This chartbook shows that the loss of manufacturing jobs has been particularly devastating for Black and Hispanic workers and other workers of color, who represent a disproportionate share of those without a college degree, and for whom discrimination has limited access to better-paying jobs. It calls for creating millions of good jobs for workers at every level of education by investing in infrastructure and rebalancing trade. When implemented with clearly defined racial and gender equity goals, these investments can help raise living standards for men and women workers of color without a college degree.

This chartbook comes at a crucial time. The bipartisan infrastructure bill signed into law in November, the Infrastructure Investment and Jobs Act (IIJA), invests about $550 billion in new federal funding for roads and bridges, railways, broadband, and other infrastructure. And an even larger social safety net and climate change bill awaiting a vote in the Senate—the Build Back Better Act (BBBA)—would invest roughly $2 trillion in child care, long-term care, universal pre-K, renewable energy, electric cars, and other human and climate infrastructure. But although these job-creating investments are welcome, they constitute just a down payment on a much larger agenda of investments needed over the coming decades to rebuild the American economy and complete the conversion to a zero-carbon, clean-energy future by 2050. And the current investments are already at risk: If steps are not taken to rebalance trade so that more of the goods consumed in the United States are made domestically, much of the new spending and new jobs will leak away to foreign suppliers. The threat is real: We continue as a country to import more than we export, and the surging imports mean that the reported U.S. trade deficit in manufactured goods for 2021 is likely to exceed $1.1 trillion.

Following are some key data points in the chartbook:

• Nearly 7 million jobs would be supported by a four-year, $2 trillion infrastructure and climate change investment program combined with trade and industrial policies that dramatically boost U.S. exports and eliminate the U.S. trade deficit. This includes at least three million good jobs (with high wages and benefits) in manufacturing and construction. If implemented with policies to help ensure that workers of color and women can access these jobs, this program would help reduce racial and gender inequities in the job market.
• Rebalancing trade, investing in infrastructure, and addressing climate change would help rebalance the economy back from lower-paying service- sector jobs to higher-paying jobs in manufacturing and construction. Essentially all of the net new jobs created in the economy over the last two decades were in services. In contrast, 45.7% of jobs supported by investing in climate and infrastructure and 40.8% of the jobs supported by rebalancing trade would be in manufacturing and construction.
• Supporting new manufacturing jobs is important for Black workers, who have been particularly hard hit by globalization and the decline in manufacturing employment. While Black workers’ share of total employment increased from 11.3% to 12.3% between 1998 and 2020, their share of manufacturing employment was essentially unchanged. Meanwhile, they experienced the loss of 646,500 good manufacturing jobs during that time period, a 30.4% decline in total Black manufacturing employment as part of the overall loss of more than 5 million manufacturing jobs between 1998 and 2020.
• Black, Hispanic, Asian American/Pacific Islander (AAPI), and white workers without a college degree all earn substantially more in manufacturing than in nonmanufacturing industries. For median-wage, non-college-educated employees, Black workers in manufacturing earn $5,000 more per year (17.9% more) than in nonmanufacturing industries; Hispanic workers earn $4,800 more per year (+17.8%); AAPI workers earn $4,000 more per year (+14.3%); and white workers earn $10,100 more per year (+29.0%). Manufacturing wage premiums are also substantially larger for all workers at the 10th percentile of the wage distribution.
• Surging imports from China and the resulting growing trade deficit with China have had a key role in manufacturing job loss. Reducing that deficit is critical to bringing jobs back. Between 2001, when China entered the World Trade Organization, and 2018, the growing bilateral trade deficit displaced 3.7 million U.S. jobs, including 2.8 million jobs in manufacturing.
• Historically, growing trade deficits have displaced a disproportionately large number of good jobs for workers of color. Between 2001 and 2011 alone, the growth of the trade deficit with China displaced 958,800 jobs held by workers of color—representing 35.0% of total jobs displaced by the growing trade deficit with China. About three-fourths of jobs displaced were manufacturing jobs, which feature high pay and excellent benefits.
• Growing trade deficits have hit workers of color in the pocketbook. In 2011 alone, workers of color displaced from higher-earning jobs in manufacturing and other traded industries into lower-earning jobs in nontraded industries earned $10,485 less in annual wages because of the growing trade deficit with China. This trade-related average annual wage loss per worker translates into a total loss of $10.4 billion per year for the 958,800 workers of color affected by growing trade deficits with China.

Policymakers should heed the data on globalization’s impact and boost investment and rebalance trade

As the charts in this chartbook show, investments in infrastructure, domestic manufacturing capacity, and addressing climate change would create millions of good jobs for workers who have been hardest hit by globalization and the shift toward more low-wage service-sector jobs. The jobs created through these investments would offer better pay and benefits than average service industry jobs, with the potential to improve living standards for a broad group of racially and ethnically diverse, non-college-educated women and men.

At this writing, physical and human infrastructure investments approved or under debate in 2021, while welcome, are down payments on a much larger agenda of investments needed to rebuild the American economy and complete the conversion to a zero-carbon, clean-energy future by 2050. The job of rebuilding the American economy will not be completed in the first year of the Biden administration.

Policymakers must implement smart trade and industrial policies to maximize the jobs and benefits created by the current investments in infrastructure and clean energy and significantly boost those investments to match the scale of the need. These policies include aggressive and expanded use of Buy America programs, which should be applied to as much of new investments as possible. And any investments must be accompanied by substantial investments in research and development, training, and extension services, which will increase the supply of skilled workers for these good jobs and the competitiveness of U.S. manufacturing and construction industries.

These recommendations align with the Alliance for American Manufacturing’s American Manufacturing Plan, a plan calling for measures to increase domestic competitiveness, improve trade enforcement and trade agreements, and carefully shift the value of the dollar so that U.S. goods are competitive (Paul 2020). The recommendations also would operationalize the EPI policy agenda for trade, which states that we should “restore and protect American manufacturing by using policy levers to ensure that American manufacturers’ ability to compete on global markets is not hamstrung by a chronically overvalued dollar, as it has been for decades” (Economic Policy Institute 2018). Ways to realign the dollar and rebalance U.S. trade and capital flows are explained by Scott (2020a, 2020b).

This report shows the employment impact of infrastructure investments at the scale of the need combined with smart trade policies designed to eliminate the U.S. goods trade deficit with the rest of the world. Specifically, we illustrate the employment impacts of investing roughly $500 billion per year in climate and infrastructure over four years (as originally proposed by President Biden during his 2020 election campaign) and eliminating the U.S. goods trade deficit of $854.3 billion (which was projected to likely reach $1.1 trillion in 2021 according to the U.S Census Bureau (2021b)), which would dramatically increase demand for American-made manufactured goods. We draw on Scott, Mokhiber, and Perez (2020), which showed that these investments, and the increased spending on domestic goods, could support at least 6.9 million jobs over four years, including at least three million good direct and indirect jobs in manufacturing and construction. Rebalancing U.S. trade alone could support 3.5 million of those 6.9 million jobs, including 1.4 million good jobs in manufacturing and 44,000 good jobs in construction.

The investments called for are scaled to the need. Every four years, the American Society of Civil Engineers (ASCE) estimates the investment needed in each infrastructure category to maintain a state of good repair and earn a B grade. ASCE’s 2021 Infrastructure Report Card estimates that the U.S. infrastructure investment gap—how much less the U.S. will invest in its infrastructure than it needs to over the next decade—is $2.59 trillion (ASCE 2021). Since the recently enacted IIJA includes only $548 billion in new funding for both infrastructure and climate investments, and the bulk of the investments in the proposed Build Back Better Act (included in the reconciliation bill still being considered at this date) are for safety net and climate expenditures, with relative small and still-indeterminant amounts for infrastructure, it is clear that there will be substantial infrastructure needs remaining to be addressed during the balance of President Biden’s first term. Furthermore, even if President Biden’s full $6 trillion proposal to upgrade America’s physical and social infrastructure, first unveiled in June 2021, were eventually fully funded, much more is needed to meet our infrastructure needs and fully fund the transition to a zero-carbon economy over next 30 years (Tankersley 2021).

Future research should focus on women’s access to manufacturing and construction jobs

As the charts in this chartbook show, manufacturing and construction offer good jobs for women, but women make up a smaller share of total employment in these two industries (29.2% and 10.6%, respectively) than men. Women hold a disproportionately large (56.4%) share of service industry jobs—a notoriously low-paying sector—despite being less than half (48.8%) of the overall workforce (EPI 2021a). Women employed in manufacturing earn $183 more per week (22.2%) than women employed in service industries, on average, and women manufacturing workers earn much more than women workers in rapidly growing service industry subsectors such as restaurants and retail trade, where average weekly earnings are much lower than the overall average for service industries. (Data on average weekly earnings for all workers by industry are reported in Appendix Table 1.) Future research should explore ways in which public policies can help expand employment opportunities for women in high-wage manufacturing and construction industries. Boosting women workers’ share of higher-paying jobs would help close the persistent gender pay gap. Despite some narrowing of the gap, women workers overall are paid a lot less than men with comparable backgrounds. The regression-adjusted wage gap was 22.6% in 2019 (down slightly from 23.9% in 2000), meaning women were making 22.6% less than men with comparable backgrounds (that is, adjusting for differences in education, age, and region) (Gould 2020, Appendix Table 1). 

A quick note about the data and definitions

The data in the charts and tables in this report are drawn from a number of sources, and specific sources are provided for each chart and table. This note provides a general introduction to the data and time periods covered in this analysis. For the broad overview of trends in employment, trade, and compensation by major industry, we use detailed historical data on employment by industry for 1998 to 2019 obtained from the Bureau of Labor Statistics Employment Projections program (BLS-EP 2020). These data were supplemented with monthly data from the BLS’s Current Employment Statistics (BLS-CES various years). Data on overall compensation, including wages and benefits shown in Chart 3, are from the BLS’s Employer Cost for Employee Compensation series (BLS 2021a).

All of the data in this report refer to the number of workers employed (that is, people with a job), so estimates of total employment are a measure of the total workforce. Workforce measures (as used here) are distinct from estimates of the domestic “labor force,” which are derived from the monthly household (CPS) surveys of employment, unemployment, and labor force participation rates. To provide a more comprehensive look at the economy, we did not restrict the sample to only those who are working full time.   

We use industry-based definitions of employment in this study to break the economy into three basic types of jobs: construction, manufacturing, and services. These sectors are responsible for the vast majority (99.2% in 2019) of total nonfarm employment (estimated from Appendix Table 1 at the end of the report) in the United States, and for an even larger (99.8%) share of net job creation or destruction over the 1998–2019 period in the nonfarm economy (also derived from Appendix Table 1). In 2019, the construction industry employed about 7.5 million workers, or about 4.9% of total nonfarm employment of 151.7 million.  While the number of construction workers has increased slightly over the past two decades (as shown in Appendix Table 1), the number and share of manufacturing workers has fallen steadily for the past two decades (Table 2 and Chart 2), to 12.8 million workers in 2019, or 8.5% of total nonfarm employment. The vast majority of all jobs in the economy are then included in the service industries, which employed 130.1 million workers in 2019, or 85.8% of total nonfarm employment. The service sector encompasses a broad set of industries ranging from very low-wage sectors such as retail trade, restaurants, and other segments of the hospitality industry—sectors dominated by minimum wage labor—to high-wage sectors dominated by professionals such as law, accounting, and financial services. But even large, relatively skill-intensive sectors such as health care include vast numbers of workers with less than a college degree (roughly half of total employment in this industry), and these health care workers have average earnings of less than $800 per week. 

Data on average hourly wages and average weekly hours by industry, and head counts for different demographic and ethnic groups—shown in Charts 4 and 13 and Tables 1 through 3—were based on a pooled four-year sample of Current Population Survey (CPS) data covering the years 2017 to 2020 from EPI Microdata Extracts (EPI 2021a). Estimates of average hourly wages in real 2020 dollars (wages only, not including benefits), average weekly hours by industry, and head counts by demographic group were used to compute average weekly earnings. Those data were used to compare average weekly earnings by industry and demographic group in Charts 12 and 15, and Tables 1,2, and 3. Average weekly earnings in construction and manufacturing are higher than in the service industry both because hourly wages are higher and because workers in these industries are employed for more hours per week. Separately, benefits are substantially higher in manufacturing and construction than in services, as shown in Chart 3.

Broad estimates of annual earnings of manufacturing and nonmanufacturing workers by race and ethnicity, shown in Charts 6 and 7, were estimated using the March CPS Annual Earnings estimates file (also known as the Merged Outgoing Rotation Groups or CPS ORG), using a data set compiled by Flood et al. (2021).  Estimates of union wage premiums in Chart 9 also use CPS ORG data but from EPI’s Current Population Survey Extracts (EPI 2021a), while benefit coverage for all workers in manufacturing, construction, and service industries, shown in Charts 10 and 11, were estimated with CPS Annual Social and Economic Supplement (SEC) data compiled by EPI (U.S. Census Bureau CPS-ASEC 2021).

Data on average weekly earnings by industry were combined with estimates of jobs supported by investments in infrastructure and clean energy and by rebalancing trade (Scott, Mokhiber, and Perez 2020) to estimate the average weekly earnings by race and ethnicity associated with these investments shown in Chart 15. The distribution of jobs supported by climate and infrastructure investments and by rebalancing trade are shown in Chart 14.

The demographic groups and breakdowns shown in these charts are broadly inclusive. They cover four major racial and ethnic categories: White, Black, Hispanic (to include Latina, Latino, Latine, and/or LatinX workers), and Asian American/Pacific Islander (abbreviated AAPI, which include indigenous and other Pacific Islanders) workers. These breakdowns are based on the EPI (2021b) Current Population Survey Extracts race/ethnicity variables, drawn from the CPS “wbhao” variable (white, Black, Hispanic, AAPI and other variable). (Results for “other” workers, who make up 1% of the sample, were excluded from these charts because of the small sample size, because this group includes workers from a wide variety of racial and ethnic backgrounds that do not self-identify as white, Black, Hispanic, or AAPI, and because of the high variability and low reliability of the results.)

As trade deficit soared past $1 trillion, the U.S. lost more than five million manufacturing jobs: Manufactured goods trade deficit (billions$) and manufacturing employment (millions), 1998–2021

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From 1998 to 2021, the U.S. lost more than 5 million manufacturing jobs thanks to the growing trade deficit in manufactured goods with China, Japan, Mexico, the European Union, and other countries. Not shown in the chart are the loss of more than 70,000 manufacturing plants over roughly the same period (1998 to 2019). Mismanaged global competition led to rapidly growing imports of manufactured products and the failure to grow foreign demand for U.S. products enough to offset the declining demand for domestic goods. The resulting job losses devastated local economies and workers in the industrial heartlands. The exploding trade deficit is the result of unfair trade practices (by China, South Korea, the European Union, and other foreign governments) and substantial overvaluation of the U.S. dollar, which makes U.S. goods more expensive than our competitors’ products. The dollar needs to fall about 25% to 30% to rebalance trade and rebuild U.S. manufacturing.

Data on plant losses come from Scott 2020c and U.S. Census Bureau 2021a. For more on the causes of growing trade deficits, see Scott, Mokhiber, and Perez 2020; Scott 2020a; and Scott 2020b. See Supplemental chart notes at the end of the charts for more details on the data.

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As manufacturing lost about five million jobs in two decades, the low-wage service sector gained almost 30 million jobs: Change in U.S. employment overall and for construction, manufacturing, and service industries (millions), 1998–2019

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The elimination of nearly five million manufacturing jobs between 1998 and 2019 was accompanied by explosive job growth in service industries—growth that accounted for all U.S. employment growth in the nonfarm economy in this period. Most of the manufacturing jobs were shed between 1998 and 2007, the so-called China Shock period shortly after China entered the World Trade Organization and imports from China grew most rapidly. However, manufacturing job losses continued in the wake of the Great Recession (2007–2019). Meanwhile, jobs increased slightly in construction, a sector that, like manufacturing, has historically offered higher wages to non-college-educated workers than has the service sector.

Prior EPI research has shown that growing trade deficits with China displaced a disproportionately large number of good jobs for workers of color. Between 2001 and 2011 alone, the growth of the trade deficit with China displaced 958,800 jobs held by workers of color—representing 35.0% of total jobs displaced by the growing trade deficit with China. About three-fourths of jobs displaced were manufacturing jobs, which feature high pay and excellent benefits. As a result, in 2011 alone, those 958,800 workers of color displaced from higher-earning jobs in manufacturing and other traded industries into lower-earning jobs in nontraded industries earned $10,485 less in annual wages, which translates into a total loss of $10.1 billion per year.

Also not shown in the graph, the big shift toward service-sector jobs lowered average wages for all workers without a four-year college degree. First there is the composition effect; as the share of lower-wage service-sector work in the U.S. labor market increases, the average wage overall falls. In addition, growing competition with low-wage workers in countries such as China and Mexico also pulled down wages not just in manufacturing but for all workers with a similar skill set. As a result, earnings fall not only for manufacturing workers but for all workers without a college degree—by nearly $2,000 per year, according to one estimate. This wage suppression affected essentially all 100 million non-college-educated workers in the U.S. labor force in this period. As wages for workers without college degrees fall, the gap between their pay and the pay of college-educated workers grows. The college wage premium measures what college-educated workers make relative to those without a college degree. One study of the growth of the college wage premium from 1995 to 2011 found that the rapid growth of imports from China in that period explained more than half of the growth in the college wage premium, as described above.

For more on the China Shock, see Autor, Dorn, and Hanson 2016. For more on manufacturing job losses after the Great Recession, see Scott and Mokhiber 2020. For more on wage suppression of non-college-educated workers and its causes, see Bivens 2017, Scott 2015, and Bivens 2013b, and for the impacts of China trade on Black and Brown workers, see Scott 2013.

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Manufacturing and construction jobs have higher wages and better benefits than jobs in the exploding service sector: Average hourly compensation in construction, manufacturing, and service industries, 2021

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The decline in manufacturing employment and simultaneous rise in service industry employment means good middle-class jobs in America are being replaced by jobs with lower pay and benefits. Average wages and benefits in manufacturing are $40.71 per hour, 13.9% higher than in service industries. Wages and benefits in construction average $41.24 per hour, 15.4% more than in services. The gap is particularly wide in benefits. Relative to service jobs, the dollar value of manufacturing benefits per hour is 41.7% higher and construction benefits are 30.0% higher.

See Appendix Table 1 for employment change from 1998 to 2019 and mean wages for all 52 industries in the United States.

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Manufacturing and construction offer good employment opportunities for the non-college-educated workers who make up nearly two thirds of the workforce: Shares of jobs held by workers with given education level, by industry and overall, 2017–2020

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The shift away from manufacturing and construction employment to more service industry employment has meant lost opportunities for non-college-educated workers. That’s because manufacturing and construction industries employ a significantly larger share of workers with less than a four-year college degree: 84.6% of construction workers and 69.3% of manufacturing workers do not have a four-year college degree or more education, while 62.6% of service workers are non-college-educated workers. The disparities are even greater for workers with a high school diploma or less education, who make up 59.2% of construction, 43.0% of manufacturing, and only 33.3% of service workers. When good jobs with less restrictive educational requirements are readily available, that means more workers and families have an opportunity to attain a higher standard of living. Though not shown in the chart, investments in infrastructure, clean energy, and energy-efficiency improvements totaling $2 trillion combined with policies to rebalance trade could add at least three million good jobs in manufacturing and construction over a four-year period.

For more on the job-creating potential of a combined investment and trade rebalancing initiative, see Scott, Mokhiber, and Perez 2020.

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Black workers were especially hard hit by manufacturing job losses associated with globalization: Black share of workforce, total and manufacturing, 1977–2020

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The overall loss of more than 5 million manufacturing jobs during the past two decades hurt all of the workers who depended on those jobs to support themselves and their families. However, the losses among Black workers were uniquely troubling. The chart shows that until the early 1990s, as Black workers increased their share of the workforce, they were securing a roughly commensurate share of the higher-wage jobs available in manufacturing. The Black share of the manufacturing workforce peaked at 10.6% in 1992, which exactly equaled their share of the workforce. But in the 1990s, Black workers’ share of manufacturing jobs began to flatline and then fall. In 2020, Black workers made up 12.3% of all workers but only 10.2% of manufacturing workers. In raw numbers of jobs lost, the data behind the graph are startling: Black workers lost 646,500 manufacturing jobs between 1998 and 2020, a 30.4% decline in Black manufacturing employment.

Though not shown in the graph, the increasing underrepresentation of Black workers in manufacturing jobs relative to their share of the workforce since the 1990s occurred alongside the shift of a substantial share of U.S. manufacturing employment to Southern states, where black workers accounted for a much larger share of the population relative to other regions of the country.

Given the workforce-share declines Black workers suffered in the 2001 recession, the Great Recession that began in 2007, and the COVID-19 recession, it is important that the rebuilding underway today include a focus on Black workers, who experienced disproportionately large job losses in the last three U.S. recessions.

Also not shown here but available in Appendix Table 3: The number and share of Hispanic and Asian American/Pacific Islander (AAPI) workers in manufacturing both rose rapidly over the past 20 years, in line with their dramatic rise in overall shares of the workforce. However, Hispanic workers make up a disproportionately large share (30.0%) of workers in the low-wage and high-risk meatpacking and other food manufacturing industries.

For more on the substantial share of U.S. manufacturing employment moving to Southern states, see BLS 2021c.

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The lowest-earning workers without a college degree make twice as much in manufacturing as in other industries: Average annual earnings of manufacturing and nonmanufacturing workers without a four-year college degree and in the 10th percentile of earnings, by race and ethnicity, 2019

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Manufacturing provides good, steady employment, even for some of the lowest earners in the workforce. If you are a non-college-educated worker at the 10th percentile of earnings in manufacturing, you are making at least twice as much as your peers working outside manufacturing. This manufacturing pay advantage—which holds true for Black, Hispanic, Asian American/Pacific Islander, and white workers—is in part because average weekly hours are much higher in manufacturing and in part because unionization rates for these groups are higher in manufacturing. The advantage is substantial. Among the lowest paid Black and Hispanic workers, average annual earnings in manufacturing are twice as high as earnings in other industries, while white manufacturing workers’ annual earnings are 2.5 times as high and AAPI manufacturing workers’ annual earnings are three times as high as earnings in other industries. Note that in both manufacturing and nonmanufacturing industries, earnings of Black, Hispanic, and AAPI workers at the 10th percentile are lower than those of white workers at the 10th percentile. These racial and ethnic earnings differentials may reflect disparities in average weekly hours, occupations, or job responsibilities. While we cannot conclude discrimination from this data, it can be reflected in differences in hours, job assignments, opportunities for overtime, etc.

For more on how discrimination may appear in earnings differentials, see Wilson 2020.

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Typical non-college-educated workers in manufacturing are paid much more than noncollege workers in other industries: Annual earnings of workers without a four-year degree at the 50th percentile of earnings, by race and ethnicity, 2019

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A typical non-college-educated worker—i.e., a worker without a bachelor’s degree whose annual earnings fall at the 50th percentile or median—earns much more employed in manufacturing than in other industries, no matter what major racial or ethnic groups the worker belongs to. Among workers with less than a bachelor’s degree, median AAPI, Hispanic, and Black workers earn an additional $4,000 to $5,000 per year in the manufacturing industry compared with noncollege median workers in other industries. White noncollege median workers earn over $10,000 more. These dollar differences translate to a manufacturing pay advantage (how much more manufacturing workers make in percentage terms) of 14.3% for typical noncollege AAPI workers, 17.8% for typical noncollege Hispanic workers, 17.9% for typical noncollege Black workers, and 29.0% for typical noncollege white workers.

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Workers in construction and manufacturing are much more likely to be unionized (thus enjoying higher wages and better benefits): Share of workers represented by a union, by industry, 2019

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Manufacturing and construction provide excellent jobs, in part because more of these jobs are unionized. As much research shows, unions give workers more power to bargain for higher pay, better benefits and working conditions, training, and promotional opportunities, as well as protections against discrimination and harassment. Unions also help reduce racial- and gender-based economic disparities, and they support families with better benefits and job protections as well as better retirement security. Historically, unions have disproportionately benefited low- and moderate-income workers, as well as those with lower levels of education and workers of color.

For more on how unions raise pay and improve benefits and reduce disparities, see EPI 2021c. For more on the benefits of unionization for workers of color and workers with lower incomes and less education, see Mishel 2021.

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Unionized manufacturing and construction workers get a bigger pay boost from union representation than their unionized peers in service industries: Union hourly wage premium, by select industries

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Unionized workers in construction and manufacturing earn much higher hourly wages than nonunionized workers with similar characteristics in these industries. These union wage premium estimates control for the effects of education, occupation, experience, race, ethnicity, and other factors that help explain individual wage differences. The union wage premium in construction was 35.6%, more than four times as large as the union wage premium in service industry jobs (8.0%). The union premium in manufacturing (17.9%) is more than twice as large as the union wage premium in services jobs.

If the chart showed the overall union pay premium including benefits, the manufacturing and construction premiums would settle a little bit closer together because manufacturing workers get more in benefits than construction workers (as shown in Chart 3). But the gap would still be substantial.

Does unionization really offer a much bigger boost to construction workers than manufacturing workers? Yes, but the reason has little to do with unionization per se and much to do with globalization.

First, manufacturing workers must compete with low-wage workers in countries such as China, Mexico, South Korea, and Vietnam, meaning that even when in unions, they have much less bargaining power than construction workers, who do not face the competitive pressures from offshoring and unfair trade that make foreign goods and workers artificially cheap. Second, manufacturing work has been increasingly outsourced to less unionized staffing and temporary help services, which also puts substantial downward pressure on wages of U.S. manufacturing workers.

In short, the excess union wage premium in construction relative to manufacturing is another data point in support of the argument for investments and trade policies that bring manufacturing jobs back to the United States.

For more on the causes of unfair trade and how it artificially depresses wages of U.S. workers, see EPI 2018, Scott 2020a and 2020b, and Bivens 2013b and 2017. For more on the union status of the manufacturing temp help and staffing agencies, see BLS 2021b, and for more on increasing domestic outsourcing of manufacturing jobs to staffing firms, see Mishel 2018 and 2021. See Supplemental chart notes at the end of the charts for more details on the data.

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Manufacturing workers are much more likely to have health insurance than service workers, unionized or not: Share of workers with health insurance by select industry and union status

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Manufacturing workers, both union and nonunion, have higher rates of health insurance than comparable workers in services or construction. More than three-quarters (76.7%) of unionized manufacturing workers, 73.8% of unionized construction workers, and 73.7% of unionized service workers have employer-provided health insurance. Among nonunion workers, 66.6% of those in manufacturing have health insurance coverage compared with 53.6% of service industry workers and 44.9% of construction workers.

These data show another reason why an investment in and trade policies that support revitalizing manufacturing are critical to improving the lives of U.S. workers. By supporting the creation of more manufacturing jobs, more workers will have access to high-quality, company-provided health insurance, which will also reduce the demand for Medicaid and other forms of publicly subsidized health insurance, including American Care Act plans.

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Unionized workers are much more likely to have employer-provided pensions in all sectors: Share of workers with pension coverage, by union status

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Unionized workers are also much more likely to have employer-provided pensions than non-union workers—more than twice as likely in construction, 39% more likely in manufacturing (59.8%/43.0%), and 74.3% more likely in services (65.0%/37.3%). As is the case for health insurance, even nonunion manufacturing workers are much more likely to receive employer-provided pensions than nonunion construction or service industry workers. This is likely a spillover effect from higher rates of union membership among manufacturing workers (as shown in Chart 8). Employer-provided pensions and health insurance are valuable benefits that contribute significantly to workers’ total compensation and family economic security.

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Construction and manufacturing jobs offer higher wages for women as well as men: Average weekly earnings in three selected industries, by gender, 2017–2020

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Women employed in manufacturing earn $183 more per week (22.1%) than women employed in service industries, on average. And, though not shown, women working in manufacturing are paid much higher wages than women in rapidly growing service subsectors such as accommodations and food services and retail trade, where average weekly earnings for all workers are $480 and $715 respectively, compared with $1,215 in manufacturing, according to Appendix Table 1). Women in construction earn $105 more per week (12.7%) on average than women in service industry jobs. Men in manufacturing also earn more than men in services, while male construction workers make about the same a male service workers. (Data on average weekly earnings for all workers by industry are reported in Appendix Table 1.)

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Women are much less likely to be in the higher-wage jobs found in manufacturing and construction: Shares of employment in select industries, by gender, 2017–2020

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While women employed in the construction and manufacturing industries earn more than women employed in services, they are severely underrepresented in these higher-paying sectors. Women make up only 10.6% of workers in construction and 29.2% of manufacturing employment. The underrepresentation of women in construction and manufacturing industries is a missed opportunity for women without a college degree to earn a middle-class income comparable to that of similarly educated men.

Women’s limited access to good jobs in manufacturing and construction contributes to the gender pay gap. Though not shown in the chart, past EPI research shows that on average, in 2019 women were paid 22.6% less than men with comparable backgrounds (that is, adjusting for differences in education, age/experience, and region of the country). Given the gender pay gap and the potential of manufacturing and construction employment to close that gap, gender equity should be considered alongside racial equity when developing and implementing public policies to create more good jobs in manufacturing and construction.

For more on the gender pay gap, see Appendix Table 1 in Gould 2020.

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Nearly half of the jobs supported by climate and infrastructure investment and rebalancing trade would be good middle-class jobs in manufacturing and construction: Industry shares of jobs supported by trade rebalancing and by infrastructure and climate investments

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Low-wage service industry employment replaced good manufacturing jobs over the last two decades, accounting for all of net jobs added to the U.S. economy from 1998 to 2019, as shown in Chart 2. In contrast, investing in climate and infrastructure at the scale of the need, coupled with trade and financial policies that make U.S. goods competitive on global markets, and thereby eliminating U.S. goods trade deficits, would support a much higher share of good jobs in manufacturing and construction, helping reverse two decades of declining job quality. Nearly half (45.7%) of the jobs supported by investing in climate and infrastructure and 40.8% of the jobs supported by rebalancing trade would be in manufacturing and construction.

These estimates are based on EPI analysis in Scott, Mokhiber, and Perez 2020 of the job-creation potential of a two-pronged strategy for rebuilding the economy that includes $2 trillion of investments in infrastructure, clean energy, and energy-efficiency improvements over four years combined with trade and industrial policies that eliminate the U.S. trade deficit.

See Appendix Table 2 for an industry breakdown of jobs that would be supported by climate and infrastructure investments and rebalancing trade and average wages in those jobs.

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Jobs created by rebuilding the U.S. economy around high-wage jobs and manufacturing support much higher pay than service sector work: Average weekly earnings in jobs supported by trade rebalancing and by infrastructure and climate investments compared with services jobs, by race and ethnicity

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Jobs gained through rebalancing trade and expanding public investments in infrastructure, clean energy, and energy efficiency would offer higher average earnings than average service-sector jobs for workers in all major racial and ethnic groups. The average earnings shown in each bar are weighted average earnings for rebalancing trade and for infrastructure and climate investments versus weighted average earnings in service industries only, as shown on the services bar for each group.

Black workers in the new jobs supported by trade rebalancing and infrastructure and climate investment would earn roughly $100 per week more than in the service industry jobs, an earnings gain of 12.2% in jobs from new investments and 13.4% in trade rebalancing jobs. Hispanic workers would earn $145 to $149 more per week (from 19.9% to 20.4% more). Asian American/Pacific Islander workers would earn $93 to $166 per week more (from 8.3% to 14.7% more), and white workers would earn $146 to $212 more per week (from 14.4% to 20.8% more). Though not shown in the chart, gains in could push wages up throughout the economy. That’s because the types of jobs created by infrastructure and clean-energy investments and boosting U.S. exports include higher-paying manufacturing and construction jobs historically open to non-college-educated workers. Raising demand for these workers raises their pay. When combined with a strong emphasis on ensuring that Black, Hispanic, and other workers of color can access these jobs, the rebuilding plan would contribute to greater racial equity in the economy.

See Appendix Table 3 for an industry breakdown of the potential jobs gained, average earnings in those jobs, and the shares of jobs held by workers in different ethnic and racial groups. Detailed sectors that employ above-average shares of Black workers and/or other workers of color are bolded in the table.

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Supplemental chart notes

Chart 1

As shown in Chart 2, the U.S. lost 4.7 million manufacturing jobs between 1998 and December 2019. Chart 1 extends the data through the first quarter of 2021, an additional 388,000 manufacturing jobs were lost, for a total loss of 5.1 million jobs (BLS-CES various years). 

For readers familiar with our previous factory-loss estimates (more than 91,000 manufacturing establishments lost between 1997 and 2018, as reported in Scott 2020c), it is important to note that those estimates were based on earlier data from the U.S. Census Bureau’s Business Dynamic Statistics (BDS) through 2016, supplemented with County Business Patterns data on manufacturing establishment counts. Updated BDS statistics were released in September 2021 (U.S. Census Bureau 2021), which used NAICS-based industry definitions for the 1978–2019 period. The new NAICS-based establishment data reduced the total number of manufacturing plants by 23,2019 establishments in the base year of 1997 (a decline of 6.4%). The earlier BDS statistical series was based on a combination of Standing Industrial Classification (SIC) and NAICS (or census industry codes). In addition, the peak year in the number of manufacturing establishments in the 2021 BDS data occurred in 1998 (rather than 1997, as in the earlier data series). As a result of these changes and adjustments in industry coverage, the overall loss of manufacturing establishments between 1998 and 2019 declines to slightly less than 70,000 total establishments (from 91,000 in our earlier estimates). The switch from SIC- to NAICS-based industry definitions moved about 500,000 workers (and an unknown number of establishments) from manufacturing into service industries, in part through reclassification of contract manufacturing into the service sector. 

Our colleague Josh Bivens points out that failure by U.S. policymakers to ensure U.S. competitiveness abroad was not the only thing that suppressed demand for U.S. exports over the past two decades. Japan and the European Union did too little to support their own economic growth in the early 2000s and in the wake of the Great Recession, and their resulting slow aggregate demand growth suppressed potential demand for U.S. exports (see Bivens 2013a).

Finally, it is important to note that workers employed by staffing agencies, which subcontract workers to manufacturing establishments, are not counted as part of manufacturing employment in the BLS establishment surveys. Thus, about 11% of the decline in manufacturing employment shown in Chart 1 is explained by the rising numbers of workers paid by staffing and other temporary-help agencies that work in manufacturing establishments. These workers typically receive much lower pay and benefits than workers directly employed by manufacturing firms (Mishel 2018, Table 6). 

Chart 9

The chart reports the coefficient on union status from a regression of the log of the hourly wage on union status and a quintic polynomial in age (used as a measure of experience), and it uses dummies for race and ethnicity, education, citizenship, major industry, major occupation, state, and year. We exclude observations with imputed wages because the imputation process does not take union status into account and therefore biases the union premium toward zero. This analysis does not account for nonwage benefits.

To understand why wage premiums are larger in construction than in manufacturing, several factors should be considered. First, the charts only reports hourly wage premiums (excluding benefits). As shown in Chart 3, the average hourly value of employer-provided benefits in manufacturing ($10.78) is greater than those in construction ($9.89). The higher dollar value of nonwage benefits would compensate manufacturing workers for relatively lower wage premiums in manufacturing.

On the other hand, the construction industry employs a much larger share of workers with a high school diploma or less than the manufacturing industry (59.2% versus 43.0%, respectively) as shown in Chart 4, and yet the union wage premium in construction is clearly higher than in manufacturing, as shown in Chart 9. Thus, the fact that the wage premium for construction workers is larger than in manufacturing is particularly remarkable, since the wage premium for workers with a high school diploma or less would otherwise tend to be much smaller than that of a more educated pool of workers, such as manufacturing workers. Thus, something else is clearly sheltering construction workers from the competitive pressures felt by workers in manufacturing. Workers with a high school diploma or less would earn much less in service industry jobs, where two thirds of workers have higher levels of education (Chart 4, above), than they do in either manufacturing or construction.   

Exposure to international competition is clearly the most important factor exerting downward pressure on manufacturing wages. While construction workers are largely insulated from competition with low-wage workers in other countries, manufacturing workers are directly exposed to international competition, via massive and rapidly growing imports of manufactured goods from low-wage countries such as China, Vietnam, and Mexico. Total goods imports, which are dominated by trade in manufacturers, will reach nearly $2.9 trillion in 2021, an increase of 21.9% over import levels in 2020. Unfair foreign trade policies—along with currency manipulation and excessive foreign capital inflows, which together are responsible for the 25% to 30% overvaluation of the U.S. dollar—are the most important causes of soaring imports and U.S. goods trade deficits. In addition to boosting the cost of U.S. exports, an overvalued dollar makes the wages of foreign workers artificially cheap and increases the cost of U.S. labor relative to workers in countries with undervalued currencies. See EPI 2018, Scott 2020a, and Scott 2020b for more; this section is based on EPI analysis of U.S. Census Bureau 2021b.  

Acknowledgments

The authors thank Josh Bivens, and Riley Olson for comments, and Lora Engdahl for editing assistance. This research was made possible by support from the Alliance for American Manufacturing.

Appendix Table 1

Appendix Table 2

Appendix Table 3

References

American Society of Civil Engineers (ASCE). 2021. America’s Infrastructure Report Card 2021: Executive Summary [PDF]. American Society of Civil Engineers.

Autor, David H., David Dorn, and Gordon H. Hanson. 2016. “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade.” National Bureau of Economic Research Working Paper w21906, January 2016.

Bivens, Josh. 2013a. “Europe’s Self-Defeating Austerity” (commentary). Economic Policy Institute, June 5, 2013.

Bivens, Josh. 2013b. Using Standard Models to Benchmark the Costs of Globalization for American Workers Without a College Degree. Economic Policy Institute, March 2013.

Bivens, Josh. 2017. Adding Insult to Injury: How Bad Policy Decisions Have Amplified Globalization’s Costs for American Workers. Economic Policy Institute, July 2017.

Bureau of Labor Statistics (BLS). 2021a. “Employer Costs for Employee Compensation—June 2021.” USDL-21-1647 (news release), September 16, 2021.

Bureau of Labor Statistics (BLS). 2021b. “Table 3. Union Affiliation of Employed Wage and Salary Workers by Occupation and Industry,” (Economic News Release), last modified January 22, 2021.

Bureau of Labor Statistics (BLS). 2021c. “State Employment and Unemployment” (Economic News Release). Last modified November 19, 2021.

Bureau of Labor Statistics, Current Employment Statistics (BLS-CES). Various years. https://www.bls.gov/ces/home.htm.

Bureau of Labor Statistics, Employment Projections program (BLS-EP). 2020. “Industry Output and Employment: Historical Industry Employment, 1990–2019.” [Excel file]. Last modified September 1, 2020. Note this page has recently been updated. Data for this project were downloaded prior to the latest update.

Economic Policy Institute (EPI). 2018. Policy Agenda: Fair Globalization and Balanced Trade. Economic Policy Institute, December 2018.

Economic Policy Institute (EPI). 2021a. EPI Microdata Extracts, Version 1.0.23, https://microdata.epi.org.

Economic Policy Institute (EPI). 2021b. EPI Microdata Extracts, Methodology: race/ethnicity variables.

Economic Policy Institute (EPI). 2021c. Unions Help Reduce Disparities and Strengthen Our Democracy. Economic Policy Institute, April 2021.

Flood, Sarah, Miriam King, Renae Rodgers, Steven Ruggles, and J. Robert Warren. 2021. Integrated Public Use Microdata Series, Current Population Survey: Version 9.0 [data set]. Minneapolis, Minn.: IPUMS, 2020. https://doi.org/10.18128/D030.V7.0.

Gould, Elise. 2020. State of Working America Wages 2019: A Story of Slow, Uneven, and Unequal Wage Growth over the Last 40 Years. Economic Policy Institute, February 2020.

Mishel, Lawrence. 2018.  Yes, Manufacturing Still Provides a Pay Advantage, but Staffing Firm Outsourcing is Eroding it. Economic Policy Institute, March 2018.

Mishel, Lawrence. 2021. The Enormous Impact of Eroded Collective Bargaining on Wages. Economic Policy Institute, April 2021.

Paul, Scott. 2020. Our American Manufacturing Plan Will Create 6.9 to 12.9 Million New Jobs by 2024. Alliance for American Manufacturing, October 2020.

Scott, Robert E. 2013. Trading Away the Manufacturing Advantage: China Trade Drives Down U.S. Wages and Benefits and Eliminates Good Jobs for U.S. Workers. Economic Policy Institute, September 2013.

Scott, Robert E. 2015. Unfair Trade Deals Lower the Wages of US Workers. Economic Policy Institute, March 2015.

Scott, Robert E. 2020a. “Biden’s Trade Policy Must Focus on Creating Good Jobs.” The Hill, November 10, 2020.

Scott, Robert E. 2020b. Memorandum on U.S. Trade and Manufacturing Policy. Economic Policy Institute, November 2020.

Scott, Robert E. 2020c. We Can Reshore Manufacturing Jobs, but Trump Hasn’t Done It: Trade Rebalancing, Infrastructure, and Climate Investments Could Create 17 Million Good Jobs and Rebuild the American Economy. Economic Policy Institute, August 2020.

Scott, Robert E., and Zane Mokhiber. 2020. Growing China Trade Deficit Cost 3.7 Million American jobs Between 2001 and 2018: Jobs Lost in Every U.S. State and Congressional District. Economic Policy Institute, January 2020.

Scott, Robert E., Zane Mokhiber, and Daniel Perez. 2020. Rebuilding American Manufacturing—Potential Job Gains by State and Industry: Analysis of Trade, Infrastructure, and Clean Energy/Energy Efficiency Proposals. Economic Policy Institute, October 2020.

Tankersley, Jim. 2021. “Biden to Propose $6 Trillion Budget to Make U.S. More Competitive.” New York Times, June 17.

U.S. Census Bureau. 2021a. 2019 Business Dynamic Statistics Data Tables. CSV datasets. Accessed November 2021. https://www.census.gov/data/tables/time-series/econ/bds/bds-tables.html

U.S. Census Bureau. 2021b. “U.S. International Trade in Goods and Services (FT900)” [Excel file, data for October 2021]. Accessed December 7, 2021. 

U.S. Census Bureau, Current Population Survey Annual Social and Economic Supplement microdata (U.S. Census Bureau CPS-ASEC). 2021. Survey conducted by the Bureau of the Census for the Bureau of Labor Statistics [machine-readable microdata file]. Accessed September 13, 2021, at https://thedataweb.rm.census.gov/ftp/cps_ftp.html.

U.S. International Trade Commission (USITC). 2021. USITC Interactive Tariff and Trade DataWeb [database]. Accessed September 2021.

Wilson, Valerie. 2020. “Racism and the Economy: Focus on Employment.” Working Economics Blog (Economic Policy Institute), November 21, 2020.

The rapid growth of U.S. trade deficits reflects the combined effects of the COVID-19 crisis, which caused U.S. exports to fall by more ($217.7 billion) than imports ($166.2 billion), and by the persistent failure of U.S. trade and exchange rate policies over the past two decades. The single most important cause of large and growing trade deficits is persistent overvaluation of the U.S. dollar, which makes imports artificially cheap and U.S. exports less competitive.

The U.S. goods trade deficit is increasingly dominated by trade in manufactured products, as shown in the figure below. The manufacturing trade deficit reached record highs of $897.7 billion—98% of the total U.S. goods trade deficit—and 4.3% of U.S. GDP in 2020. Primarily due to these rapidly growing manufacturing trade deficits, the U.S. lost nearly 5 million manufacturing jobs and 91,000 manufacturing plants between 1997 and 2018 alone, and an additional 582,000 manufacturing jobs in 2020.

Figure A

Growing trade deficits with China are the largest single cause of growing manufacturing trade deficits and jobs losses. Between 2001, when China entered the World Trade Organization (WTO), and 2018, growing U.S.–China trade deficits eliminated 3.7 million total U.S. jobs, including 2.8 million jobs lost in manufacturing alone. Although the U.S. trade deficit with China fell by $34.4 million (10.0%) in 2020, China’s total trade surplus with the world increased 27% in 2020 to $535 billion, driven by surging exports of medical supplies and electronic goods. U.S. trade deficits with Hong Kong, Korea, Malaysia, Indonesia, Singapore, Taiwan, and Australia, as well as Mexico and Switzerland all increased significantly in 2020. There is growing evidence that China is evading U.S. trade restrictions by shipping products through other countries (e.g. tariff circumvention).

Growing U.S. trade deficits over the past two decades, which reached record levels in 2020, have decimated U.S. manufacturing. The United States can rebuild domestic manufacturing by rebalancing U.S. trade, and by implementing the Biden administration proposal for a $2 trillion, 4-year program for rebuilding U.S. infrastructure and investing in clean energy and energy efficiency improvements.

From: Robert E. Scott (Economic Policy Institute)

Submitted via email to transition team

For the U.S. economy to “Build Back Better” after the COVID-19 pandemic, the Biden-Harris administration must emphasize job creation in America’s manufacturing and construction sectors. Rebuilding U.S. manufacturing industries, and upgrading domestic infrastructure, can generate millions of high-wage jobs and reduce income inequality while also addressing racial injustice.

There are three key efforts needed to rebuild manufacturing and the U.S. economy:

1. Realign the U.S. dollar and address overseas currency manipulation.
2. Invest in infrastructure and renewable energy.
3. Rebalance U.S. trade.

PRIORITY ONE: Realign the dollar through a competitive currency policy

The single most effective tool for rebalancing trade is the adoption of a competitive dollar policy. The real value of the U.S. dollar—which has gained nearly 21% since mid-2014 alone—needs to fall by 25% to 30% in order to rebalance trade, according recent research.1 Dollar realignment would stimulate rapid export growth, resulting in surging domestic investment and job creation even as it also reduced import growth.

However, there are two reasons the dollar is currently overvalued.

The first is currency manipulation, which is the result of years of foreign central bank purchases of U.S. dollar assets. This has driven up demand for the dollar and helped to keep it overvalued. This currency manipulation can be addressed through government sanctions and intervention.

More recently, however, the extent of currency manipulation has decreased. Instead, during the last five years, excess private demand for U.S. assets from overseas investors has caused the dollar’s value to soar. This second reason, currency misalignment, can be addressed through market interventions.

Implementing a competitive dollar policy will stimulate rapid export growth, resulting in surging domestic investment and job creation, while limiting import growth. Eliminating America’s $864 billion annual goods trade deficit could create between 3.5 million and 6.6 million jobs over the next four years, including at least 1.4 million good manufacturing jobs.

Immediate steps for the new administration

• The next Treasury report on Foreign Exchange Policies of major trading partners (due April 2021) should label all countries meeting the criteria identified by Christopher Collins and Joseph Gagnon of the Peterson Institute for International Economics (PIIE) as currency manipulators. In addition, countries maintaining very large stocks of foreign exchange reserves—which also have a depressive effect on the values of their respective currencies—should also be labeled as currency manipulators (as explained by Dean Baker, senior economist with the Center for Economic and Policy Research). This includes China and Japan.
• In January, the president should immediately announce the suspension of tax waivers on foreign government holdings of U.S. financial assets in the United States, as proposed regarding China by PIIE’s Joseph Gagnon and Gary Hufbauer in 2011. This will also discourage foreign government holdings of U.S. assets and put downward pressure on the dollar. The U.S. should also deliver notice of canceling tax treaties with selected foreign governments. Taxes should then be withheld on income earned on Treasurys and other government assets, at an initial tax rate of roughly 30%. Significantly, other countries that should be subject to this taxation continue to hold huge foreign exchange reserves, most in dollar assets. These countries include China ($3.1 trillion), Japan ($1.4 trillion), Singapore ($500 billion), and South Korea, ($400 billion).
• The president should use his executive authority under the International Emergency Economic Powers Act (IEEPA) to impose a tax on foreign government owned or controlled holdings of U.S. financial assets as soon as possible. Announcing his intent to do so when canceling tax treaties would put currency manipulators on notice that the United States is serious about stopping such practices. The net of these taxes could be widened as needed, since many currency manipulators have stashed large amounts of their reserves in additional Sovereign Wealth Funds, including China ($1.4 trillion), and Singapore ($900 billion).2
• Taxation of foreign government holdings of U.S. assets would discourage currency manipulation. However, government demand for these assets may not be influenced by taxes on the income the assets earned. Therefore, the Commerce Department and the U.S. trade representative should continue to pursue currency countervailing duty (CVD) cases against individual products and countries. Such cases send a “shot across the bow” to currency manipulators in the absence of more comprehensive measures.
• The Biden administration should initiate offsetting purchases of the foreign assets of those countries found to be engaging in currency manipulation, purchases known as countervailing currency intervention (CCI). Overall, such purchases are the most effective tool available to remedy currency manipulation. The use of Exchange Stabilization Fund (ESF) assets by the Treasury and the Federal Reserve to engage in CCI was proposed by Bergsten and Gagnon in 2017. Substantial increases in ESF assets are required to engage in significant CCI intervention, and will require congressional authorization.
• The Biden administration must also address market-driven currency misalignment. It should do so by empowering the Federal Reserve to establish an exchange rate management policy designed to achieve and maintain balanced trade. This can be done by working with Congress to implement the bipartisan legislation proposed by Senators Tammy Baldwin and Josh Hawley in their “Competitive Dollar for Jobs and Prosperity Act” (S. 2357). The measure would impose a “Market Access Charge” on new foreign investor purchases of U.S. assets. It would also authorize a substantial increase in resources for the Treasury Exchange Stabilization Fund, needed to fight government-backed currency manipulation.
• Along these lines, the administration should also impose an initial emergency access charge, exactly as defined in S. 2357, under the IEEPA.

PRIORITY TWO: Rebuild U.S. infrastructure and begin the clean energy transition

The Biden-Harris plan for investments in infrastructure and climate programs, with a full “Buy America” commitment, can supercharge recovery for the U.S. economy. A $2 trillion, four-year plan of investments in these sectors, along the lines of that announced by President-elect Biden in July, would support between 3.4 million and 6.3 million total jobs. Nearly half (45.7%) of the 3.4 million direct and indirect jobs supported would be in good-paying manufacturing and construction sectors.

Immediate steps for the new administration and Congress

• Immediately revive and expand plans for the Moving Forward Act (MFA), an infrastructure bill that was developed by the House Transportation and Infrastructure Committee, and passed by the House on July 1, 2020.
• Develop an expanded plan for renewal of transportation infrastructure legislation, which can attract bipartisan support. To the extent possible, extensions to the MFA should incorporate Biden-plan goals for expanded U.S. auto production, investments in zero-emission public transit, building and housing investments, and research and development.
• Maximize employment and economic impacts as part of the recovery plan by ensuring that the MFA is entirely debt-financed until the economy has fully recovered (with the exception of current revenues in the transportation trust fund).
• Do not raise additional revenues to fund infrastructure investments until and unless we meet two criteria: estimates of total nonfarm employment exceed 152.5 million (the level reached in February 2020) and interest rates on short-term treasury securities exceed 3.5% on a sustained basis. Where possible, user fees should be relied on to fund public investments in infrastructure, as growing reliance on efficient and clean transportation sources will erode transport fuel tax receipts over time.
• To the extent possible, use the infrastructure bill to fund climate-friendly public investment (e.g., electrical grid upgrades, battery development/capacity, R&D for smart grids, etc.).
• Develop separate legislation to support popular incentives:, such as incentives for hybrid cars, e-cars, wind turbines, and solar power to help utilities meet state renewable guidelines; residential and commercial incentives for weatherization; incentives for appliance efficiency upgrades; consumer solar; renewable conversions for schools and public buildings; and, investments in innovation, agriculture, and conservation.

PRIORITY 3: Pursue trade and industrial policies that will rebalance U.S. trade

More than three decades of globalization have devastated U.S. manufacturing and the American working class. Trade-related job losses are just the tip of the iceberg. Globalization has also reduced median wages by roughly $2,000 per year for roughly 100 million working-class Americans. Joe Biden recognized these problems when he promised the United Steelworkers in May that he would not consider any new trade agreements “until we’ve made major investments here at home, in our workers and our communities.”

Immediate steps for the next administration and Congress

• Establish a freeze on negotiating new trade agreements until the dollar is realigned and the U.S. goods trade deficit has been erased.
• Ensure that trade policy does not privilege corporate interests over workers. The proliferation of Investor State Dispute Settlement (ISDS) clauses inserted into international trade and investment agreements has created a global system of special courts exempt from any judicial appeal or review. These courts allow multinational companies to sue governments for any potential infringement on future profits, as documented by Todd Tucker in his book Judge Knot. These agreements have cast a pall over the ability of governments to regulate in their own legal and national interest. The U.S. must negotiate the elimination of ISDS clauses from most or all trade deals.
• Promote welfare-enhancing multilateral agreements negotiated by the USTR in areas such as labor rights and environmental standards while also rejoining the Paris Climate Accord.
• Pursue multilateral rules to address major international challenges, such as greenhouse gas (GHG) emissions. The U.S. should pursue binding agreements to reduce GHG emissions, especially with China—the world’s largest and most rapidly growing GHG emitter—earlier than called for in the current Paris Climate Accord.
• Ensure that the USTR works with the Commerce Department to aggressively combat overcapacity in steel, glass, paper, solar panels, and a host of other industries distorted by massive state subsidies and other illegal trade and industrial policies.
• Maintain Section 232 steel and aluminum tariffs until tariffs can be replaced by more comprehensive, global limits on unfair trade in these products. One model is to negotiate global tariff agreements to “wall off” products from countries with excess capacity. At present, overcapacity is widespread in many exporting countries, including Japan, Korea, Brazil, Turkey, and China.
• Eliminate tax evasion, corporate inversions, and tax havens that allow multinational enterprises to avoid corporate taxation. The Tax Cuts and Jobs Act of 2017 (TCJA) established new, lower tax rates for foreign investment by multinational corporations; this encouraged further offshoring. Consider adopting sales factor apportionment (SFA) to fully tax profits on all corporate sales in the United States, regardless of where production takes place or where corporations are domiciled. SFA techniques have been used for many years by states to fairly allocate taxation of corporate profits.
• Don’t tax U.S. consumers to protect the intellectual property rights of U.S. multinationals in China. This simply encourages more offshoring of U.S. jobs and factories. As Dean Baker has explained, stronger patent and copyright protections have transferred roughly $1 trillion annually from workers and consumers to corporations and the richest 10 percent.
• Strengthen “Buy America” requirements for all federal, state, and local purchases, as supported by the Alliance for American Manufacturing’s industrial policy proposals. Buy America requirements can greatly enhance the job creation and domestic output of public investments. Historically, Buy America preferences have been loosely enforced.
• Develop new standards and methods to maximize domestic job creation associated with any recovery act, clean energy, or infrastructure expenditures. One simple step would be to require bidders for large government contracts to submit job impact assessments, and to document these outcomes in post-project assessments.
• Establish a strong, whole-of-government program to reshore critical materials production. This includes bringing back to the United States the production of everything from pharmaceuticals to medical equipment to rare earth metals.
• Expand job training and workforce development programs, and consider adopting “flexicurity”-style programs—modeled after those developed in Denmark and other European countries—to support growth and renewal of America’s aging industrial workforce.
• Revamp America’s unemployment insurance (UI) system. Effective UI systems are industrial policies. Jobs not destroyed are much cheaper to restart than those that have been entirely eliminated through short-sighted labor policies. The COVID-19 crisis has demonstrated that America’s UI system is broken and in desperate need of repair. In contrast, many European governments have paid firms to keep workers on the payroll, so that when employers emerge from a downturn, they would be intact.
• Greatly expand R&D and Cooperative Extension Services. Fund the proposal by Simon Johnson and Jonathan Gruber in their book Jump Starting America to identify metropolitan areas that could be hubs of science and technology. Designate them to receive large-scale science and tech spending using the tripartite federal/state and local/private sector investment model to create dozens of national centers of manufacturing research and excellence. In addition, the Hollings Manufacturing Extension Partnerships, which have been targeted for extinction in the Trump administration, should be substantially expanded.
• Substantially increase domestic content requirements and require jobs impact statements by the US Export-Import Bank in its Buy America policies, which have been watered down beyond all recognition. These standards must be tightened and reformed.
• Reevaluate the costs and benefits of foreign direct investment in the United States. So-called “insourcing” (foreign investment in the United States) is dominated by foreign acquisition of U.S. companies, such as Lenovo’s purchase of IBM’s PC division in 2005. Such purchases have eliminated millions of U.S. jobs over the past three decades through layoffs, plant closures, and sell-offs. Furthermore, foreign multinational companies (MNCs) often buy domestic firms simply to distribute their own exported products. As a result, foreign MNCs are responsible for a large and growing share of U.S. trade deficits. Adding insult to injury, state and local governments are often involved in a race to the bottom for such investments, competing to offer tax abatements and infrastructure subsidies to attract foreign investors. The United States should consider banning tax abatements and infrastructure and other subsidies to foreign investors unless entities seeking subsidies can prove that they are effectively creating jobs.

Endnotes

1. Fred Bergsten, “Time for a Plaza-II?” in International Monetary Cooperation: Lessons from the Plaza Accord after Thirty Years, eds. (Washington, D.C.: Peterson Institute for International Economics, 2016), Table 14-5. Bergsten estimated that in order to rebalance U.S. trade, the real value of the U.S. dollar must fall by 26.5% on a trade-weighted basis against the currencies of major surplus countries, including the Euro Area countries, China, and Japan. In their 2020 working paper for the Coalition for a Prosperous America (“Modeling the Effect of the Market Access Charge on Exchange Rates, Interest Rates and the U.S. Economy”), Steven Byers and Jeff Ferry, using a macroeconomic model from the Federal Reserve, estimated that the dollar needs to fall by 27% to rebalance U.S. trade.

2. These funds include China Investment Corporation ($1.046 trillion) and the National Council Social Security Fund ($324 billion), and from Singapore, GIC Private Limited ($453 billion) and Temasek Holdings ($417 billion) according to the Sovereign Wealth Fund Institute (data downloaded from SWFI November 22, 2020).

The essential elements of this two-pronged strategy for rebuilding the domestic economy are detailed in this report and summarized here:

• Trade and industrial policies that dramatically boost U.S. exports and eliminate the U.S. trade deficit—now roughly $850 billion—within four years. At the heart of these policies are measures to end the overvaluation of the U.S. dollar and rebuild the competitiveness of U.S. manufacturing industries.
• A four-year, $2 trillion program of investments in infrastructure, clean energy, and energy efficiency improvements. This would include investments of $70.2 billion per year in schools and broadband, which would have substantial social benefits. Note also that virtually all (91.6%) of clean energy and energy efficiency investments are for manufactured products.

Following are the key findings of this report:

• Surging exports and major investment in infrastructure, clean energy, and energy efficiency would support between 6.9 and 12.9 million U.S. jobs annually by 2024. The lower-bound estimate includes direct and indirect jobs but not “respending” jobs created as consumers spend more in the economy.
• Of the 6.9 million direct and indirect jobs, at least 471,200 would be construction jobs and 2.5 million would be U.S. manufacturing jobs. Because the jobs supported would be concentrated in high-wage manufacturing (36.4% of jobs supported) and construction industries (6.8% of jobs supported), this strategy would help rebuild U.S. manufacturing and restructure the domestic economy away from low-wage service-sector work.
• Projections of rapid export expansion are not wishful thinking: they are based on the actual export performance in prior periods when the real value of the U.S. dollar was substantially reduced. And there is much room for the dollar to fall: its value has gained 21.4% since July 2014, stagnating U.S. exports and depressing domestic commodity prices, including farm products and incomes.
• Rapidly growing exports in this forecast—especially for U.S. durable goods—along with substantial demand for manufactured products arising from infrastructure and clean energy and energy efficiency investments would support rapid growth in output and employment in a wide range of industries. Rapidly rising demands for fabricated metal products, industrial machinery, computer and electrical products, and transportation equipment (including both motor vehicles and parts, and aerospace products), would generate substantial increases in demand for primary metals (ferrous and nonferrous) and other industrial materials. Production of U.S. energy-based products (crude oil, refined petroleum, and chemicals) also would increase rapidly.
• Within manufacturing, jobs supported would be in both durable and nondurable goods categories. Under the 6.9 million jobs scenario, rapidly growing sectors would include nondurable goods (367,600 jobs), and durable goods (2.1 million jobs). Within durable goods industries, the most jobs will be supported in nonelectrical machinery (436,700 jobs), fabricated metal products (383,700 jobs), transportation equipment (343,800 jobs), electrical equipment (302,700 jobs), and primary metals (248,000 jobs). Within primary metals, 69,900 jobs would be supported in the steel industry. Within transportation equipment will be substantial growth in motor vehicles and parts (188,800 jobs) and aerospace products (127,600 jobs).
• Many sectors outside of manufacturing would experience substantial job growth: transportation (603,400 jobs); agriculture, forestry, and fisheries (588,600 jobs); administrative and support services (454,900 jobs); professional, scientific, and support services (375,300 jobs); wholesale trade (337,100 jobs); and mining (201,400 jobs).
• Rapidly growing exports supported by trade and industrial polices combined with major public investments in infrastructure, clean energy, and energy efficiency would support rapid job creation in all 50 states and the District of Columbia. Jobs supported would be concentrated in regions that have been hardest hit by globalization and outsourcing. Six of the top 10 states in terms of jobs supported as a share of state employment are among the top 10 manufacturing states (as a share of total state employment),  including Wisconsin (6.16%, 181,000 jobs), Indiana (5.95%, 185,900 jobs), Iowa (5.91%, 94,500 jobs), Michigan (5.55%, 251,200 jobs), Ohio (5.51%, 302,400 jobs), and Kentucky (5.37%, 104,100 jobs). Other top-10 job gainers are in energy and resource-intensive states, including North Dakota (6.07%, 24,300 jobs), Wyoming (5.69%, 16,700 jobs), Oklahoma (5.62%, 98,200 jobs), and South Dakota (5.61%, 24,600 jobs).
• Our lower-bound estimate of 6.9 million jobs supported is conservative. The Congressional Budget Office projects that it will take more than five years for employment to return to its pre-recession levels (CBO 2020). In this kind of environment, increases in exports and deficit-financed public investments would generate additional rounds of respending and job creation in the domestic economy (Bivens 2014). Thus our upper-bound estimate of 12.9 million jobs, which includes about 6.0 million respending jobs, is plausible. It is important also to note that these jobs supported are jobs, not job years.2

Introduction: Policy proposals and modeling assumptions

This report evaluates a set of trade and manufacturing policy proposals developed by the Alliance for American Manufacturing (Paul et al. 2020). It also estimates the impacts of a package of infrastructure and clean energy proposals that is based on investments made under a detailed plan developed by the Sierra Club and other civil society groups but at a slightly smaller scale, and for fewer years. That plan, which was analyzed by the University of Massachusetts Amherst’s Political Economy Research Institute (PERI) (Pollin and Chakraborty 2020), is a 10-year plan that would invest $683 billion per year in the elements considered here.3 The plan analyzed here is a four-year, $2 trillion plan.

Trade flows and investment allocations for these activities were prepared in order to project output and employment changes over the 2019–2024 period and thus estimate the increased annual output and jobs supported by 2024, as described below.4

Trade (export promotion and currency rebalancing) projections

Trade projections in this study assume that currency realignment and an aggressive program of industrial policies for recovery result in elimination of U.S. trade deficits in 2024. Currency overvaluation makes U.S. exports more expensive (and suppresses prices of domestic commodities, including gains), while also acting like a subsidy to the cost of all imports (Scott 2020). The policies proposed here are based, in part, on proposals to prioritize industrial policy in the post-COVID-19 world (Paul 2020), which emphasize substantial investment in American-made infrastructure, the reshoring of critical supply chains, enhanced enforcement of Buy America laws, and aggressive enforcement of fair trade policies and the pursuit of high-standard trade agreements. The trade projections are based on actual market behavior in earlier periods of dollar realignment.

For exports supported by currency rebalancing and industrial policies, we examined prior periods of substantial dollar devaluation, including 1985 to 1991 (following the Plaza Accord of 1985) and 2002 to 2008 (the previous period of substantial dollar overvaluation).5 Total U.S. exports increased between 80% and 90% following each of those dollar realignments (Scott 2009 and 2017a). It is important to note that the real value of the U.S. dollar has gained 21.4% since July 2014, stagnating U.S. exports and depressing domestic commodity prices, including farm products and incomes (Federal Reserve Board 2020).

For the projections in this report, we first assumed that exports in each of the individual industries that make up the traded goods portion of the U.S. economy—technically, the detailed, four-digit North American Industry Classification System (NAICS) traded goods industries—would grow at the rate experienced in the 2002–2008 period, with two exceptions, noted here.6 We assume that imports would grow at their actual rate in the 2014–2019 period.7 The initial projections would have resulted in a substantial trade surplus.8 To bring projected trade flows into balance, initial projected exports were then reduced in each sector by 15.5%, resulting in overall trade balance in 2024, as shown in the tables in this report.9

Investment and clean energy projections

The allocation of the four-year, $2 trillion package of investments in infrastructure, clean energy, and efficiency improvement programs was based on allocations developed by Pollin and Chakraborty 2020.10 That report assumes levels of public investment that are about 36% higher than is assumed here (here we look at overall spending of $500 billion a year versus overall spending of $683 billion per year in Pollin and Chakraborty 2020). But the allocations assumed here are in roughly the same proportions as in Pollin and Chakraborty 2020.11 Details of these allocations are summarized in Table 1. (Table 3 shows the allocation of infrastructure and clean energy and efficiency spending by industry.) It is important to note that schools and broadband investments represent $70.2 billion (28.1%), or more than one-quarter of proposed infrastructure investments, which would generate substantial social benefits.

Table 1

Overall economic and employment impacts of trade and investment proposals

Table 2 summarizes the overall impacts of all three components of the program proposed in this report. The top panel of the table shows the economic impact in billions of dollars, and the bottom panel shows the employment impact. The first set of rows in the top panel shows changes in trade flows from 2019 to 2024 resulting from the policies to end overvaluation of the U.S. dollar and rebalance trade. It is assumed that the real value of the U.S. dollar is reduced by approximately 25%, as discussed in the methodology appendix toward the end of this report. Total exports expand by 64.6% between 2019 (actual) and 2024 (projected), while imports increase by only 8.3%. As a result, goods trade balance is achieved in 2024, completely eliminating the U.S. goods trade deficit, which reached $854.3 billion in 2019.

Table 2

The second set of rows in the top panel shows the economic impacts of the fourth year of the new $2 trillion in infrastructure, clean energy, and energy efficiency spending in 2024, reflecting the assumption that public spending on infrastructure and clean energy and energy efficiency investments increases by $500 billion per year in 2021, 2022, 2023, and 2024 ($250 billion per year for each of these purposes). In 2024, the $854.3 billion in increased economic output from rebalancing trade combined with the additional $500 billion yearly spending on infrastructure and clean energy/energy efficiency yields an additional $1.354 trillion in total spending on domestic goods and services (some of which will include imported components). This represents an increase of approximately 6.8% of GDP. It is worth repeating that this increase in spending will only require $500 billion per year in new federal spending; the rest results from increased foreign purchases of U.S. products. The final element of increased demand shown in the top panel of Table 2 is $812.6 billion in induced respending: roughly, how much additional spending happens as the $1.354 trillion in spending makes its way to workers and consumers’ pockets and is respent on consumer goods and services. This figure assumes that there will be a macroeconomic multiplier of 1.6, i.e., a 60% boost to spending in the form of respending. Bivens (2014) reviews the economic literature on multipliers, and notes that infrastructure spending is found to have very high levels of economic multipliers.12 A multiplier of 1.6 is used for that study. Spending on clean energy products, and output from additional U.S. exports, also are likely to have very high multipliers, for similar reasons. Note that multipliers depend in part on the level of excess capacity (economic distress) in the economy. Thus we do not include the multiplier (induced or respending) effects in our main results (jobs supported by industry and by state), but we do include them for informative purposes in our upper-bound estimate of jobs supported and in Table 2 and Table 4.

The employment impacts of these policies are summarized in the bottom panel of Table 2. Note that the employment effects include direct jobs supported or created by a given level of output (an aggregate of all industries) and the aggregate indirect jobs in industries that supply goods to directly affected industries (think auto assembly jobs and the jobs held by those who make auto parts, steel, and rubber, or who provide accounting, finance, staffing, or other services to auto manufacturers).

The U.S. goods trade deficit in 2019 displaced 5.1 million jobs. If trade is balanced, the number of jobs displaced by trade flows is reduced to 1.6 million jobs, for a net gain of 3.5 million direct and indirect jobs supported, as shown in column 3 (see the text box, “Defining jobs: supported vs. created vs. job years”). The reason that there still are jobs displaced under balanced trade is that U.S. imports are more labor intensive, on average, than U.S. exports, as predicted by trade theory, so the U.S. experiences a net loss of jobs.

Infrastructure investments of $250 billion in 2024 would support 2.1 million direct and indirect jobs, and clean energy and energy efficiency investments would support an additional 1.3 million direct and indirect jobs. Overall, the combination of export promotion (balanced goods trade), and expanded public investments will support a total of 6.9 million direct and indirect jobs. In addition, to the extent that multiplier effects are generated by these activities as workers spend their incomes in the economy, up to 6.0 million additional jobs could be supported by these activities. (As noted earlier, multiplier effects are stronger when the economy is struggling than when it is at full employment.)

The fourth and last data column in panel two of the table shows the results of jobs supported or created per category if we break down the additional 6.0 million induced respending jobs by each of the three program areas: export promotion, infrastructure investment, and clean energy/energy efficiency investment. If induced (multiplier) effects are included, trade rebalancing could support an additional 3.1 million jobs, meaning trade rebalancing has the potential to support between 3.5 million jobs (column three) and 6.6 million total jobs (column four). If the overall adjustment in the trade balance is less, then total jobs supported would be smaller. For example, if the trade deficit falls by half, then net export growth will support between 1.8 and 3.3 million additional net jobs.

Similarly, a $250 billion annual increase in infrastructure spending could support an additional 1.8 million respending jobs, meaning the infrastructure spending has the potential to support between 2.1 million jobs (column three) and 3.9 million jobs (column four) when direct, indirect, and induced (respending) jobs are included. Finally, spending on clean energy and energy efficiency could support between 1.3 million and 2.5 million net new jobs. The overall results —roughly 6.3 million direct, indirect, and respending jobs supported—are comparable with Pollin and Chakraborty 2020, when multiplier effects are included.13

Overall, the programs summarized in Table 2 will support a grand total of between 6.9 million and 12.9 million new jobs (depending on the overall level of macroeconomic multipliers in 2024 and thus respending jobs) if the U.S. trade deficit is eliminated in that year.

Economic impacts by industry

Overall economic impacts of the three trade and investment proposals by industry are summarized in Tables 3 and 4. Table 3 reports changes in imports, exports, and the trade balance from implementing export promotion policies that eliminate the trade deficit by 2024, and Table 4 reports how the $500 billion in new spending on infrastructure, clean energy, and energy efficiency in 2024 breaks down by industry.

Table 3

The trade model is based on actual trade behavior during the 2002–2008 period, the last time the dollar experienced a sustained declined of about 25%. During this period, total U.S. goods exports increased 87.5%. The forecast assumes that exports at the industry level increased at the rate that prevailed in the 2002–2008 period (with few exceptions, explained in the notes and methodology appendix), and that imports in each sector increase at the rate that prevailed in the most recent 2014–2019 period (8.3%, in total, as shown in Table 2).14 Finally, assumed export growth in each sector is further reduced by 15.5% so as to achieve overall balance in goods trade in 2024. In other words, the model assumes that overall U.S. goods exports increase 64.6% between 2019 and 2024, as shown in the last column of Table 2.

Table 3 also reports each industry’s share of the overall import growth, export growth, and trade balance change between 2019 and 2024. In terms of net changes in the trade balance, 70.9% of the improvement in the goods trade balance (i.e, the decrease in the goods trade deficit) takes place in the manufacturing sector, 7.2% is in agricultural products, and 19.8% is in mining (oil and gas is a big contributor, alone responsible for 12.6% of the increase in goods trade). Within manufacturing, petroleum and coal products, and chemicals—both essentially “refined energy products”—are together responsible for 21.5% of the total improvement in the trade balance. Finally, 44.0% of the improvement in the trade balance occurs in durable goods industries, which support many good, high-wage jobs, as discussed in the next section.

Table 4 reports the industry breakdown of the $500 billion in spending for infrastructure, clean energy, and energy efficiency in 2024, as noted above, as well as the economic output generated by the $812.6 billion in respending induced by the $1.354 trillion in spending from the trade rebalancing and infrastructure and clean energy/energy efficiency investments. Spending allocations for infrastructure, clean energy, and energy efficiency are scaled to proposals outlined in Pollin and Chakraborty 2020. Overall, 32.5% of planned spending for infrastructure is for construction services, as shown in the addendum at the bottom of Table 4. Less than one quarter (22.8%) of infrastructure spending is for manufactured products. On the other hand, virtually all (91.6%) of clean energy and energy efficiency investments are for manufactured products.

Table 4

The respending allocations assigned to each industry in the last data column are based on personal consumption expenditure data from the Bureau of Labor Statistics input–output tables (BLS-EP 2020b).15 Respending is heavily weighted toward service industry purchases, and manufactured products account for just 12.4% of respending. These differences between the industry composition of investment spending and the industry composition of respending have important implications for the patterns of job creation in the model results, as discussed in the next section.

Job impacts by industry

Table 5 provides the industry breakdown of direct and indirect jobs supported by export promotion (rebalancing trade), infrastructure investments, and clean energy/energy efficiency investments.16 The last two data columns in the table report the total direct and indirect jobs from all three categories combined and the total jobs supported in each industry as a share of the overall total jobs supported (it excludes jobs from respending).17

Table 5

Overall, 6,895,200 jobs would be supported between 2019 and 2024 as a result of these three activities. More than one-third (36.4%) of the jobs supported would be in manufacturing, or 2,508,000 total jobs. In addition, 471,200 jobs (6.8% of the total) would be in construction. An overwhelming share (87.4%) of the 471,200 construction jobs supported are jobs supported by infrastructure investments (411,900).

Manufacturing and construction offer high wages with excellent benefits (Scott 2017b). Nearly half (43.2%) of the direct and indirect jobs supported by the programs outlined in this study would be in these high-wage industries (supporting a combined 2,979,200 jobs). Manufacturing and construction employed a total of 20,491,000 workers, or 13.4% of total nonfarm employment, in February 2020 (BLS 2020a). Thus, these programs, if enacted, would create a threefold increase in the rate at which the U.S. economy is generating good jobs for non-college-educated workers. This would help restructure the labor market toward more high-wage jobs for these workers.18 Competition for these workers also would help pull up wages for all workers with similar characteristics in other industries, by tightening the labor market for non-college-educated workers.

The addendum at the bottom of Table 5 illustrates some of the differences and relative strengths of these three proposals for rebuilding the economy. Nearly two-fifths (39.5%, or 1,386,400 jobs) of the jobs supported by rebalancing trade would be in manufacturing. Roughly one-fifth of jobs supported by infrastructure investment will be in construction. And among the three programs considered here, infrastructure investment supports the smallest share of manufacturing jobs (14.4%, or 298,800 jobs). Clean energy and energy efficiency investments would support 1,315,400 jobs, nearly two-thirds of which (62.6%, or 822,800 jobs) would be in manufacturing. This is an important result for those concerned that clean energy proposals will hurt employment. Clean energy proposals substitute capital, and especially manufactured goods, as inputs instead of energy; these proposals also substitute wages for profits—traditional energy industries such as oil are among the most profitable in the United States.19 To understand the potential benefits of clean energy job creation, consider that the coal mining industry in the United States employed only 50,400 workers, in total, in February 2020 (BLS 2020a). While targeted policies that help workers transition to new industries are clearly a necessary complement to these investment proposals, many of these workers displaced by shifting energy production easily could be absorbed by growing manufacturing industries in the United States if the clean energy proposal were implemented. Overall, 2.5 million manufacturing jobs would be created by these three proposals over the next four years, more than enough to absorb all workers displaced by reduced energy consumption.

A state-by-state breakdown of job creation

Rebalancing trade, rebuilding U.S. infrastructure, and investing in clean energy and energy efficiency would generate significant job growth in all 50 states and in the District of Columbia, as shown in Table 6 and the interactive map in Figure A. Job gains would range from 6.16 % of total employment (or 181,000 jobs supported) in Wisconsin down to 2.85% of employment (or 10,200 jobs supported) in Washington, D.C., as shown in Table 6, which ranks states by jobs supported, as a share of total state employment. In general, job growth would be concentrated in the manufacturing-intensive areas of the country in the upper Midwest and the South which have been hardest hit by globalization and outsourcing, and especially by growing imports from China (Scott and Mokhiber 2020). Certain energy-producing states (i.e., North Dakota, South Dakota, Wyoming, and Oklahoma) are also in the top 10 job-gaining states.

Table 6

Figure A

The model used in this study assumes that construction spending, which is prominent in the infrastructure proposal, will be proportional to current distributions of construction and manufacturing employment by state. Actual results could vary if infrastructure and clean energy spending are allocated based on need, and if spending programs are used to redress existing patterns of racial and gender discrimination. The past is not prologue, in these cases, despite the structure of the model revealed in Table 2. Policy can change the distribution of jobs shown.

Supplemental Table A at the end of this report provides total jobs supported per state ranked by the total number of jobs supported. Jobs supported are in general proportional to total employment, so the states with the largest populations (California, Texas, New York, Florida, and Illinois) make up the top five on this list. Supplemental Table B ranks states alphabetically, and reports the same results shown in Table 6.

Conclusion

Rebalancing trade by expanding exports, and expanding public investments in infrastructure, clean energy, and energy efficiency, are the keys to generating at least 6.9 million good jobs, rebuilding American manufacturing and the U.S. economy.

Acknowledgments

The author thanks Josh Bivens, Scott Boos, Riley Olson, Scott Paul, and Michael Wessel for comments, and Lora Engdahl for editing assistance. We also thank Robert Polin and Shouvik Chakraborter of the Political Economy Research Institute at the University of Massachusetts, Amherst, for additional details about their modeling assumptions. This research was made possible by support from the Alliance for American Manufacturing.

About the authors

Robert E. Scott joined the Economic Policy Institute in 1996 and is currently director of trade and manufacturing policy research. His areas of research include international economics, trade, and manufacturing policies and their impacts on working people in the United States and other countries, the economic impacts of foreign investment, and the macroeconomic effects of trade and capital flows. He has published widely in academic journals and the popular press, including the Journal of Policy Analysis and Management, the International Review of Applied Economics, and the Stanford Law and Policy Review, as well as the The Hill, Los Angeles Times, Morning Consult, Newsday, The New York Times, USA Today, The Baltimore Sun, and other newspapers. He also has provided economic commentary for a range of electronic media, including NPR, CNN, Bloomberg, and the BBC. He has a Ph.D. in economics from the University of California, Berkeley.

Zane Mokhiber joined EPI in 2016. As a data analyst, he supports the research of EPI’s economists on such topics as wages, labor markets, inequality, trade and manufacturing, and economic growth. Prior to joining EPI, Mokhiber worked for the Worker Institute at Cornell University as an undergraduate research fellow.

Daniel Perez is a research assistant at the Economic Policy Institute. He joined EPI in December 2019 and supports the work of EPI economists on trade, inequality, worker power, and more. As a research assistant, he compiles and analyzes economic data for media briefings, research reports, and policy proposals. Prior to joining EPI, Perez served as a research assistant for The University of California, Santa Cruz’s Income Dynamics Lab, studying development and political economy, and worked as programmatic assistant for ROC United, where he worked to improve labor market outcomes for low-wage and tipped workers. Perez also has worked in other industries, including food, wholesale, and education.

Appendix: Methodology

The trade, investment, and employment analyses in this report are based on a detailed, industry-based study of the relationships between changes in trade and investment flows and employment for each of approximately 205 individual industries of the U.S. economy, specially grouped into 44 custom sectors, and using the North American Industry Classification System (NAICS) with data obtained from the U.S. Census Bureau (2019) and the U.S. International Trade Commission (USITC 2020).

This model was developed to analyze the employment impacts of trade flows on the domestic economy by Scott and Mokhiber (2020). It is adapted and extended here to examine the impacts of other types of spending, including infrastructure, clean energy, and induced respending (personal consumption expenditures or PCE) and multiplier effects. The underlying input-output and employment requirements models used to study trade effects are perfectly well suited to the study of domestic investment changes as well.

The number of jobs supported or displaced by $1 million of exports, imports, or other spending for each of 205 different U.S. industries is estimated using a labor requirements model derived from an input–output table developed by the BLS-EP (2020a).20 This model includes both the direct effects of changes in output (for example, the number of jobs supported by $1 million worth of auto assembly output) and the indirect effects on industries that supply goods (for example, goods used in the manufacture of cars). So, in the auto industry for example, the indirect impacts include jobs in auto parts, steel, and rubber, as well as service industries such as accounting, finance, computer programming, and staffing and temporary help agencies that provide inputs to the motor vehicle manufacturing companies. This model estimates the labor content of trade or other spending using empirical estimates of labor content and goods flows between U.S. industries in a given base year (an input–output table for the year 2019 was used in this study) that were developed by the U.S. Department of Commerce and the BLS-EP. It is not a statistical survey of actual jobs gained or lost in individual companies, or the opening or closing of particular production facilities (Bronfenbrenner and Luce 2004 is one of the few studies based on news reports of individual plant closings).

Only nominal trade and expenditure data and nominal employment requirements tables are used in this analysis. Inflation and productivity growth were ignored, in the absence of complete price and productivity projections.

The steps followed to estimate the economic and employment impacts of investments in infrastructure, and in clean energy and energy efficiency, are similar to the steps followed to estimate the economic and employment impacts of trade.

Data requirements for trade and for investments

The text below follows the step-by-step process for developing the data for analyzing all three proposals, with Steps 1 through 3 applying only to trade flows.

Step 1. U.S. trade data are obtained from the U.S. International Trade Commission DataWeb (USITC 2020) in four-digit NAICS formats. General imports and total exports are downloaded for each year.

Step 2. Trade projections are developed based on actual market behavior in earlier periods, as described in the text, above.

Step 3. To conform to the BLS Employment Requirements tables (BLS-EP 2020a), trade data must be converted into the BLS industry classifications system. For NAICS-based data, there are 205 BLS industries. The data then are mapped from NAICS industries onto their respective BLS sectors.

Step 4. Data on expenditures for investments in infrastructure, clean energy, and energy efficiency improvements and for respending were collected as described in the text and in tables 1 and 4, above. Expenditure data were translated into four-digit NAICS industries and then mapped onto their respective BLS sectors.

Step 5. Nominal domestic employment requirements tables are downloaded from the BLS-EP (2020a). These matrices are input–output industry-by-industry tables that show the employment requirements for $1 million in outputs in nominal 2019 dollars. So, for industry i the aij entry is the employment indirectly supported in industry i by final sales in industry j and, where i=j, the employment directly supported.

Analysis of trade and investment impacts

Step 1. Job equivalents. For the trade analysis, BLS trade data are compiled into matrices. Let [T₂₀₁₉] be the 205×2 matrix made up of a column of imports and a column of exports for 2019. [T₂₀₂₄] is defined as the 205×2 matrix of 2024 trade estimates. Define [E₂₀₁₉] as the 205×205 matrix consisting of the nominal 2019 domestic employment requirements tables. To estimate the jobs supported or displaced by trade, perform the following matrix operations:

[J₂₀₁₉] = [T₂₀₁₉] × [E₂₀₁₉]

[J₂₀₂₄] = [T₂₀₂₄] × [E₂₀₁₉ ]

[J₂₀₁₉] is a 205×2 matrix of job displacement by imports and jobs supported by exports for each of 205 industries in 2019. Similarly, [J₂₀₂₄] is a 205×2 matrix of jobs displaced or supported by imports and exports (respectively) for each of 205 industries in 2024.

A similar analysis is performed for infrastructure, clean energy, and energy efficiency investments, and for respending (PCE) as described above. The investments are all assumed to result in net increases in jobs supported by domestic spending.

To estimate jobs supported/displaced over certain time periods, we perform the following operations:

[J_nx19-24] = [J₂₀₁₉] − [J₂₀₂₄]

Step 2. State-by-state analysis. For states, pooled (five-year) estimates of employment-by-industry data are obtained from the Census Bureau’s American Community Survey (ACS) data for the 2013–2017 period (U.S. Census Bureau 2019) and are mapped into 44 unique census industries and seven aggregated total and subtotals, for a total of 52 sectors (including scrap, not part of the census analysis) (Data Planet 2019).21

Previous reports examining employment impacts of trade flows (Kimball and Scott 2014; Scott and Mokhiber 2018) relied on single-year estimates, based on ACS 2011 data, of employment by industry, state, and congressional district. This model has been completely reestimated in this version of the report with the newer ACS five-year data referenced above. These data provide substantially better detail, and greatly improved accuracy, in the form of much lower levels of variance for employment estimates at every level of detail in the model. The new estimates also reflect congressional district boundaries for the 115th Congress for most districts in the country. Boundaries changed in only a few districts in Pennsylvania and Colorado between the 115th Congress and the current 116th Congress.22

We look at net jobs supported from 2019 to 2024, so from this point, we use [J_nx19-24]. In order to work with 44 sectors, we group the 205 BLS industries into a new matrix, defined as [Jnew_19-24], a 44×2 matrix of job support numbers.

Jobs supported by infrastructure and clean energy/energy efficiency investments are added to net jobs supported by trade for the state analysis and combined into the separate vectors shown in Table 6 and Supplemental Tables A and B.

We define [St_2013-2017] as the 44×51 matrix of state employment shares (with the addition of the District of Columbia) of employment in each industry calculated from the ACS five-year employment estimates. We calculate:

[Stj_nx19-24] = [St_2013-2017]T [Jnew_19-24]

where [Stj_nx19-24] is the 44×51 matrix of job displacement/support by state and by industry. To get state total jobs supported, we add up the subsectors in each state.

Jobs supported by infrastructure and clean energy investments are added to net jobs supported by trade for the state analysis, shown separately in Table 6 and Supplemental Tables A and B, and then combined into one final vector for the calculation of total jobs gained as a share of total state employment.

Supplemental Table A

Supplemental Table B

Endnotes

1. The plans examined in this report have long been needed, but would be especially effective at the present time, due to the depressed state of the U.S. labor market (BLS 2020b).

2. See text box, “Defining jobs: Supported vs. created vs. job years,” and discussion there of jobs supported versus job years.

3. The PERI group has published a number of detailed studies of the impacts of clean energy programs at the state, national, and global levels, including Green Growth (Pollin, Garrett-Peltier, Heintz, and Hendriks 2014), and Climate Crisis and the Global Green New Deal (Chomsky and Pollin 2020).

4. The year 2019 is chosen as the base period for this study because that is the last year for which we have complete trade data.

5. See Scott 2009, especially Figure A, for further review of the history of the Plaza Accord and currency realignment in the 2002–2008 period. See Bergsten and Gagnon 2012 for an analysis of the impacts of currency manipulation on the U.S. economy and global trade flows. There are several tools available to combat currency manipulation and offset dollar misalignment (Scott 2017a). One of the most effective and direct methods is to tax foreign investment. Recently, Sens. Tammy Baldwin (D-Wis.) and Josh Hawley (R-Mo.) introduced bipartisan legislation to address the twin problems of an overvalued dollar and growing trade imbalances. Their bill would empower the Federal Reserve to tax new foreign purchases of U.S. stocks, bonds, and other assets—which could return the dollar to a competitive, trade-balancing level (Hansen 2017; Scott 2019).

6. See Methodology Appendix for discussion of NAICs industries and trade data sources. Actual exports of energy products increased extremely rapidly between 2002 and 2008, from a very tiny base, including crude oil (which increased 395%) and refined petroleum products (which increased 632%). By 2019, exports of these products had increased very substantially, to $95.7 billion and $93.8 billion, respectively. Use of historical growth rates for these sectors would have overwhelmed the forecast. Therefore, the initial forecast is that exports of each of these products would double between 2019 and 2024, and then adjust downward by 15.5% in 2024, as described in the text.

7. Total U.S. goods imports increased only 6.0% between 2014 and 2019. Currency realignment will increase the prices of imports, limiting additional consumption of imported products to at most recent trend growth in imports. Note that imports increased rapidly in the 2002–2008 period due to currency manipulation by China and other Asian countries, and extensive unfair trade policies, which limited the decline of the U.S. trade deficit in that period. We assume in this forecast that the dollar falls against all major surplus currencies here, including the Chinese yuan, Japanese yen, Korean won, and the euro, and that fair-trade enforcement otherwise prevents and unwinds unfair import trade. (Authors’ analysis of USITC 2020).

8. The initial projection resulted in a 94.8% increase in total exports between 2019 and 2024, using the weighted average of actual 2002–2008 growth rates, and an 8.3% increase in imports, resulting in an initial projected surplus of $496.7 billion.

9. It should be noted that the 2019–2024 period is one year shorter than the 2002–2008 period mentioned above, so it is reasonable to assume that future export growth will be less than in the reference period.

10. The Sierra Club (2020) plan is detailed but is at a higher spending level and for a longer period of time than the plan considered here, which is based on a four-year, $2 trillion climate and infrastructure investment proposal.

11. The authors thanks Robert Pollin and Shouvik Chakraborty for additional details about model assumptions (Chakraborty 2020). The final version of that report also evaluates a proposed investment of $186 billion per year in agricultural and land restoration investments that are not included here. The program considered here includes a much smaller component of agricultural programs, for energy conservation, as noted below. Individual modeling elements were converted from the IMPLAN 546 modeling format to the Bureau of Labor Statistics formal modeling of 205 individual industries of the U.S. economy; this conversion was implemented using IMPLAN to NAICS crosswalks.

12. The actual level of respending achieved could be higher or lower than shown in Table 2 and elsewhere in this report. The actual size of the multiplier will depend on the level economic activity when the spending takes place. See the text box, “Defining jobs: Supported vs. created vs. job years,” for discussion of the role of labor market tightness or slack on overall job creation. See also Bivens (2014) for a review of the literature on economic multipliers.

13. Pollin and Chakraborty (2020, Tables 1b and 2b) estimate that $683.1 billion in infrastructure and clean energy spending would support a total of 9.3 million new jobs, including direct, indirect, and induced spending. Our report estimates that $500 billion in infrastructure and clean energy and energy efficiency could support a total of 6.34 million jobs (including respending, Table 2, above). Adjusting for the 36.6% higher spending levels in Pollin and Chakraborty relative to this report’s $500 billion spending package, overall projections shown in Table 2 are about 7.6% lower, in terms of jobs per billion dollars of spending, which is likely explained by small differences in multipliers (induced spending) in the two models. In addition, the BLS model used here is based on 2019 input–output tables, and the IMPLAN model used by Pollin and Chakraborty is based on 2018 input–output data. See the methodology appendix for further details.

14. The model is based on trade flows at the NAICS 4-digit level, which are aggregated into the 205-industry BLS model used for this study, as described in the appendix. These data are further aggregated into 52 sectors for presentation in Tables 2–4 (some of which with no data are omitted from Tables 2 and 3).

15. The personal consumer expenditures vector is one of the components of the Aggregate Final Demand data set that is included with the BLS input–output matrix files, as a component of “Nominal dollar input–output data for 1997–2019” (BLS-EP 2020b).

16. The table provides detailed information on jobs supported by industry and within industries. An additional fact not provided in the table but rather from unpublished analysis of the data is that within primary metals, 69,900 new jobs would be supported in the steel industry (NAICS 3311 and 3312).

17. Four industries show net jobs displaced by trade, and in three of those industries that translates into jobs displaced in the trade plus investments total.

18. Manufacturing and construction employ a substantially higher share of non-college-educated workers than other sectors of the economy. For example, in 2009–2011, 47.7% of manufacturing workers had a high school diploma or less education, compared with 37.6% of workers in all industries (Scott 2013, Table 1).

19. Profits are much lower in manufacturing industries, which produce 91.6% of products in this study. Hence, substitution of clean energy equipment for energy products will increase the labor share of energy expenditures.

20. The model includes 205 NAICS industries. The trade data include only goods trade. Goods trade data are available for 85 commodity-based industries, plus information (publishing and software, NAICS industry 51), waste and scrap, used or secondhand merchandise, and goods traded under special classification provisions (e.g., goods imported from and returned to Canada; small, unclassified shipments). Trade in scrap, used, and secondhand goods has no impact on employment in the BLS model. Some special classification provision goods are assigned to miscellaneous manufacturing. Most trade in the special classifications provisions is small package trade that enters duty free, and involves products that are not classified.

21. The U.S. Census Bureau uses its own table of definitions of industries. These are similar to NAICS-based industry definitions, but at a somewhat higher level of aggregation. For this study, we develop a crosswalk from NAICS to Census industries, and we use population estimates from the ACS for each cell in this matrix. The ACS data we obtain from the Census Bureau for this project includes 44 unique sectors, plus subtotals for manufacturing, and for total employment. Trade and job loss coefficients are estimated using data only for the 44 unique sectors, across states and congressional districts.

22. According to the U.S. Census Bureau, only Colorado and Pennsylvania had congressional district boundary changes for the 116th Congress.

References

American Society of Civil Engineers (ASCE). 2017. 2017 Infrastructure Report Card.

Bivens, Josh. 2012. Green ‘Sequester’ is Already Costing U.S. jobs: Job Losses from Ongoing Clean-tech Cuts Will Rival Those from Defense Cuts. Economic Policy Institute, December 2012.

Bivens, Josh. 2014. The Short- and Long-Term Impact of Infrastructure Investments on Employment and Economic Activity in the U.S. Economy. Economic Policy Institute, July 2014.

Bergsten, C. Fred, and Joseph E. Gagnon. 2012. Currency Manipulation, the U.S. Economy, and the Global Economic Order. (Policy Brief 12-25), Peterson Institute for International Economics, December 2012.

Bronfenbrenner, Kate, and Stephanie Luce. 2004. The Changing Nature of Corporate Global Restructuring: The Impact of Production Shifts on Jobs in the U.S., China, and Around the Globe. Commissioned research paper for the U.S. Trade Deficit Review Commission.

Bureau of Labor Statistics (BLS). 2020a. “Employment, Hours, and Earnings from the Current Employment Statistics (National)” (Excel spreadsheets). Accessed September 21, 2020.

Bureau of Labor Statistics (BLS). 2020b. “Table A-11. Unemployed Persons by Reason of Unemployment.” Accessed September 29, 2020.

Bureau of Labor Statistics, Employment Projections program (BLS-EP). 2020a. “Nominal Domestic Employment Requirements Table for 2019” [Excel sheet, converted to Stata data file]. In Historical Employment Requirements Tables, 1997–2019 [data series]. Last modified June 10, 2020.

Bureau of Labor Statistics, Employment Projections program (BLS-EP). 2020b. “Inter-industry relationships (Input Output matrix): Nominal Final Demand Aggregate Data.” [Excel sheet]. Last modified June 10, 2020.

Chakraborty, Shouvik. 2020. Personal communication with Robert Scott, August 31, 2020.

Chomsky, Noam, and Robert Pollin, with C.J. Polychroniou. 2020. Climate Crisis and the Global Green New Deal: The Political Economy of Saving the Planet. London and New York: Verso.

Congressional Budget Office (CBO). 2020. “An Update to the Economic Outlook: 2020 to 2030 (10 year Economic Projections).” (Report), Congressional Budget Office, July 2, 2020.

Data Planet. 2019. “American Community Survey, 5-year Estimates: About the ACS 5-year Estimates” (web portal for exploring ACS data). Last updated December 18, 2019.

Federal Reserve Board. 2020. “Foreign Exchange Rates – H.10: Real Broad Dollar Index – Monthly Index” (data table). Accessed September 14, 2020.

Hansen, John R. 2017. “Why the Market Access Charge is Necessary to Fix Trade Imbalances.” Coalition for a Prosperous America. September 2017.

Kimball, Will, and Robert E. Scott. 2014. China Trade, Outsourcing and Jobs: Growing U.S. Trade Deficit with China Cost 3.2 Million Jobs between 2001 and 2013, with Job Losses in Every State. Economic Policy Institute Briefing Paper no. 385, December 2014.

Lee, Thea. 2020. “HEROES Act Provides Critical Relief and Recovery Measures to U.S. Workers.” (Statement). Economic Policy Institute, May 12, 2020.

Osterholm, Michael T., and Neel Kashkari. 2020. “Here’s How to Crush the Virus Until Vaccines Arrive: To Save Lives, and Save the Economy, We Need Another Lockdown.” New York Times, August 7, 2020.

Paul, Scott. 2020. Our American Manufacturing Plan Will Create 6.9 to 12.9 Million New Jobs by 2024, Alliance for American Manufacturing. October, 2020.

Pollin, Robert, James Heintz, and Heidi Garrett-Peltier. 2009. How Infrastructure Investments Support the U.S. Economy. Political Economy Research Institute, University of Massachusetts Amherst, January 2009.

Pollin, Robert, Heidi Garrett-Peltier, James Heintz, and Bracken Hendricks. 2014. Green Growth: A U.S. Program for Controlling Climate Change and Expanding Job Opportunities. Center for American Progress and Political Economy Research Institute, University of Massachusetts Amherst, September 2014.

Pollin, Robert, and Shouvik Chakraborty. 2020. Job Creation Estimates Through Proposed Economic Stimulus Measures.  Political Economy Research Institute, University of Massachusetts Amherst, September 2020.

Scott, Robert E. 2009. “Re-Balancing U.S. Trade and Capital Accounts.” Economic Policy Institute, Working Paper no. 286, December 2009.

Scott, Robert E. 2013. Trading Away the Manufacturing Advantage: China Trade Drives Down U.S. Wages and Benefits and Eliminates Good Jobs for U.S. Workers. Economic Policy Institute, September 2013.

Scott, Robert E. 2017a. Growth in U.S.–China Trade Deficit between 2001 and 2015 Cost 3.4 million Jobs: Here’s How to Rebalance Trade and Rebuild American Manufacturing. Economic Policy Institute, January 2017.

Scott, Robert E. 2017b. “We Still Haven’t Recovered Well-Paying Construction and Manufacturing Jobs.” Economic Snapshot, Economic Policy Institute, August 16, 2017.

Scott, Robert E. 2019. “Trade Wars and the Over-Valued Dollar.” The Hill, August 9, 2019.

Scott, Robert E. 2020. We Can Reshore Manufacturing Jobs, but Trump Hasn’t Done It: Trade Rebalancing, Infrastructure, and Climate Investments Could Create 17 Million Good Jobs and Rebuild the American Economy. Economic Policy Institute, August 2020.

Scott, Robert E., and Zane Mokhiber. 2018. The China Toll Deepens: Growth in the Bilateral Trade Deficit between 2001 and 2017 Cost 3.4 Million U.S. Jobs, with Losses in Every State and Congressional District. Economic Policy Institute, December 2018.

Scott, Robert E., and Zane Mokhiber. 2020. Growing China Trade Deficit Cost 3.7 Million American Jobs Between 2001 and 2018: Jobs Lost in Every U.S. State and Congressional District. Economic Policy Institute, January 2020.

Sierra Club. 2020. Millions of Good Jobs: A Plan for Economic Renewal. May 2020.

U.S. Census Bureau. 2019. “American Community Survey: Special Tabulation over 44 industries, Covering 435 Congressional Districts and the District of Columbia (115th Congress Census Boundaries), Plus State and US Totals Based on ACS 2013 5-year file” [custom tabulation, spreadsheets received November 26, 2019; Rhode Island data received January 14, 2020].

U.S. International Trade Commission (USITC). 2020. USITC Interactive Tariff and Trade DataWeb [database]. Accessed September 2020.

While U.S. Trade Representative Robert Lighthizer’s recent op-ed heralding an end to “the era of reflexive offshoring” highlights some positive steps forward by the USTR, much more needs to be done to bring supply chains home. It is not enough to—as the administration has done—set tariff policy by tweet, negotiate trade agreements that do not directly take on outsourcing across manufacturing and service sectors, and hope that corporations finally “see the light” and bring jobs home. Rather, returning jobs to America requires a robust, comprehensive strategy that coordinates policies in trade, currency valuation, investment, financing, energy, technology, tax, education, training, government procurement, and labor.

To start, this strategy would include the following:

• Insist that the Defense Department and other U.S. agencies cease their reflexive support for continued use of outside supply chains in Mexico and elsewhere and instead push for bringing work home.
• Ensure that “Made in the U.S.” in government procurement programs actually means that a product is manufactured by U.S. workers with U.S. supplies and materials.
• Require employment impact statements in government contract and award determinations in order to maximize U.S. job creation.
• Create a U.S. Manufacturing Investment Bank.
• Address currency misalignment.
• Eliminate tax incentives that encourage corporations to outsource production.

Insist that the Defense Department and other U.S. agencies push for bringing work home

The Trump administration could start to bring work home by scrutinizing its own departments, starting with the Pentagon. Several days ago, Pentagon officials acknowledged the dangers of relying on supply chains in other countries for defense products, especially in aviation and shipbuilding. But their response to that danger missed the point. Citing how the COVID-19 crisis has led to the closures of factories in Mexico that are critical to the defense industry, Undersecretary of Defense for Acquisition and Sustainment Ellen Lord said she would be asking the Mexican Foreign Affairs Minister to help reopen international suppliers there that provide parts for U.S. airframe production.

What is wrong with this picture? Instead of demanding that Mexico open its factories in the midst of COVID-19 to produce items for the United States, Pentagon officials should be demanding that U.S. companies move work back home. How can some officials reinforce the use of supply chains outside of the U.S. when over 36 million U.S. workers, many of them in manufacturing, are unemployed?

Also extremely troubling is the simple fact that many factories in Mexico cannot provide proper personal protective equipment for workers and forcing them back to work without needed safety measures jeopardizes lives. It’s bad enough that U.S. workers in certain industries are being asked to return to work without proper personal protective equipment, reliable testing and strict adherence to the Centers for Disease Control guidelines. U.S. government officials’ demands that Mexico reopen factories and subject unprotected workers to the dangers of COVID-19 are unconscionable.

It is no secret that U.S. companies have flocked to Mexico over the past 30 years. As I have previously written, Mexico now employs between 30,000 and 40,000 workers in just one industry alone, aerospace. Aerospace manufacturers promote Mexico’s low wages to draw business across the border. Analysts have commented that “Mexico’s proximity to the U.S. and its lower labor cost structure have drawn approximately 300 foreign manufacturers to areas in five Mexican states.” As one review of the aerospace industry noted, “The downside of this is that the country may be used increasingly for its cheap labor by profit-hungry companies from more established markets.” Mexico’s aerospace industry is now a major exporter to the U.S., as highlighted by the Pentagon’s announcement.

And it is not just aerospace manufacturing that has shifted supply chains to Mexico. In addition to medical supplies, other essential sectors are greatly impacted by supply chains in Mexico, including all sorts of manufacturing, electronics, communications (especially call centers), and food products.

Now is the time for all federal departments—starting with Defense—to insist that U.S. companies bring work home, especially work that is essential to our economy and national defense. The administration can start by using the Defense Production Act to ensure that the U.S. immediately step up production of essential items like desperately needed personal protection equipment and ventilators. There are hundreds of factories that have closed across the country that could be used for this important mission.

Ensure that “Made in the U.S.” in government procurement programs actually means that a product is manufactured by U.S. workers with U.S. supplies and materials

For most consumers, a U.S. product is one that is domestically manufactured at home with U.S. materials and supplies. They would be shocked to learn that our federal government considers a product to be domestically made even when a significant number of parts and components were produced in other countries. Although the government has adopted domestic content requirements in certain procurement programs, these content requirements can be as low as 51%. Moreover, methods for calculating domestic content are a mess. What factors do agencies include in determining content? Is the calculation limited to raw materials, production, assembly, and maintenance? Or can the calculation include intangible items that can be used to inflate domestic content—like the value of marketing, research, development, and intellectual property rights? How is the origin of components and subcomponents considered?

The administration should move quickly to make domestic content calculations effective and transparent. Domestic sourcing requirements for all government procurement programs (e.g., “Buy American” laws) and programs that support U.S. exports (e.g., the U.S. Export-Import Bank) should also be reviewed to ensure that the requirements are strong, taken seriously, and effectively implemented.

Further, waivers that allow exemptions from domestic procurement requirements should be greatly narrowed, including when exemptions are granted for the use of foreign-sourced goods that are in the “public interest,” not reasonably available in sufficient commercial quantities, or not available at a reasonable cost.

The Buy American requirements should also be equally rigorous with sectors like food products. Government commissaries and cafeterias should be using products made here at home. This includes items from sugar and flour to baked goods.

Require employment impact statements in government contract and award determinations in order to maximize U.S. job creation

The administration should adopt a simple, common-sense policy that directly links domestic employment with certain government activities. One way to accomplish this is to require detailed employment impact statements (EIS) as part of the decision-making process for government procurement contracts, assistance, grants, and awards. The results reflected by the EIS would be a significant factor in the final determination concerning the project or transaction under consideration. The EIS would contain information pertaining to employment that would be maintained, created, or lost if the program in question were approved.

To assure that employment impact statements and reliance upon them are fully and effectively implemented, federal agencies would need to submit annual reports summarizing the procedures used and the results. The reports would furnish the administration and Congress with valuable information about how government programs are supporting the creation and maintenance of jobs.

Create a U.S. Manufacturing Investment Bank

Similar to the concept of the U.S. Export-Import Bank (Ex-Im Bank), a new U.S. Manufacturing Investment Bank would provide financial support for the revitalization of the U.S. manufacturing sector. The U.S. Manufacturing Investment Bank would target large, medium, and small manufacturers that cannot obtain affordable credit on commercial terms. Financing would be in the form of loans at or below commercial rates or of a federal guarantee of a commercial loan. These loans would be paid back directly to the U.S. Treasury, similar to the procedures implemented by the Ex-Im Bank.

In order to receive financing, eligible companies would need to demonstrate a reasonable assurance of repayment within the terms of the agreement and agree to the following requirements:

• Loans will be used to domestically manufacture, assemble, and/or service goods, equipment, parts, and components.
• Materials used for manufacturing will be domestically produced or mined.
• Work will not be outsourced to other countries.

Also, companies that receive loans must not be found in violation of any federal labor and employment laws for one year prior to the inception of the loan and through its term.

Address currency misalignment

As detailed in EPI’s Policy Agenda, policymakers must focus their attention on making the dollar competitive. Cheap imports achieved through [foreign] currency undervaluation continue to make production in China and elsewhere attractive. Combined with addressing the effects of the strong dollar on trade imbalances, bringing supply chains home will require that policymakers take actions outlined in the EPI Policy Agenda:

• Engage in international negotiation to lead to a competitive dollar, as the U.S. did with the 1985 Plaza Accord.
• If negotiations fail, rely on the U.S. Treasury and the Federal Reserve to sell dollars in global markets to realign the dollar’s value against other currencies.
• Impose a tax on the purchases of dollar-denominated assets by foreign governments and investors.

Eliminate tax incentives that encourage corporations to outsource production

If the administration is serious about bringing jobs back home, it should support legislation that would remove tax incentives for corporations to create and maintain production overseas. Introduced last year by Sen. Sheldon Whitehouse and Rep. Lloyd Doggett, The No Tax Breaks for Outsourcing Act would go a long way toward removing these incentives. According to Whitehouse’s office, the measure would, among other things:

• Tax income from overseas subsidiaries at the same rate that applies to domestic income.
• Treat “foreign” corporations that are managed and controlled in the U.S. as domestic companies.
• Crack down on so called “inversions” by maintaining the U.S. tax treatment of merged companies that retain a majority of U.S. ownership.

While strong statements from some administration officials, like the USTR, about bringing jobs home are laudable, current policies will not achieve these much-needed results. With over 36 million people out of work and an unemployment rate which has reached Depression-era levels, Americans are in desperate need of a well-coordinated, comprehensive policy to stop the erosion of our nation’s industrial base.

Of course, changing the flow of supply chains back to the U.S. will not occur overnight. But we need to start somewhere and we need to start now. Never again should our highest officials in the Defense Department have to plead for help from another country to produce the essential equipment that should be produced here at home. Nor should our officials demand that another country force its workers to produce goods for the U.S. under unsafe conditions.

Figure A

Trade deficits and jobs losses with China continued to grow during the first two years of the Trump administration—despite the administration’s heated rhetoric and imposition of tariffs. The U.S. trade deficit with China rose from $347 billion in 2016 to $420 billion in 2018, an increase of 21.0%. U.S. jobs displaced by those China trade deficits increased from nearly 3.0 million jobs lost in 2016 to 3.7 million jobs lost in 2018, an increase of more than 700,000 jobs lost or displaced in the first two years of the Trump administration.

Although the bilateral trade deficit with China has declined in 2019 (through November), the overall U.S. trade deficit in non-oil goods, which is dominated by trade in manufactured and farm products, has continued to increase, suggesting that trade diversion has grown in importance. These are important topics for future research.

While growing exports support some American jobs, growing imports eliminate existing jobs and prevent new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers. As a result, growing trade deficits result in increasing U.S. job losses. The top half of Table 1 shows just how much the trade deficit has grown: The U.S. trade deficit with China increased from $83.0 billion in 2001 to $420 billion in 2018. While U.S. exports to China increased in this period, growing exports were overwhelmed by the massive growth of imports from China, which increased by $437 billion in this period. 

U.S. trade deficits with China displaced 956,700 jobs in 2001 when China entered the World Trade Organization (WTO) and the number of jobs lost due to the trade deficit increased to 4,661,400 in 2018, leading to a net 3.7 million jobs lost, as shown in the bottom half of Table 1.

Table 1

The single most important cause of growing trade deficits with China is its history of currency manipulation and dollar misalignment that has persisted for more than two decades. And yet, the reported deal will provide extremely unfavorable terms for the United States on exchange rates, essentially locking in the current exchange rate. This deal is a step backwards on currency manipulation and misalignment.

Despite all of the tariffs and other restrictions imposed on China trade by the Trump administration, the bilateral trade deficit continued to grow between 2016 and 2018, resulting in the loss of more than 700,000 U.S. job opportunities. It remains to be seen whether bilateral and global trade balances improve in the wake of the phase one trade agreement with China, and future trade deals to come. But the phase one trade deal does not appear to address the key structural concerns with the long-term imbalance in trade between the United States and China.

I am pleased to enter my comments in support of the proposed modification of CVD regulations to allow Commerce to treat currency undervaluation as a countervailable subsidy subject to CVD regulations, subject to the comments and issues noted below.1

The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank located in Washington, D.C. I am a Senior Economist with EPI, and am the Director of Trade and Manufacturing Policy Research. There are a number of issues that arise with respect to the measurement of equilibrium currency values and how they should be assessed that I wish to note, based on my review of the draft regulations.

Currency manipulation and currency misalignment are distinct, but closely related, problems

Currency manipulation consists of government purchases and sales of foreign exchange reserves that are designed to persistently depress the value of the domestic currency for commercial advantage. Currency manipulation by about 20 countries—including China, Japan, and a number of other countries in Asia and Europe—resulted in large, persistent trade and current account surpluses for those countries, especially during the “Decade of Manipulation” from 2003–2013.2 Currency manipulation has distorted global trade and capital flows, to a greater or lesser degree, for much of the past two decades.

Since 2014, the central governments of China and other currency manipulators have begun to reduce their purchases of United States and other foreign exchange reserve securities. But the dollar is still rising, thanks to overseas investors now pouring huge amounts of private capital into bonds, stocks, and controlling interests in American companies, as well as real estate, bank loans, bank deposits, and currency.3 It is important to note that some of these recent, “private” purchases come from quasi-state actors or state-influenced institutions (such as social security trust funds in Japan and Korea, and private insurance funds in Taiwan).

These private purchases have driven up the real value of the dollar by more than 20 percent since mid-2014, continuing the trend of making American-made goods less competitive globally. As a result, the Congressional Budget Office predicts that America’s trade deficit is on track to exceed $700 billion by 2021, a full 3 percent of gross domestic product.4

Thus, the dollar is currently “overvalued” relative to the trade-balancing, equilibrium exchange rate. I assume here that the equilibrium exchange rate is the set of exchange rates that would produce balanced trade for the United States and some or all of its major trading partners.

The trade-balancing, equilibrium exchange rate concept is completely distinct from that of “currency manipulation,” as defined by Treasury, the IMF, and other agencies. Currency manipulation refers to government intervention in foreign exchange markets for the purpose of gaining commercial advantage. The CVD regulations as published, and under discussion here, refer only to the concept of a “subsidy in the form of currency undervaluation,” without direct reference to currency manipulation as a cause of that undervaluation. Thus, my remarks will focus only on the concept and estimation of equilibrium exchange rates.

Currency undervaluation can result from currency manipulation, from excess private capital inflows, or both. These comments are concerned only with addressing the consequences of undervaluation.

The definition and determination of equilibrium exchange rates should be reconsidered

The draft regulations refer to various definitions of the equilibrium “real effective exchange rate” (REER), including estimates from the IMF and from the Peterson Institute. The particular Peterson paper—referred to in footnote 28 of the Commerce Department notice of proceeding5—is a 2017 estimate of “fundamental equilibrium exchange rates” by William R. Cline.6 In these comments, I will distinguish between the particular results that Cline obtained in his 2017 paper using the model that he developed, in a series of related papers, with his Peterson Institute colleague John Williamson.7 That model (hereinafter referred to as the “Cline model”) has been used to estimate equilibrium exchange rates under a number of different assumptions about data inputs and parameter values.

None of the methods cited in the draft regulations will generate reliable estimates of trade-balancing exchange rates. The Cline estimate cited in the draft regulations, in particular, allows for current account deficits and surpluses equal to plus or minus 3 percent of GDP, which are far from trade-balancing exchange rates.

The Cline model has been used by Bergsten to estimate a set of true trade-balancing exchange rates, based on generating zero current account balances for Japan, China, and the European Union, which are responsible for the vast majority of global current account imbalances at the present time.8 These three countries/unions are responsible for the development of large and persistent global trade imbalances over the past 10 to 20 years.9

For purposes of illustration, Bergsten estimates (using 2016 data, and projected to 2019) that the euro, the Chinese yuan, and the Japanese yen must rise by 40.9 percent, 37.1 percent, and 50.2 percent, respectively, in order to eliminate the persistent current account surpluses of these countries. In this scenario, the real dollar would depreciate by 26.5 percent, while the real (price-adjusted, trade-weighted) value of the euro, yuan, and yen would rise by 15.0 percent, 9.9 percent, and 22.6 percent, respectively. The U.S. current account deficit would be eliminated as well, as a product of these realignments.10

Data quality issues must be considered in the estimation of equilibrium exchange rates

The results of the Bergsten model illustrate the fact that estimates of trade-balancing equilibrium exchange rates (which should be used to determine the extent to which a currency is “undervalued” in the proposed CVD proceedings) depend critically on model parameter values used in the Cline model, or any other, alternative model used to estimate equilibrium exchange rates.11

The quality of data used to estimate equilibrium exchange rates is also critical to the determination of the degree of undervaluation of any particular bilateral exchange rate. The Cline and Bergsten models are both based on estimates of each country’s total current account balance as a share of GDP. The current account is the broadest measure of the total flows of trade in goods, services, and income. Having accurate estimates of each country’s trade and income flows is thus essential to the development of reliable estimates of equilibrium exchange rates.

There are substantial problems with the quality of data used to compute equilibrium exchange rates. Such calculations typically depend on estimates of current account flows as reported by the International Monetary Fund.12 The IMF typically relies on self-reported trade data in its reports. There are substantial and well-known problems with self-reported trade data. For example, recent research by the Federal Reserve has shown that China is overstating its tourism trade deficit by roughly 1 percent of GDP (roughly $145 billion in 2018).13 Thus, current Chinese self-reported trade data understate that country’s current account surplus by at least that amount. Use of underestimated parameter values for China’s current account balance will lead to underestimates of the equilibrium dollar–yuan exchange rates needed to achieve current account realignment.

Likewise, it is well known that U.S. estimates of the bilateral U.S.–China goods trade deficit are substantially larger than those reported by China. Since China’s own self-reported current account estimates are based on China’s own self-reported goods trade flows, the goods trade account is also likewise underestimated. Further research is needed on this issue.

Who should be responsible for estimating equilibrium exchange rates?

These questions lead naturally to the issue of which agency or agencies should be responsible for estimating the equilibrium exchange rates that are used to determine the “benefit resulting from a subsidy in the form of currency undervaluation” in the proposed modifications to CVD regulations. The proposed regulations state that Commerce “intend[s] to seek and defer to the Department of Treasury’s (Treasury’s) evaluation and conclusion as to whether government action on the exchange rate has resulted in currency undervaluation.”14

It would be a mistake to assign the job of determining trade-balancing equilibrium exchange rates to Treasury. Although that agency has legislative responsibility for producing the semi-annual reports on the macroeconomic and foreign exchange policies of major trading partners of the United States,15 it has failed miserably in carrying out this responsibility for the past two decades.16 In particular, during the “Decade of Manipulation,”17 China and about 20 other countries engaged in massive, unprecedented currency manipulation that decimated U.S. manufacturing, resulting in the loss of roughly 5 million manufacturing jobs and 90,000 manufacturing plants.18 Yet Treasury did not once find any of these countries guilty of currency manipulation. This despite widespread agreement among professional economists that China and these other countries were acting in clear violation of IMF and WTO norms regarding prohibitions against currency actions taken “to gain unfair competitive advantage over other members.”19

In plain English, there are clear reasons why Treasury has refused to call out currency manipulators or intervene in currency markets. Simply put, Wall Street loves a strong dollar, and Treasury has historically been run by and for U.S. financial markets.20 The strong dollar has made imports artificially cheap (and U.S. exports less competitive on world markets), resulting in large and growing trade deficits. The resulting flood of cheap imports has driven huge profits for the companies that sell them, especially firms like Walmart, Amazon, Nike, and Apple. It has also led to reductions in wages for 80 million American workers competing with millions of workers in countries where labor has been cheapened by these undervalued currencies.21 All of this has filled the coffers of multinationals who outsource production, as well as the pockets of financiers on Wall Street who brokered these investments and the hedge fund managers who presided over the dismemberment of domestic manufacturing firms. It is no mistake that the current Secretary of the Treasury came from Wall Street, just as it is no mistake that most of his predecessors over the past three decades also came from Wall Street—and returned there when their time in government “service” was done.

The Federal Reserve should be charged with estimating equilibrium exchange rates for the purposes of determining the effects of currency undervaluation in CVD proceedings

As these comments have illustrated, there are serious technical issues involved both in modeling equilibrium exchange rates and in identifying the most accurate trade data and underlying parameter values. In addition, there are serious conflicts of interest that would arise if Treasury were tasked with making these assessments, for reasons outlined above. Furthermore, the Federal Reserve Board of Governors retains perhaps the most extensive team of economists and statisticians familiar with international data and modeling issues: These economists are intimately familiar with the functioning of international trade and financial markets, and they are best qualified to perform the objective analysis called for by these regulations.

I am well aware of the historic role played by Treasury as the lead agency for the U.S. government for international financial issues. However, those are policy issues largely having to do with the United States’ relationships with the International Monetary Fund, the World Bank, and other international financial institutions. The question at issue with respect to the determination of equilibrium exchange rates is a technical matter better suited to the expertise of the professional staff of the Federal Reserve.

Furthermore, historic roles and tradition must be subject to periodic evaluation and reconsideration as goals and policy environments change. For the past 46 years, since the end of the gold standard and the Bretton Woods Agreement in 1973, the United States has both adhered to and advocated for a system of market-determined, flexible exchange rates. This slavish adherence to financial market forces, come what may, has come at tremendous cost to communities across the United States. It is time to consider new ways to manage exchange rates, and these new approaches to managing currencies may require new institutional arrangements as well.

The Commerce Department’s proposed regulations to consider currency undervaluation as a part of countervailing duty determinations are an important step in this direction, and they should proceed in implementing these regulations, after due consideration of the issues raised here.

Endnotes

1. Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings, 84 Fed. Reg. 24406 (May 28, 2019).

2. C. Fred Bergsten and Joseph. E. Gagnon, Currency Conflict and Trade Policy: A New Strategy for the United States. (Washington, D.C.: Peterson Institute for International Economics, June 2017). See especially chapter 4, “The ‘Decade of Manipulation’ (2003–13).”

3. Robert E. Scott, “Elizabeth Warren’s Radical Plan to Fix the Dollar,” New York Times, June 16, 2019.

4. Congressional Budget Office, The Budget and Economic Outlook: 2019 to 2029, January 2019. Excel spreadsheet (data underlying figures in the report) downloaded February 2019.

5. Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings, 84 Fed. Reg. 24406 (May 28, 2019).

6. William R. Cline, “Estimates of Fundamental Equilibrium Exchange Rates, November 2017,” Peterson Institute for International Economics, November 2017.

7. William R. Cline and John Williamson, “New Estimates of Fundamental Equilibrium Exchange Rates,” Peterson Institute for International Economics, July 2008.

8. C. Fred Bergsten, “Time for a Plaza II?,” in International Monetary Cooperation: Lessons from the Plaza Accord After Thirty Years, ed. C. Fred Bergsten and Russel Green (Washington, D.C.: Peterson Institute for International Economics, 2016).

9. Brad Setser, The Return of the East Asian Savings Glut, Council on Foreign Relations, October 2016.

10. C. Fred Bergsten, “Time for a Plaza II?,” in International Monetary Cooperation: Lessons from the Plaza Accord After Thirty Years, ed. C. Fred Bergsten and Russel Green (Washington, D.C.: Peterson Institute for International Economics, 2016), Table 14-5.

11. C. Fred Bergsten, “Time for a Plaza II?,” in International Monetary Cooperation: Lessons from the Plaza Accord After Thirty Years, ed. C. Fred Bergsten and Russel Green (Washington, D.C.: Peterson Institute for International Economics, 2016).

12. International Monetary Fund, World Economic Outlook Database, April 2019: By Countries (Country-Level Data).

13. Ana Wong, “China’s Current Account: External Rebalancing or Capital Flight?,” Federal Reserve Board of Governors, International Finance Discussion Papers no. 1208, June 2017.

14. Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings, 84 Fed. Reg. 24406 (May 28, 2019).

15. U.S. Department of the Treasury, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, May 2019.

16. U.S. Department of the Treasury, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, May 2019.

17. C. Fred Bergsten and Joseph. E. Gagnon, “The ‘Decade of Manipulation’ (2003–13),” in Currency Conflict and Trade Policy: A New Strategy for the United States (Washington, D.C.: Peterson Institute for International Economics, June 2017).

18. Robert E. Scott, “What’s Good for Wall Street is Often Bad for American Workers and Manufacturing: The Overvalued Dollar,” Working Economics Blog (Economic Policy Institute), June 27, 2019.

19. Jonathan E. Sanford, Currency Manipulation: The IMF and WTO, Congressional Research Service, January 2011.

20. Robert E. Scott, “What’s Good for Wall Street Is Often Bad for American Workers and Manufacturing: The Overvalued Dollar,” Working Economics Blog (Economic Policy Institute), June 27, 2019.

21. Robert E. Scott, “Elizabeth Warren’s Radical Plan to Fix the Dollar,” New York Times, June 16, 2019.

In order to rebalance U.S. trade, the dollar needs to fall 25–30 percent, especially against the currencies of countries with large, persistent trade surpluses such as China, Japan, and the European Union. This would help to address the trade deficits that have eliminated nearly 5 million good-paying American manufacturing jobs over the past two decades and some 90,000 factories. In fact, trade with low-wage countries has pulled down the incomes of 100 million non-college educated workers by roughly $2,000 per year.

This week, Ruchir Sharma of Morgan Stanley trotted out a bunch of very shaggy dogs in defense of a strong currency. But he never mentioned the real reason Wall Street loves a strong dollar. An overvalued greenback has enabled the cheap imports that fuel the massive profits of American giants ranging from Apple and Amazon to Costco and Walmart. And multinational corporations have used offshoring, and the threat of moving more plants abroad, to drive down U.S. wages and benefits, and to weaken domestic labor unions.

Sharma claims growing trade deficits bring great benefits to the United States. And he praises the financing of our budget deficits through the sale of Treasury securities to foolish foreigners who are willing to hold them—with Wall Street bond traders brokering all of those sales for hefty fees. However, there are vast amounts of excess savings available in the United States and around the world, and there are no signs of a capital shortage, as evidenced by short- and long-term interest rates that are at historic lows across developed countries. The real issue, therefore, isn’t attracting capital, but rather the loss of American jobs and productive capacity that comes from growing trade deficits.

Sharma also claims that America’s ability to sell Treasury bills abroad depends, in part, on the dollar’s status as a “reserve currency …a perk of imperial might,” as though America were some powerful kingdom, with a throne in New York. In fact, as Dean Baker points out, the “dollar is not ‘the’ reserve currency,” it is simply one among many. Baker notes that central banks also hold euros, yen, British pounds, and Swiss francs, and can easily switch from one to another. And in today’s modern global economy, there is very little need to hold costly currency reserves. For example, in January 2019, the United States held only $115 billion in total foreign exchange reserves, which was equal to less than two weeks worth of total goods and services imports.

Sharma admits that dollar realignment would boost exports and jobs, but claims that it would provide only a temporary benefit for “fading manufacturing industries.” This is a particularly troubling argument. First, as noted above manufacturing jobs (along with construction) provide excellent wages and benefits, especially for U.S. workers without a bachelor’s degree (as demonstrated in the chart below). Unfortunately, there are still 900,000 fewer jobs in these sectors than at the start of the Great Recession.

“Growing industries” such as hospitality, health care, and temporary help services—which have gained jobs since the beginning of the recession—pay substantially less than construction and manufacturing industries. Hourly pay in these job-gaining industries was $26.19 on average, versus $28.88 in in manufacturing and $31.29 construction, as shown in the figure below. Total compensation (which includes both wages and benefits) in job-gaining industries is 33.39, while compensation in manufacturing and construction is $39.53 and 39.55 respectively, 18.4 percent more than in job-gaining industries.

Economic snapshot

Prolonged stagnation in manufacturing and construction employment have contributed to the slow growth of wages for non-college educated workers over the past decade. Rebalancing the dollar could lead to strong growth in these sectors. And that would provide a much-needed boost to wages for working Americans.

The second flaw in Sharma’s “fading” manufacturing industries argument is that this is not an inevitable—or desirable—trend. The steady loss of U.S. manufacturing jobs is the result of a policy choice. Germany, for example has held onto manufacturing jobs over the past 20 years, despite having higher wages for comparable workers than in the United States, as shown in the chart below. Manufacturing’s share of total employment has been stable in Germany, at about 17 percent of total employment (versus less than 10 percent in the United States), as shown in the second figure below.

China, which has been running massive trade surpluses for two decades has seen its manufacturing employment share rise. Germany held onto manufacturing jobs, in part by devaluing within the euro and the EU, via the Hartz reforms, which lowered wages relative to the rest of the EU. China manipulated its currency for more than a decade, and continues to maintain an undervalued yuan by carefully managing private capital outflows. Maintaining a strong manufacturing sector and stable manufacturing employment are policy choices. And contrary to Sharma’s dismissal, it is a key driver for income generation in advanced economies.

While Germany and China have managed their economies to maintain and expand manufacturing employment, the United States has favored a strong dollar policy that has decimated U.S. manufacturing. But that path has also generated massive profits for Wall Street, along with rising incomes only for those at the top, including finance executives. Germany and China have invested in building up strong manufacturing sectors. In contrast, the U.S. poured massive subsidies into Wall Street (with nearly a decade of unlimited access to discount-window borrowing from the Federal Reserve at near-zero percent interest rates), with no payback or quid pro quo. Meanwhile, not a single banker went to jail in the wake of a financial crisis that rocked the global economy.

Sharma has the temerity to conclude that dollar realignment will “damage the economy.” But who benefits from this type of economy?

He has it exactly backwards. A lower dollar stimulates exports, job creation, and the growth of a strong economy with high and rising wages. The dollar was realigned by President Nixon in December 1971, and again in 1985, during the Reagan administration, following the Plaza Accord. There is no evidence that the economy slowed after either one of those events, as shown in the chart below, which tracks U.S. quarterly GDP growth since 1969 (each currency realignment is marked with dotted lines).

The time has come for a serious discussion of permanent currency realignment to rebalance global trade and capital flows. And it is time to put an end to sacrificing the national interest simply for the narrow benefit of Wall Street.

Figure A

The IMF predicts that the U.S. current account deficit—the broadest measure of U.S. trade in goods, services, and income—will nearly double between 2016 and 2022. Unless these trends are offset by a rapid decline in the value of the U.S. dollar, rapidly rising trade deficits could be devastating for U.S. manufacturing, likely giving rise to massive job loss on the scale experienced in the 2000–2007 period, when 3.5 million U.S. manufacturing jobs were lost.

The U.S. goods trade deficit with China reached a new record of $419.2 billion in 2018, up from $375.6 billion in 2017, an increase of $43.6 billion (11.6 percent). United States trade with China is dominated by the deficit in manufactured products. Although the United States has imposed tariffs of 10 to 25 percent on $250 billion in imports from China (about half of total U.S. imports from that country), China has played its ‘ace-in-the-hole’ by allowing it’s currency to fall by roughly 10 percent against the dollar. As a result, the U.S. trade deficit with China increased faster (11.6 percent) than the U.S. deficit with the world as a whole (10.4 percent). While the United States and China are poised to negotiate a deal to end their trade dispute, the proposed deal amounts “much ado about nothing much,” as Paul Krugman puts it. It will do little to reduce the massive imbalance in U.S.–China trade flows.

The vast bulk of the U.S. goods trade deficit in 2018 was explained by trade in non-petroleum products, which are dominated by manufactured goods. The trade deficit in non-petroleum products reached $825.4 billion in 2018, an increase of $91 billion (12.4 percent). The United States had a small trade surplus of 26.5 billion in agricultural products in 2018 (this sector is part of trade in non-petroleum products). The agricultural trade surplus declined by $2.4 billion in 2018 (8.3 percent), as a consequence of trade restraints in China and elsewhere, and the rising dollar. The United States had a trade surplus in services which increased from $255.2 billion in 2017 to $270.2 billion in 2018, an increase of $15.0 billion (5.9 percent). However, the growth in the services surplus was more than offset by the $83.8 billion increase in the goods trade deficit; thus the overall goods and services deficit increased by $68.8 billion (12.5 percent) in 2018.

The most important cause of large and growing U.S. trade deficits is persistent currency undervaluation by countries such as China, Japan, and Korea, which have run large, persistent trade surpluses, as well as large structural surpluses accumulated by the European Union, including especially Germany and the Netherlands. The real, trade-weighted value of the U.S. dollar increased 21.8 percent between December 2013 and December 2018, and including 6.7 percent in 2018 alone, as shown below. The Trump tax cuts will add more than $1 trillion to U.S. fiscal deficits over the next decade, putting upward pressure on interest rates and the U.S. dollar, as reflected in the chart, below. Absent aggressive efforts to reduce its value, the rising dollar will put continuing upward pressure on the trade deficit, and downward pressure on employment and output in U.S. manufacturing.

Figure A

Last month, General Motors announced plant closures in the U.S. that could lead to roughly 14,700 layoffs by the end of 2019. The shutdowns will have the biggest impact in industrial states like Ohio and Michigan, where key plants in Detroit-Hamtramck, Lordstown, and Warren are being closed. But the closures also have wider implications for American industry—and not just the machine shops and fabricators that produce rubber, steel, and glass components for auto assembly. America’s manufacturers are all struggling with the same issue—an overvalued dollar that puts them at risk from rising trade deficits. And it all derives from flawed Trump administration economic policies.

Trump’s tax cuts and increased government spending for defense and nondefense needs are widening the U.S. budget deficit, which will top $1 trillion in 2020 (5 percent of GDP). On top of that, Trump’s tariffs on China have backfired. China has reduced the value of the yuan 10 percent this year, and its trade surplus with the United States has increased 10 percent over the same period last year—even faster than the overall U.S. goods trade deficit, which is up 9.4 percent in the same period. The IMF projects that the overall U.S. current account deficit (the broadest measure of trade in goods, services and income) will nearly double over the next four years.

As a result of the rising dollar and increasing current account deficit, the U.S. goods trade deficit will increase to between $1.2 trillion and $2 trillion by 2020, an increase of $400 billion to $1.2 trillion above the $807 billion U.S. goods trade deficit in 2017, as shown below. This will directly eliminate between 2.5 and 7.5 million U.S. jobs, mostly in manufacturing (because 85 percent of U.S. goods trade consists of manufactured products). The collapse in output, especially in the capital intensive manufacturing sector, will decimate investment—and taken together, both will result in large additional job losses as income and spending collapse, resulting in a steep recession if nothing is done to reduce the over-valued dollar. The dollar must fall by at least 25 to 30 percent (on a real, trade-weighted basis) to rebalance U.S. trade and avert the coming trade tsunami that’s baked into the economy as a result of the rising trade deficit.

To see why the GM announcement is the canary in the coal mine, consider its position. Why is the company taking such a drastic step? CEO Mary Barra says the company is trying to make itself leaner, and shifting resources toward newer electric vehicles and self-driving cars.

But that’s not the entire issue. The U.S. dollar is now substantially overvalued—which keeps making imports cheaper and U.S. exports more expensive. GM is clearly trying to protect itself against a future economic downturn. It’s well known in the business community that the prospects for a recession in the next few years are quite high. This is the chickens coming home to roost on the broader Trump economic policies.

The dollar’s overvaluation stems from a rather grievous irony. The United States is the epicenter of the world’s financial markets, with overseas investors continually purchasing dollar-denominated assets and securities. That’s certainly good for Wall Street. But it invites a downside.

A continuing influx of foreign capital is driving up demand for the dollar. Trump appointees Jay Powell (Chair) and Randy Quarles (Vice Chair) at the Fed also bear substantial responsibility for recent increases in the dollar, due rapid interest rate increases within the past year, which have made U.S. investments more attractive to foreign investors.

And the resulting rise in the dollar is making America’s exports—including the cars built by General Motors—more expensive for overseas consumers. It also makes imported goods cheaper in the U.S. market. These low-cost imports deliver growing profits for multinational operations like Apple—and yield a triple-whammy for U.S. manufacturers competing against imports that keep getting cheaper.

The situation has gotten worse of late because President Trump’s economic policies have actually reinforced the dollar’s rise. Last year’s tax cuts and 2018’s spending increases are swelling a budget deficit projected to exceed $1 trillion by 2020. Just as textbooks predict, increased federal borrowing (along with Fed policy) is driving up short- and long-term interest rates, attracting even more foreign capital—and further strengthening the dollar.

The president’s policies are now backfiring on GM and domestic manufacturers because the dollar has increased 5.4 percent in value in the past year alone. And China has devalued its currency, the yuan by 10 percent this year—more than offsetting the impact of the president’s tariffs. Thus the irony that President Trump’s tax cuts and increased defense spending have short-changed working Americans even as they’ve swelled corporate coffers. The administration believes tax cuts will stimulate investment and job creation. But companies—including GM—have used the proceeds to increase dividend payments, buybacks, and CEO compensation—not worker wages.

Figure A

Figure B

Because the dollar keeps rising, the International Monetary Fund (IMF) foresees a perfect storm. Rising imports will drive America’s current account deficit up from $449 billion in 2017 to more than $800 billion in 2022. Concurrently, the U.S. goods trade deficit could double in the next four years, rising from $807 billion in 2017 to between $1.2 and $2.0 trillion. Such a massive increase could potentially tip the nation into a new recession.

Figure C

Growing gap between current account and goods trade deficits bodes ill for U.S. manufacturing

Historically, and especially between 2000 and 2006, the U.S. current account and goods trade balances tended to track one-another nearly dollar for dollar. However, since 2007, there has been a growing gap between these two measures, with the goods trade deficit rapidly increasing relative to the current account deficit, as shown below. There are three reasons for this. First, since the mid-2000s, the United States has begun to run a sizeable surplus in “services” trade (not shown), which reached $243 billion (1.3 percent of U.S. GDP) in 2017. To some, this sounds like the desirable symbol of a “modern” economy. But in fact, over half of the U.S. services surplus is in three categories: financial services (banks, brokers, and credit card companies, 23 percent); professional and management consulting (15 percent); and charges for intellectual property (13 percent). These “services” are simply rents, or profits accruing to investors, and high-wage industries in finance and business consulting. They generate few good jobs for non-college educated workers, of the type supported by manufacturing, in the domestic economy. Of the rest, “travel” is the largest single category, which is dominated by education (another high-wage sector, 13 percent) and other personal travel (18 percent), but the later primarily supports low wage jobs in industries such as accommodations and food services.

The second major, growing component of trade is growth of “primary” income, including investment income and payments to employees (such as foreign executives), which generated $217 billion of net income (1.3 percent of GDP) in 2017. The dangerous irony of the modern global economy is that outsourcing, which has shifted production to foreign countries, has generated rapidly growing flows of foreign profits and rents (royalties, profits, and wages paid in banking and consulting services) to U.S. and foreign multinationals. These flows of capital income have directly offset the growing U.S. deficits in goods trade, which have displaced millions of manufacturing jobs. In total the United States has lost 5 million manufacturing jobs since 1998, most due to growing trade deficits with China and other large exporters. The troubling irony is that outsourcing is generating a flow of profits and services income that is offsetting growing goods trade deficits in the broadest trade measure (the current account deficit), effectively disguising the negative impacts of globalization on the domestic economy.

The third major component shift in U.S. trade patterns has occurred in petroleum products. A decade ago, in the mid-2000s, the United States ran a trade deficit in crude and refined petroleum which reached 2.1 percent of GDP in 2006 (peaking at 2.8 percent of GDP in 2008). However, the rise of fracking in the United States, combined with a decline in world oil prices and rising U.S. exports of refined petroleum products, has reduced the U.S. trade deficit in crude and refined petroleum to only 0.3 percent of GDP. The U.S. trade deficit in non-oil goods (which is dominated by trade in manufactured products) reached near-peak levels of $732 billion in 2017 (3.8 percent of GDP). This is much larger than the previous peak of $520 billion in 2006, which was also 3.8 percent of GDP. Thus, the rise in U.S. oil production has also tended to obscure the impacts of the rapid growth in the U.S. non-oil goods trade deficit, over the past decade. The non-oil goods trade deficit is poised to explode as a direct result of the failure of Trump’s trade and economic policies.

On the other hand, The U.S. current account deficit—the broadest measure of our trade in goods, services and income—was widely viewed as relatively stable in 2017 at only 2.4 percent of GDP (versus an all-time peak of 5.8 percent of GDP in 2006). Thus, today’s current account trade deficit is viewed as manageable by most economists. However, in manufacturing and other traded goods sectors (such as farming), the goods trade deficit (and especially in non-oil goods) is reaching crisis levels. This explains why it is so important to focus on future trends in goods trade, as shown in the bottom two lines of Figure D, below.

Figure D

The U.S. goods trade balance forecasts (for the 2018 through 2023) shown in Figure D are based on two alternative projections. The first projection (shown in red) is based on IMF World Economic Outlook (WEO) projections of trends in the volume of goods exports and imports. However, these are overly conservative because they fail to reflect changes in import and export prices. The second “alternate goods trade balance estimate” is based on the trend growth in the ration of the goods trade to the current account balance (this ratio increased 3.4 percent per year in the 2018-2023 period).

Both scenarios lead to goods trade deficits well of at least $1.2 trillion by 2023, and possibly as much as $2.0 trillion. Given the rapid decline in U.S. trade deficits in petroleum projects, these deficits will be devastating for the U.S. manufacturing sector, likely giving rise to massive job loss on the scale experience in the 2000-2007 period, when 3.5 million U.S. manufacturing jobs were lost.

There’s still time to sort through the mess, however. Washington can take coordinated action to lower the value of the dollar by at least 25 to 30 percent. The last time the United States intentionally engineered a major currency realignment was with the Reagan administration in 1985. Treasury Secretary James Baker negotiated the Plaza Accord with Japan, France, Germany, and the United Kingdom—achieving a 30 percent depreciation in the U.S. dollar. The U.S. goods and service trade deficit subsequently fell from $122 billion in 1985, and a peak of $152 billion in 1987, to $31 billion in 1991(the trade deficit usually worsens for two years after the dollar depreciates, and then improves rapidly, in what is known as the j-curve effect).

Notably, House Democrats played a key role in the Plaza Accord. The threat of Rostenkowski-Gephardt trade legislation—which would have imposed a 25 percent surcharge on imports from Japan, Brazil, Korea, Taiwan, and others—motivated finance ministers to work with Baker on a currency deal. The threat of high, permanent tariffs lead foreign officials to seek out alternatives that would rebalance trade without introducing new trade barriers.

With GM and other manufacturers now struggling, Democrats should see an opportunity to focus on middle class jobs—starting with a revaluation of the U.S. dollar. They can force the president’s hand by threatening to impose broad, across the board tariffs on all countries with large, persistent, global trade surpluses, including China, Japan, Korea and Germany and other big surplus countries in Europe (Netherlands, Sweden, Switzerland) or the entire E.U. There are also other tools to rebalance the dollar, such as taxing foreign capital inflows. But it is perhaps best to confront a man such as Trump in a language the he understands: with the threat of higher, across-the-board tariffs. The \president campaigned on rebuilding American manufacturing, and delivering more jobs and higher wages. Instead, it could be the newly Democratic House that actually achieves this—by pressing 1980s-style trade legislation as the impetus to revalue the dollar in the same way the Reagan administration wisely did, 30 years ago.