By Jeff Ferry, CPA Research Director
A new CPA economic analysis estimates that for each $1 billion of additional imports into the U.S. costs the nation 4,552 jobs. On this basis, the rise in imports from 2009 to 2015 has meant the loss of over 3 million jobs.
There has been much public discussion of the impact of the trade deficit and imports on the U.S. economy. Some economists and manufacturing executives cite the contractionary impact of import competition and the loss of some five million manufacturing jobs in the past decade. Free market-oriented economists claim that under neoclassical general equilibrium theory, jobs lost to import competition should be replaced by jobs in other industries where the U.S. has a comparative advantage. However, recent work by MIT Professor David Autor and colleagues has demonstrated that the dislocation inflicted on workers in contracting industries by import competition can last for a decade or more, and result in lower incomes, greater employment instability, and increased use of federal disability benefits. While economists continue to disagree on the significance of trade deficits, there is growing recognition of their importance. The current view was cogently summarized in a recent article by economists Jared Bernstein and Dean Baker: “Trade deficits, even in times of strong growth, have negative, concentrated impacts on the quantity and quality of jobs in parts of the country where manufacturing employment diminishes.”
Using federal government data, it is possible to calculate the job cost of increased imports for the U.S. economy. This is not a historical calculation, but an indicative calculation of the costs at the present time. The U.S. International Trade Commission divides U.S. imports into eleven categories. (We ignore services in this analysis, because the U.S. enjoys a trade surplus in services.)
In general, imports are a straight substitute for domestic production. For example, for each dollar spent on a vehicle or a computer produced (or partially produced) in a foreign country, there is a domestic alternative. There are exceptions, such as minerals or agricultural goods that cannot be found in the U.S., but they represent a minority of import revenue. Certain luxury goods, for example Prada handbags, cannot be made in the U.S. as a large part of their value to consumers lies in their Italian origin. However, in its 2011 IPO prospectus, Prada noted that some 20% of its products are in fact made in Asia, so even this type of branded luxury product is increasingly open to manufacture anywhere in the world.
Using government data, we obtained recent GDP estimates associated with each of the ITC import categories. We then used Bureau of Labor Statistics data on U.S. employment in each sector to derive a figure for GDP per employee. This enables us to calculate how an additional $1 billion of import revenue would reduce the job count in each category. In general, U.S. manufacturing companies tend to reduce job numbers relatively rapidly in response to a decline in sales, so a linear relationship between revenue and job count makes sense. Elsewhere in the world, laws and regulations are designed to make it difficult for employers to cut jobs, but U.S. industry has few such hindrances.
The results are shown in Table 1. They indicate that for each $1 billion increase in imports, the economy loses 4,552 jobs. This is a very significant loss. As an illustration, between the beginning of the current economic recovery in 2009 and last year, goods imports increased by 44% or $693 billion, to total $2.27 trillion in 2015. That increase in imports translates to a loss of 3.15 million jobs, a large impact given that U.S. unemployment in November 2016 totaled 7.4 million people or 5% on the narrow (U-3) measure of unemployment. A large number of the employees who lost their jobs between 2009 and 2015 due to imports probably found work in alternative companies or industries. However, Professor Autor’s research has shown that if and when they get re-employed, those workers are often in lower-paid low-quality jobs. Furthermore, BLS employment data shows that the fastest-growing industries in recent years include service industries like health care and retail. Those sectors tend to pay lower wages than tradable goods sectors like manufacturing. And they do not feature strongly in U.S. exports, so they would not have contributed to offsetting positive forces for our trade balance, suggesting that the self-equilibrating mechanism for the trade balance is broken, at least in the case of the U.S.
Table 1 also shows that the job impact of imports varies across industries. Energy-related industries (mainly oil and gas production) show the highest labor productivity, so a $1 billion increase in imports would cause the loss of just 573 jobs. The textile and apparel industry shows the lowest productivity so a $1 billion increase in import revenue would displace 13,177 jobs. On the ITC breakdown of U.S. trade, electronic products is the largest single category, accounting for 18.7% of U.S. imports in 2014. Each $1 billion of additional electronics imports would cause the loss of 3,264 jobs.
Employment Decline: Automation or Imports?
In addition to its divisions over the self-equilibrating nature of trade deficits, the economics profession is also divided over whether the rapid decline in U.S. manufacturing employment is due to automation or imports. While manufacturing production has risen since 2000, distortions in the data, particularly in the computer and electronics industry exaggerate the growth in value of manufacturing production due to the difficulty of estimating values of offshored components. It is also clear that in the case of some industries, the virtually complete migration of the business to foreign locations can only be attributed to import competition. The dramatic decline in employment between 1990 and 2015 in footwear, furniture, and apparel seen in Table 2 is clearly attributable to import competition. According to a 2015 press release from an industry trade association, “97% of all clothes and 98% of all shoes sold in the United States” are imports. Including these sectors in a calculation of manufacturing productivity biases the figures upwards.
While most manufacturing sectors have seen an increased trade deficit over the past five, ten, or 20 years, the drivers of employment loss and increased trade deficit vary from industry to industry. Further study is needed to understand the dynamics behind production, employment and competitive advantage in U.S. industries.
Using U.S. government data, our analysis provides an indicative figure that each $1 billion of additional imports causes the loss of 4,552 U.S. jobs. It is highly credible that the rise in imports in recent years has cost the U.S. economy millions of jobs. Import competition has contributed strongly to employment loss in many industries. In others, there may be a wider range of drivers of employment loss.