EPI: The Trade Deficit is Responsible for Manufacturing Job Loss

August 25, 2015


Growing trade deficits and the collapse of manufacturing output following the Great Recession are directly responsible for the loss of 5 million U.S. manufacturing jobs that occurred between 2000 and 2014.

[Reposted from the EPI blog  |  Will Kimball and Susan Balding |  August 19, 2015]

As the figure below shows, manufacturing started rapidly declining in 2000, just as the U.S. manufacturing trade deficit began to rise sharply. A rising trade deficit indicates that U.S. manufacturers are losing business to manufacturing industries in other countries like China and Japan, who manipulate their currency to make their goods cheaper and therefore more appealing to consumers in the United States and elsewhere. This leads to reduced demand for goods produced by U.S. manufacturers, both at home and abroad.


Between 2000 and 2007, growing trade deficits in manufactured goods led to a loss of 2.6 million manufacturing jobs. When the Great Recession hit and consumers pulled back on their spending, the collapse in demand for U.S. manufactured goods caused a loss of 2.3 million additional manufacturing jobs. While in the past the manufacturing industry has typically regained most if not all jobs lost during a recession, manufacturing employment after the Great Recession has experienced an anemic recovery—only 900,000 of the 2.3 million jobs lost have been recovered since 2009. This is because the manufacturing trade deficit has skyrocketed since 2009 as a result of the rapid growth of imports from China and other currency manipulators. The manufacturing trade deficit grew from $319.5 billion in 2009 to $514.6 billion in 2014—very close to its pre-recession peak of $558.5 billion in 2006.

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  • The cost to manufacture goods in China is one-third to one-tenth the cost to produce those same goods here. People who say, “Well, labor is only 15% of the cost” don’t know what they are talking about. What are the other elements of cost? Material, overhead, energy, compliance — China has a huge advantage in all of these, especially compliance because there is no such thing in China. Material is produced by cheap labor. Overhead is impacted by cheap construction costs, and cheap salaries of engineers and managers. The labor to produce energy is also cheap.

    When people say that “currency manipulation” is the reason for our trade deficit, it sounds like something that can be fixed. If the Chinese are undervaluing their currency by 35% as has been suggested, it wouldn’t make any significant difference. When their cost is one-third to one-tenth of our cost, currency manipulation is simply a pimple on the rear end of the elephant that is destroying our economy.

    The only way to get back our manufacturing jobs is to force “Balanced Trade” as proposed by Warren Buffett in 2003. You can Google “Balanced Trade,” and you must if you want to understand this issue.