Robert E. Scott, EPI’s Director of Trade and Manufacturing Policy Research, served as a panelist at “What Future for Jobs and Manufacturing,” an event held at the University of California, Berkeley last week. Scott’s presentation, along with his notes, are below:

1. The U.S. lost 6.1 million manufacturing jobs between March 1998 and Jan. 2010, the nadir for manufacturing employment in the Great Recession (Figure A). Over the past 21 months, 500,000 manufacturing jobs have been recovered due to the recovery of net demand domestic for manufactured products. The great bulk of the jobs lost (4 million of the net decline of 5.6 million) disappeared between March 1998 and Dec. 2007, the last business cycle peak.
2. Despite widespread claims to the contrary, productivity growth was responsible for only a small share of the manufacturing jobs lost since 1998. The U.S. maintained roughly stable manufacturing employment between 1970 and 1998 despite high manufacturing productivity growth (Figure A). Rapidly growing demand for domestic manufactured goods offset the effects of rapid productivity growth in that period. Between 1990 and 2000, labor productivity growth in manufacturing averaged 4.1 percent per year, but manufacturing value added (VA) grew 4.2 percent per year (Figure B), and employment was roughly constant. Manufacturing productivity growth declined slightly after 2000, but the growth of real VA in manufacturing (demand for domestically manufactured products) fell dramatically to only 1.7 percent per year from 2000 to 2011.
3. The U.S. trade deficit in manufactured goods increased dramatically, especially after 1998 (the year after the Asian financial crisis), when U.S. manufacturing employment reached its last peak. The manufacturing trade deficit reach a peak of $559 billion (4.2 percent of GDP) in 2006, declined sharply in the recession, and increased again, to $449 billion (3.0 percent of GDP) in 2011. The growth of net manufactured imports reduced demand for domestic manufactures over the past two decades. The growth of the trade deficit in manufactured goods since 2009, in particular, shows that trade has been a net drag on the manufacturing sector during the recovery.
4. The growth in the trade deficit over the past two decades is responsible for the vast bulk of all manufacturing jobs displaced in that period. Between 2001 and 2011 alone, the growth of the trade deficit with China was responsible for the loss of 2.7 million U.S. jobs, and 2.1 million of those jobs (76.9 percent) were in manufacturing. Also, U.S. and foreign multinational companies are responsible for the vast bulk of the overall U.S. goods trade deficit (78 percent in 2009).
5. Conversely, elimination of the U.S. trade deficit in manufactured goods could recover most or all of the lost market share and employment in U.S. manufacturing. Between 2000 and 2011, as the growth of real VA in manufacturing slowed, the manufacturing share of U.S. GDP fell to 12.6 percent ($1.7 trillion), (black line in Figure D). If manufacturing VA had grown at 4.2 percent per year, as it did between 1990 and 2000, rather than the 1.7 percent rate experienced since then, manufacturing value added would have reached 16.5 percent of GDP ($2.2 trillion) in 2011 (red line in Figure D). This would create millions of U.S. manufacturing jobs, stimulating the economy and helping to end the current jobless recovery. Eliminating the trade deficit (green line in Figure D) would eliminate nearly three-fourths of this “VA gap” in 2011. As the U.S. and global economies recover, the potential demand for U.S. manufactured goods will grow, further shrinking or eliminating the U.S. VA and manufacturing employment gaps. Eliminating global currency manipulation is the most important policy needed to reduce U.S. and global trade imbalances.  The shortage of demand for domestic manufactures is the most important barrier to the recovery of U.S. manufacturing output and employment. Greatly enhanced U.S. workforce and industrial policies are also needed to help rebuild U.S. manufacturing capacity and output.