Feb 18, 2015 - 9:00am

The Open Door of Trade: Agreements and American Manufacturing


Senior Vice President for International Policy

Part 4 in an occasional series

Previously: Trade Agreements and American Jobs

What are the benefits of America’s free trade agreement (FTAs)? With debate over the renewal of Trade Promotion Authority (TPA) now underway in Washington, the Chamber is publishing this series of blog posts examining the benefits of the trade agreements that TPA makes possible. Here is the full report on the benefits of America’s free trade agreements.
 
U.S. manufacturers have been among the principal beneficiaries of America’s FTAs. Again, the broad historical context is important to this assessment.
 
Looking at value-added in manufacturing — an approach that avoids the double counting that can otherwise result along manufacturing supply chains — U.S. manufacturing value-added rose by 58% between 1993 and 2013 in real terms, according to the U.S. Department of Commerce. This represents the continuation of a long trend: U.S. manufacturing value-added has grown eightfold since 1947 in real terms.
 
Contrary to popular misconception, the U.S. share of world manufacturing output, on a value-added basis, has remained fairly steady at approximately 20% for about four decades. American manufacturers were hammered by the painful 2007–2009 recession and a steep fall in demand. But throughout the preceding two decades, U.S. manufacturers set new records for output, revenues, profits, profit rates, and return on investment.
 
The same can’t be said of factory jobs. According to the Bureau of Labor Statistics, U.S. manufacturers employed 16.8 million workers when NAFTA entered into force in January 1994, a figure that then rose over the next four years to top 17.6 million in 1998. Sharp job losses in U.S. manufacturing in the recessions of 2001–2002 and 2007–2009 brought the number of Americans employed in manufacturing to a new low of 11.4 million in early 2010. Manufacturing employment rose to approximately 12 million by the end of 2014.
 
Where have the lost manufacturing jobs gone? Not to Mexico — or China. Survey data from the federal government consistently show that less than 1% of layoffs is attributable to offshoring. Further, a RAND study found that China shed 25 million manufacturing jobs between 1994 and 2004, 10 times more than the United States lost in the same period.
 
Rather, most of these jobs have been lost to a country called “productivity.” Technological change, automation, and widespread use of information technologies have enabled firms to boost output even as some have cut payrolls.
 
This productivity revolution is a complex phenomenon. Critics of FTAs are correct when they say that manufacturing employment hit a peak and then began a steady decline. However, the peak was in 1979, long before the United States negotiated its first FTAs.
 
More recently, U.S. manufacturers have enjoyed steady growth, aided by the expansion in U.S.exports to FTA partner markets. Consumers and businesses in those 20 countries purchased $658 billion of U.S. manufactured goods in 2013 — a sum representing nearly 48% of all the exports produced by the 12 million Americans employed in manufacturing.
 
Do the math, and you’ll find FTA markets generate export revenue of $54,800 for each American factory worker. Compare this with the average annual earnings — including pay and benefits — of an American manufacturing worker: $77,506. How could manufacturers make their payrolls without the revenues they earn by exporting to FTA markets? The short answer is, they couldn’t.
 
The principal rationale for FTAs is to unleash new flows of mutually beneficial trade between Americans and the citizens of these 20 countries — and do so in a way that is fundamentally fair. With regard to American manufacturing, and other sectors, these FTAs have been a big success for the United States.
 

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.