Many critics of free trade argue that globalization has caused the US to become deindustrialized; That is, trade is eroding our industrial base. Economists refute this claim by pointing out the fact that US industrial production is near 2018 record levels or that the production component, while off 2008 highs, is still at a very high production level. Last quarter, the US manufacturing sector even produced $7.3 trillion in goods. This is hardly the picture of a manufacturing sector gutted by international trade.
“But wait!” the clever protectionist claims. “We have to take into account the counterfactual scenario. Just think how much higher production would be if globalization hadn’t happened!”
This objection is reasonable. Counterfactuals are always difficult to consider. By definition, the counterfactual situation does not exist, so we can never empirically prove what the ‘real’ counterfactual situation is. Theory helps guide us, but we can also look to other evidence to suggest what the counterfactual is. If we were to experience a declining industrial base, this should be reflected in the employment numbers. After all, factories shouldn’t have to hire employees; they would certainly make replacement hires, but that’s about it. Vacancies should be fairly low compared to historical trends, and layoffs/layoffs should be fairly high.
When we look at employment figures, we see that data is inconsistent with the ‘deindustrialization’ argument. Manufacturing vacancies in August 2024 (latest data at time of writing) were 505,000. There are currently half a million job openings in the US for manufacturing jobs. That’s less than the post-pandemic jump in hiring, when there were 997,000 open positions, but well above the pre-pandemic average of 293,000. US manufacturers need workers and demand is generally high. You wouldn’t expect this in a deindustrializing economy increasing demand for production workers.
The trend in vacancies is also interesting. Apart from two declines from the 2001 and 2008 recessions, the trend in job vacancies is generally to rise. The only exception without a recession is in 2018, when Trump’s trade war began. Strange that… if free trade were to deindustrialize and tariffs were to industrialize, you wouldn’t expect the number of job openings to drop if the tariffs went into effect.
The number of layoffs is also very low. Since 2001, corporate layoffs have generally remained stable at very low levels. We are not seeing massive layoffs (barring recessions). During the ‘China Shock’ the number of people were laid off fellnot rose. If the decline in production during this period was due to China, we would have expected layoffs to increase. A declining number of layoffs indicates that the decline in production at the time was likely largely due to attrition (people quitting/retiring and not being replaced).
One final note: Wages for manufacturing (manufacturing and non-supervisory) workers have generally risen faster than inflation, indicating that real wages have been rising. Again, if demand for manufacturing workers were to fall as a result of deindustrialization, we should see wages fall instead of rise.
If we add these employment figures together, we can begin to see a counterfactual scenario emerge. US industrial production has hit a ceiling, yes. But it’s not because of trade. It seems more due to companies not being able to hire people! They want employees, they need employees, they are willing to pay for employees but cannot get them (for whatever reason). The data does not show that this is a deindustrializing country. It shows that the economy is still industrialized, but faces some limitations. Rather than burdening American manufacturing with more restrictions through tariffs, Buy American and other restrictions, policymakers should examine why manufacturing jobs are difficult to fill.
In short, protectionism will not industrialize and deindustrialize the base. It will deindustrialize and industrialize the base. And all because they have the wrong counterfactuals.
Jon Murphy is an assistant professor of economics at Nicholls State University.