In his campaign for the Democratic presidential nomination, Pete Buttigieg has been telling audiences that the U.S. lost six times as many jobs due to automation than trade from 2000 to 2010, according to The Washington Post. This is literally true, but for all practical purposes it is a very big lie.
The way in which it is true is that we always lose jobs to “automation,” which is known to economists as productivity growth. Productivity growth averages around 2 percent annually (it has been closer to 1 percent since 2005). If productivity grows by 2 percent, this means that we can produce the same amount of goods and services with 2 percent fewer worker hours.
This is usually thought to be good news. Productivity growth theoretically should allow workers to enjoy higher living standards, although most workers have not gotten their share of gains over the last four decades. If productivity increases by 2 percent, it means that workers can get a 2 percent increase in their weekly pay or work 2 percent fewer hours for the same pay, or some mix of higher pay and shorter hours.
In the years from 2000 to 2007, the United States lost 3.4 million manufacturing jobs, more than 20 percent of the total. Note that this is before the Great Recession. This job loss was due to the explosion of the trade deficit in these years, which peaked at just under 6 percent of GDP in 2006 and 2007. (This would be equal to a trade deficit of $1.2 trillion in today’s economy.)
While manufacturing has been declining as a share of total employment since 1970, there was actually relatively little change in the number of jobs in manufacturing over the three decades from 1970 to 2000. There were cyclical ups and downs, but increased demand for manufactured goods roughly offset the increases in productivity growth to keep manufacturing employment nearly constant.
This changed in 2000, as the admission of China to the World Trade Organization, coupled with a seriously overvalued dollar, led the trade deficit to explode even as the economy was slowing. From 2000 to 2007, imports from China and other countries displaced domestically produced goods, leading to massive job loss in places like Michigan, Ohio, Pennsylvania and Wisconsin.
The loss of relatively high-paying manufacturing jobs devastated whole communities, as many lost their major employer, with nothing to replace it. This devastation is seen even more clearly if we look at what happened to the number of unionized jobs in manufacturing over these years.
The number of manufacturing workers represented by a union fell by more than 1.1 million from 2000 to 2007, almost 40 percent of the total. These were the better-paying jobs that typically allowed workers to enjoy a comfortable middle-class lifestyle.
Buttigieg’s efforts to trivialize this job loss by making the comparison to the jobs lost to automation would be like telling the Nebraska farmers that the recent flooding was no big deal, since the rains that caused the flooding were just a small fraction of the total rainfall in a year. That’s a true statement but entirely irrelevant to the damage caused by the flooding.
While automation is (wrongly) seen as a sort of natural outcome of the progress of technology, trade is explicitly steered by government policy through trade deals.
Specifically, the U.S. signed trade deals that opened domestic manufacturing workers to direct competition with low-paid Chinese workers. At the same time, we ensured that doctors and other highly paid professionals were protected from such competition.
Furthermore, when China and other countries deliberately propped up the dollar against their currencies to gain an advantage in trade, the U.S. government looked the other way. As Eswar Prasad, who was then the chief International Monetary Fund official dealing with China said, “There were other dimensions of China’s economic policies that were seen as more important to U.S. economic and business interests, … [such as] greater market access, better intellectual property rights protection, easier access to investment opportunities, etc.”
In other words, the loss of millions of manufacturing jobs to imports was an explicit political choice, because our leaders decided it was more important to promote investment opportunities in China for Goldman Sachs and to increase protection for Pfizer’s drug patents.
We can’t reverse this disaster. Even if the trade deficit were to fall, the new jobs in manufacturing would not pay as much as the ones that were lost and probably would not be in the same places. But, at the very least, we should be able to talk honestly about what happened and why. Instead, Buttigieg seems intent on going the route of denial.