Many critics of free trade argue that globalization has led to the deindustrialization of the United States. In other words, trade is eroding our manufacturing base. Economists point to the fact that U.S. industrial production is close to the all-time high set in 2018, or that the manufacturing sector is far from the all-time high set in 2008 but still at very high levels of production. This argument is refuted by pointing out the fact that In fact, just last quarter, U.S. manufacturing produced $7.3 trillion worth of goods. This is far from the current state of manufacturing, which has been destroyed by international trade.
“But wait!” argues a wise protectionist. “We need to consider counterfactuals. Think about how much more sophisticated manufacturing would be without globalization.”
This objection is reasonable. Counterfactuals are always difficult to consider. By definition, counterfactuals do not exist, so we can never show empirically what a “proper” counterfactual is. Theory helps guide us, but we can also look at other evidence to suggest what the counterfactual is. If the manufacturing base is in decline, this should be reflected in the number of employees. After all, factories shouldn’t be hiring. It’s true that there will be supplementary recruitment, but that’s it. Job openings should be much lower than historical trends, and layoffs/layoffs should be quite high.
Looking at the number of employees, we see data that contradicts the “hollowing out” argument. The number of manufacturing jobs in August 2024 (the latest data at the time of writing) was 505,000. There are currently 500,000 manufacturing jobs available in the United States. This number is down from the post-pandemic rehiring surge, which saw 997,000 job openings, but still well above the pre-pandemic average of 293,000. U.S. manufacturers need workers, and demand is generally high. In a deindustrialized economy, the demand for manufacturing workers cannot be expected to increase.
Recruitment trends are also interesting. With the exception of two declines since the 2001 and 2008 recessions, job openings have generally been on the rise. The only exception other than a recession was 2018, when the Trump trade war began. Oddly enough…if free trade is deindustrializing and tariffs are deindustrializing, then we wouldn’t expect job openings to decline when tariffs go into effect.
Similarly, there are very few layoffs. In fact, since 2001, corporate layoffs have generally stabilized at very low levels. We don’t see mass layoffs (except during recessions). In fact, during the China Shock, the number of layoffs decreased rather than increased. If China was to blame for the decline in manufacturing during this period, we would have expected more layoffs. In fact, the decline in the number of layoffs suggests that the decline in manufacturing at the time was probably due in large part to attrition (people quitting, retiring, and not being replaced).
One last thing to note. Wages for manufacturing (production and non-supervisory) workers have generally increased faster than inflation, suggesting that real wages are rising. Again, if deindustrialization is reducing the demand for manufacturing workers, wages should fall, not rise.
When we take these employment statistics together, we can see that a counterfactual emerges. US manufacturing production has plateaued, yes. But it’s not because of trade. It seems to be made even more so by the fact that businesses can’t hire. They want employees, they need employees, they’re willing to pay for employees, but (for whatever reason) they can’t get employees. The data do not show which countries are being hollowed out. This shows that the economy is still industrialized but faces some constraints. Rather than imposing further constraints on U.S. manufacturing through tariffs, Buy American, and other restrictions, policymakers should explore why manufacturing jobs are so hard to fill.
In other words, protectionism does not lead to industrialization or the hollowing out of bases. It will bring about deindustrialization and an industrialized base. And it’s all because they have the wrong counterfactual.
John Murphy is an assistant professor of economics at Nicholls State University.
