huge manufacturing surpluses. He said that the industrial heartland of Germany lost more manufacturing jobs than Ohio did.
Susan Houseman, vice president and director of research at the Upjohn Institute, disagreed, saying that manufacturing losses do matter, in several regards. She said economic research has shown that as less manufacturing is done here, there is less innovation and lower levels of patent applications. She said that the manufacturing employment collapse in the early 2000s "was economically and politically destabilizing." She noted that manufacturing jobs declined by 20% between 2000 and 2007, and that when you back out semiconductors and computer manufacturing, it's clear it's not from rising productivity (i.e., automation).
Instead, she said, the strong dollar, multinational offshoring of production and a surge of imports from China, supported by its currency manipulation, made U.S. manufacturers less competitive.
"We should take it as no surprise that there has been a political backlash ... against free trade," she said. She said that supply chain disruptions during the pandemic only reinforced protectionist instincts.
"Trade expansion generally is beneficial, on net, for the country and we also have to recognize, it’s not always," she said.
"There have been times when there was significant loss of U.S. comparative advantage. What we need to do is consider an optimal policy when our trading partners are behaving as mercantilists."
Posen agreed that China's currency manipulation should have been addressed that decade, and said PIIE took both the George W. Bush and Obama administrations to task for not pushing back forcefully against the "scale and the duration of Chinese currency manipulation."
But now that the jobs are gone, he doesn't think there's an effective way to bring them back, as he believes industrial policy is too likely to become captive to lobbying and political rather than economic considerations.
He said displaced workers can find new jobs, but he said if there was a better child care policy, it would make it more feasible for people to move out of dying towns, since they wouldn't have to rely on extended family to watch their kids.
He also said the U.S. could do more effective retraining for in-demand jobs, but needs to spend more and follow lessons of countries that do it better.