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September 22nd, 2017

Insight

Making America 1953 again

George Will

By George Will

Published Dec. 29, 2016

It is axiomatic that if someone is sufficiently eager to disbelieve something, there is no Everest of evidence too large to be ignored. This explains today's revival of protectionism, which is a plan to make America great again by making it 1953 again.

This was when manufacturing's postwar share of the labor force peaked at about 30 percent. The decline that began then was not caused by manufactured imports from today's designated villain, China, which was a peasant society. Rather, the war-devastated economies of competitor nations were reviving. And, domestically, the age of highly technological manufacturing was dawning.

Since 1900, the portion of the American workforce in agriculture has declined from 40 percent to 2 percent. Output per remaining farmer and per acre has soared since millions of agricultural workers made the modernization trek from farms to more productive employment in city factories. Was this trek regrettable?

According to a Ball State University study, of the 5.6 million manufacturing jobs lost between 2000 and 2010, trade accounted for 13 percent of job losses and productivity improvements accounted for more than 85 percent: "Had we kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers (in 2010). Instead, we employed only 12.1 million." Is this regrettable? China, too, is shedding manufacturing jobs because of productivity improvements.

Douglas A. Irwin of Dartmouth College notes that Chinese imports may have cost almost 1 million manufacturing jobs in nearly a decade, but "the normal churn of U.S. labor markets results in roughly 1.7 million layoffs every month." He notes that there are more than 45 million Americans in poverty, "stretching every dollar they have." The apparel industry employs 135,000 Americans. Can one really justify tariffs that increase the price of clothing for the 45 million in order to save some of the 135,000 low-wage jobs? Anyway, if tariffs target apparel imports from China, imports will surge from other low-wage developing nations.

The Wall Street Journal's Greg Ip, who reports that there currently are 334,000 vacant manufacturing jobs, says that when Jimmy Carter tried to protect U.S. manufacturers by restricting imports of Japanese televisions, imports from South Korea and Taiwan increased. When those were restricted, Mexican and Singapore manufacturers benefited.

In his book "An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy," Marc Levinson recalls the 1970 agonies about Japanese bolts, nuts and screws. Under the 1974 Trade Act, companies or unions claiming "serious injury" - undefined by the law - from imports could demand tariffs to price the imports out of the market. Of the hundreds of U.S. bolt, nut and screw factories, some were, Levinson writes, "highly automated, others so old that gloved workers held individual bolts with tongs to heat them in a forge." A three-year 15 percent tariff enabled domestic producers to raise their prices, thereby raising the costs of many American manufacturers. By one estimate, each U.S. job "saved" cost $550,000 as the average bolt-nut-screw worker was earning $23,000 annually. And by the mid-1980s, inflation-adjusted sales of domestic makers were 15 percent below the 1979 level.



Levinson notes that Ronald Reagan imposed "voluntary restraints" on Japanese automobile exports, thereby creating 44,100 U.S. jobs. But the cost to consumers was $8.5 billion in higher prices, or $193,000 per job created, six times the average annual pay of a U.S. autoworker. And there were job losses in sectors of the economy into which the $8.5 billion of consumer spending could not flow. The Japanese responded by sending higher-end cars, from which they made higher profits, which they used to build North American assembly plants and to develop more expensive and profitable cars to compete with those of U.S. manufacturers.

In 2012, Barack Obama boasted that "over a thousand Americans are working today because we stopped a surge in Chinese tires." But this cost about $900,000 per job, paid by American purchasers of vehicles and tires. And the Peterson Institute for International Economics says that this money taken from consumers reduced their spending on other retail goods, bringing the net job loss from the job-saving tire tariffs to around 2,500. And this was before China imposed retaliatory duties on U.S. chicken parts, costing the U.S. industry $1 billion in sales. Imports of low-end tires from Thailand, Indonesia, Mexico and elsewhere largely replaced Chinese imports.

The past is prologue. The future probably will feature many more such self-defeating government interventions in the name of compassion as protectionist America tries to cower its way to being great again.

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