The provocation was the “every president tries” part. If “trying” is defined as changing policy to consistently support employment growth in U.S. manufacturing, no president has tried in my lifetime to do this. Amazingly, doing nothing has indeed failed. Doing nothing was also the wrong choice.

The loss of manufacturing jobs

First, some data to define the problem. Furman focuses on the share of total employment that is in manufacturing. He notes that many structural non-policy forces (like technology and what people demand as countries get richer) put steady downward pressure on this in any growing country. There’s a lot of truth in that.

But the U.S. got much richer between 1965 and 2000—in fact it got richer at a far faster pace than it has since, so both technology and the different demands of a richer society should have been operating a lot less intensely since then. And yet the level of U.S. manufacturing employment was steady during that period, fluctuating roughly between 17.0 and 19.5 million depending on the state of the business cycle (see Figure A). After 35 years of stability, manufacturing jobs then cratered: 3 million manufacturing jobs were lost after the recession of 2001, and the 2003–2007 recovery saw essentially no gain at all in manufacturing jobs—the first manufacturing jobless recovery we’ve ever experienced. Then another 3 million jobs were lost during the Great Recession of 2008–09.

After falling from over 17 million to just over 11 million between 2000 and 2010, the sector has seen only very slow growth since. The new high point of manufacturing employment in the recent past was 12.9 million workers in early 2023.

Figure A

Manufacturing historically lost a disproportionate share of jobs during recessions, but what kept it from gaining jobs back quickly in the early 2000s and 2010s recoveries the way it usually had? One huge influence was the emergence of a large trade deficit in manufactured goods. In those decades, the deficit peaked at 4.4% of GDP in 2005 (see Figure B). After being forced into improvement by the Great Recession and the collapse of American spending on all goods and services (including imports), it has steadily moved back toward this peak and surpassed it in recent years.

Figure B

Policy measures can close the trade deficit and reshore manufacturing jobs

Tolerating this rise of the U.S. trade deficit was a policy choice. The deficit’s rise was driven by a dollar whose value is too high to allow balanced trade. A high dollar makes our exports expensive to foreign consumers and makes foreign imports cheap for U.S. residents. Hence, it leads directly to chronic trade deficits (see Figure C). Any serious effort at boosting manufacturing employment would require using policy levers to reduce the value of the U.S. dollar.

Figure C

What are these currency policy levers? First, policy would need to prevent other countries’ governments from actively managing the value of their currency to give their exports a competitive advantage against U.S.-produced goods. There are many ways to do this. Currency management is done through other countries’ governments (or their proxies) buying U.S. dollar-denominated assets (like Treasury bonds or mortgage-backed securities) to bid up the demand for dollars. There’s no particular reason the U.S. couldn’t undertake countervailing currency intervention and buy other countries’ assets whenever they bought ours in an effort to manage their currency’s value. Or we could tax foreign purchases of U.S. assets.

Second, we could raise taxes domestically to close fiscal deficits. In coming years unless we run into a recession (which the Iran conflict makes more likely), there is likely to be sustained upward pressure on interest rates stemming from the big increases in fiscal deficits locked in by the Republican mega tax and spending bill. Higher interest rates in the U.S. will attract foreign investors to U.S. assets, which will bid up the value of the U.S. dollar further and harm manufacturing.

Third, we could hasten the inevitable deflation of the AI-driven stock market bubble, which has attracted foreign investors looking to make high returns. All else equal, there would be less upward pressure on the U.S. dollar if foreign investors were not rushing in to buy dollars to purchase U.S. stocks.

Fourth, we could accelerate the transition to cleaner energy. The U.S. has swung from being a large net importer to a net exporter of oil and natural gas. This has greatly increased foreign demand for U.S. dollars simply to buy our energy supplies, which pushes up the value of the dollar and hurts U.S. manufacturing.

Finally, we could reform our corporate tax code to stop its bias toward offshoring both paper profits and real production. The swing toward a large trade deficit in the pharmaceuticals sector, for example, can be linked directly to the first Trump administration’s changes in the corporate tax code.

In short, taking currency seriously would mean going against some very powerful economic interests—finance, tech, pharmaceuticals, and fossil fuels—in the name of helping U.S. manufacturing. But it would be a good trade to make. And to be clear, dollar weakness that is caused not by intentional policy decisions but is simply an outcome of erratic policy decisions will not provide any sustained benefits to U.S. manufacturing. U.S. manufacturing needs a competitive value of the dollar and a healthy and stable domestic economy. Engineering dollar decline by sabotaging the stability of the domestic economy does not help.

How many jobs could be reshored if currency policy somehow closed the U.S. manufacturing trade deficit? Very roughly it would be close to 3 million. This would not change the long-run trend in the manufacturing share of employment, but it would boost manufacturing-based communities around the country.

Indifference to manufacturing was bad for economic dynamism

The long-run gains to rebuilding communities of manufacturing process knowledge in the U.S. could be large. U.S. losses and China’s growing dominance in manufacturing are in large part a story of deconstructing communities of process knowledge in the U.S. and building them in China. These communities are geographic clusters where firms and workers specialize in particular manufacturing sub-sectors. The agglomeration of knowledge and skills leads to steady innovation which further locks in the competitive advantage of the cluster and raises productivity growth.

Currency policy destroyed these clusters in the U.S. and provided ample space for them to grow in China. The large and constant pressure of an overvalued dollar in the U.S. imposes a heavy drag on the prospects of new manufacturing firms setting up shop and becoming a center for clusters like these. The currency policy of China surely acted as the reverse of this, clearing huge competitive space for new entrants and for further growth in communities of process knowledge.

Currency management was not China’s only industrial policy measure, but it is the one that allowed an across-the-board competitive advantage in all manufacturing industries. And it is the only industrial policy in the U.S. that would reclaim some of the across-the-board manufacturing disadvantage we’ve allowed to be imposed on our domestic industry. Targeted protection and subsidies for particular sub-industries in manufacturing have been important in crafting the exact patterns of trade, but it is currency policy that largely explains the manufacturing-wide trade deficit that the U.S. runs with China and other countries that manage their currency.

How big is this problem of losing expertise and process knowledge in manufacturing for the overall economy? Another sign of the indifference towards manufacturing shown by successive U.S. policymakers is that we don’t even really know—and this indifference and the ignorance it generates has grown over the past year of the Trump administration. The manufacturing sector used to be a source of productivity dynamism in the U.S. economy, but recent data indicate that as we hemorrhaged millions of jobs we also saw declining productivity growth in the sector. This productivity decline might not be entirely genuine—it might be a problem with statistical measurement. It would be nice to invest in our data-gathering infrastructure to shed more light on this issue, but instead the parts of the Bureau of Labor Statistics who have the expertise to do this have been gutted by the Trump administration and longer-run cuts. Another angle of taking manufacturing seriously would be supporting the public structures that provide needed inputs to know what’s even happening in the sector.

Doing nothing was a mistake

U.S. presidents have made the implicit judgement over the past 50 years that it’s a good trade for Americans to have a smaller domestic manufacturing sector in return for cheap imports of manufactured goods, even if that means we’re running chronic large trade deficits. It’s not so obvious to me that’s a good trade, and there’s one last angle that makes it even less obvious.

The foreign inflow of capital that is the mirror image of the trade deficit in manufactured goods is essentially investors abroad bidding against Americans who are looking to buy stocks and bonds and other assets to build their wealth. Bidding up the price of these assets means long-run returns will be lower. In short, this current system of trade imbalances lowers the returns to holding wealth for U.S. residents. One could argue that this is mostly a problem for wealthy U.S. households, who own the lion’s share of assets.

But there is also the issue of why the valuation of U.S. assets has grown in recent decades even aside from increased foreign demand. A huge part of this growth is a zero-sum transfer of income from labor earnings to corporate profits: Recent estimates have this transfer accounting for almost half of the entire nominal growth in the value of U.S. corporate equities in the last 40 years.

Absent foreign demand for U.S. assets, some of this loss to wages would have been counterbalanced for at least some subset of U.S. households by higher rates of return to their savings. To be clear, this zero-sum transfer from wages to wealth still would have been a negative development for the vast majority within the U.S. economy. But this transfer combined with the fact that most of the gains accrue to investors outside of the U.S. because of imbalances in trade and investment flows make it even more damaging. Essentially, U.S. households as workers feel all the pain of a campaign of wage suppression, but U.S. households as investors do not claim all of the benefits of this wage suppression.

Presidents have not tried to reverse manufacturing job loss

In the end, no president in my lifetime has made a serious and consistent effort to do what is necessary to make the U.S. dollar stay at values commensurate with balanced trade in manufacturing. Ronald Reagan famously negotiated the Plaza Accord, which pressured Germany and Japan (our two biggest trade-deficit partners at the time) to reflate their own economies and to stop currency intervention. But at the same time, Reagan ramped up military spending and made large tax cuts that put huge upward pressure on interest rates and led to huge trade deficits in the early 1980s. Bill Clinton oversaw smaller fiscal deficits but actively encouraged a “strong dollar policy” which saw the dollar hit some of its highest levels on record. This strong dollar policy and support for a punitive rescue package for countries slammed by the Asian financial crisis of the late 1990s led to another large increase in U.S. trade deficits. The Clinton administration’s support for permanent normalized trade relations (PNTR) with China and for China’s entry into the World Trade Organization (WTO) made it harder for subsequent administrations to apply pressure to China to abandon its significant currency management in the 2000s.

George W. Bush refused to address the Chinese currency management and undertook large tax cuts and increased military spending again, pushing up interest rates and leading to another round of large trade deficits. Barack Obama similarly failed to address currency management, even leaving it out of the Trans-Pacific Partnership (TPP) agreement he pushed hard in his final years in office. Donald Trump passed corporate tax changes that actively incentivized offshoring in his first term in office. His major trade policy change in the second term has been chaotic and fluctuating—though generally high and broad—tariffs across manufacturing. Manufacturing employment in 2025 averaged 157,000 lower than in 2024 even as the administration trumpeted these large tariff increases. That constitutes the worst non-recessionary year for manufacturing since 2004.

Furman is right that we have seen consistent presidential failure to support employment in manufacturing. And he’s right that most of these presidents made some rhetorical commitment to manufacturing that makes this failure jarring. But nothing serious was ever really tried, and that was a costly mistake.

In recent decades Americans have seen a huge increase in trade (flows of exports and imports). This influx in global trade has posed significant challenges to U.S. workers. The trade flows (and policy responses to them) have contributed to anemic wage growth for workers without a college degree, caused severe damage to manufacturing communities throughout the country, and represent an increasingly unsustainable organization of global production and consumption.1 People in the U.S. have good reason to be conflicted about the challenges that globalization and the rise in trade pose to their working lives and communities, and the potential benefits trade can create.

U.S. workers have also watched as too many policymakers enthusiastically push a proliferation of trade agreements. These agreements have accelerated trade flows and carved out corporate-driven “rules of the game” for a globalization that puts almost no priority on the well-being of regular people in the United States or the resilience and sustainability of the overall economy. Most of the Washington, D.C., establishment has supported these trade agreements, promising a supposed influx of good jobs and increased standards of living that would come because of increased trade.

Given this history, it is no surprise that many of these workers want something different from policymakers regarding our nation’s approach to globalization. And the Trump administration’s current approach is certainly different—it is even worse than what came before. This approach is motivated by ever-changing and contradictory goals and is built entirely on threats of historically high and broad-based tariffs that change by the day (or even hour) rather than opportunities for mutual benefit from cooperation.

Ratcheting up tariffs across the board is not a serious response to, nor will it solve, the larger challenge of lackluster wage and job growth for noncollege workers. Lower tariffs were not a significant driver of the larger trade flows that pressured wages for these workers in recent decades. This is not to say that there are not real problems with the U.S.-led global trading system nor useful changes to be made to policies regarding globalization. But historically high and broad tariffs are not among them, and domestic policy choices have had much more to do with the wage suppression most U.S. workers have experienced in recent decades (Mishel and Bivens 2021).

In this paper, we provide a rough outline for how those concerned about the economic plight of working-class Americans should approach issues concerning globalization and trade. Often the best approach to issues intersecting with international trade does not directly implicate traditional trade policy tools (like tariffs). For that reason, we say that these recommendations constitute a progressive approach to globalization in the 21st century.

Key challenges that globalization poses to U.S. workers:

• Growing import flows from lower-wage nations and threats to offshore jobs put modest, but steady, downward pressure on wages of workers without a college degree.
• Chronic trade deficits have reduced employment in U.S. manufacturing and raised our foreign debt.
• The inflation stemming from pandemic and war shocks between 2020 and 2024 highlighted the fragility of global supply chains. These supply chains should be strengthened to prepare for a future prone to larger and more frequent shocks.
• Competition from foreign trading partners that permit unfair and abusive labor practices has made labor artificially cheap.
• A failure to harmonize climate regulations internationally threatens to see greenhouse-gas polluting production simply migrate away from the United States to low-standard locales rather than being reduced globally, undermining U.S. industry and forcing the burden of adjustment onto workers in greenhouse gas-intensive sectors.
• A failure to harmonize corporate tax treatment internationally allows corporations to play countries off each other and ensures that some countries will almost always have incentives to act as tax havens, making it harder for all countries to impose reasonable taxes on corporate profits.

Although policymakers from both parties have too often been reluctant to admit to the problems created by a U.S.-led, corporate-friendly global trading system, none of these problems presents insurmountable challenges. Our key recommendations to solve the central problems of globalization are the following:

• While trade flows have put downward pressure on wage growth for large portions of the U.S. workforce in recent decades, trade policy would have only weak and unreliable effects in reversing this. Instead, policymakers should strengthen key domestic policy bulwarks that underpin workers’ leverage and bargaining power to boost wage growth. These domestic policies include a substantial increase in the minimum wage, protections for workers to freely associate and bargain collectively in unions, and full employment macroeconomic policy management, which will have larger and more reliable effects on wage growth.
• Reducing damaging trade deficits cannot be solely achieved through trade policy unless it is so restrictive that it functionally returns the country to an isolated regime with no trade at all. Instead, more balanced trade will only result from macroeconomic policies consistent with lower trade deficits, including exchange rate management and a reasonable mix of fiscal and monetary policies.
• Supply chain resilience is important, yet individual businesses will underinvest in it without public support. Collapsing supply chains initially sparked the post-COVID-19 inflationary spike across the globe. Supply chains remain vulnerable to disruptions from natural disasters, geopolitical events, and even human and computer errors. Unless one is entirely confident that these events will never happen again, the costs of supply chain fragility are potentially large enough that it’s worth using policy measures to build up supply chain resilience. Trade policy tools like tariffs and subsidies are potentially useful measures here.
• The U.S. should reward countries that respect labor rights with preferential access for their imports and should incentivize other countries to enforce labor standards. This can be done by imposing tariffs that shrink as countries improve in upholding labor rights. These tariffs cannot fully protect U.S. workers from competition from countries where exploitation makes labor cheap, but tariffs can provide some buffer from this, and imposing them provides a valuable political signal that simple fairness matters for trade policy (as it does for all other types of policy).
• Effective climate policy must be global, if not universal. In terms of driving destructive climate change, it does not matter where greenhouse gas pollution originates. National policies that raise the price of pollution locally but simply push emitting factories offshore fail to deal with the overall problem while putting domestic industries at unfair disadvantage. Until there is a more coordinated global approach to greenhouse gases (a global carbon tax or something similar), national governments should be willing to leverage trade policy tools (like tariffs tied to the intensity of greenhouse gas emissions involved in producing imports) to promote lower-pollution industries while avoiding “carbon leakage,” reduce global emissions, and incentivize industry investments in carbon-reducing technologies.
• International coordination of tax policy that ensures large multinational corporations pay their fair share in taxes would help U.S. workers far more than either higher tariffs or more trade agreements. The global tax system currently provides easy access to tax havens for corporations and encourages the offshoring of both paper profits and real factories away from the United States. Much of this problem can be solved unilaterally, but even the remaining problems constitute a far more important and pressing target for useful international coordination than further trade agreements do.

Policy recommendations to address these challenges

In this section, we provide some high-level recommendations about how policies should address globalization’s challenges.

Trade policy can do little to spur wage growth, but domestic policies would be much more effective

The production of imports from lower-wage nations tends to intensively use noncollege labor relative to U.S. exports. This means that the pattern of trade flows between these nations and the U.S. reduces the demand for noncollege labor in the United States, as imports displace more noncollege labor than exports support. Hence, trade flows put steady, albeit modest, downward pressure on wage growth for noncollege workers, a group comprising over 60% of the workforce (EPI 2025). The downward pressure on wage growth is nontrivial. Between 1979 and the mid-2010s, these trade flows likely depressed wages of noncollege workers by between 5%–6% (Bivens 2013; Autor, Dorn, and Hanson 2011). For workers who have seen extremely slow growth in wages over this entire period, another 5%–6% of wage growth would have been most welcome.

Crucially, this downward wage pressure stemming from trade flows does not just affect workers in tradeable industries. It spills over and puts downward pressure on wages for noncollege workers throughout the economy. Further, the wage suppression that trade flows imposed on noncollege workers allowed income gains for college-educated workers and business owners. 2 Yet policymakers never offered compensation to noncollege workers at anything close to the scale of this redistribution of income away from them. Instead, policymakers offered vague promises of retraining and empty assurances that trade was always “win-win.” This policy neglect added a deep insult to the injury of trade-induced wage suppression for these workers.

Yet it is important to remember that this policy neglect was not confined to globalization. In fact, nontrade forces supported by intentional policy decisions were putting far more intense downward pressure on wages than trade flows did.3 One aspirational benchmark for wage growth is economywide productivity growth. In the 30 years after World War II, broadly equal wage growth among all workers was clearly a target for policymakers who supported strong institutions (from unionization to fast-growing minimum wages to the maintenance of full employment) to meet this target. But over the 1979–2019 period, wage growth for noncollege educated workers decoupled from overall productivity growth, and as productivity growth continued, worker wages lagged behind—cumulatively by close to 50 percentage points over this period.

Trade competition certainly contributed to this decoupling and stagnation of wages. But analysis shows that nontrade sources explain three-quarters or more of the entire wage suppression these workers experienced in this time (Mishel and Bivens 2021). Reversing the nontrade forces that have contributed to wage suppression would do far more to help noncollege workers than any policy that could influence trade flows. Further, besides these nontrade forces having more force in boosting wage growth, they are also far more reliable in their effect. The policy levers available to influence trade flows are generally weak and unreliable unless taken to utterly extreme levels.

Finally, while growing trade flows with lower-wage nations reduced wage growth for noncollege labor in recent decades, they also boosted business profits and wages for workers with a college degree. Using tariffs to reverse these trade flows might, after long periods of time, lead to a reorientation of production in the United States that boosts demand for noncollege labor and raises their wages (though it might not). If tariffs did lead to this production reorientation, however, it would also lead to reduced wages for college-educated labor and lower profits, and the decline in college wages and profits would be larger than the increase in noncollege wages.

To be clear, this distributional shift toward noncollege labor and away from college-educated labor and profits would be a progressive outcome, and if it was the only option available to policymakers to make noncollege wages rise faster, we would be in favor of it. But it would be an extremely inefficient way to boost noncollege workers’ wages. Other wage-boosting policies like increased unionization or maintenance of full employment would not clearly lead to overall growth declines and might even boost growth. In short, while rising trade flows have put downward pressure on noncollege wages in recent decades, using the tool of tariffs to reverse this would be an extremely inefficient way to raise noncollege wages relative to other available tools.

Macroeconomic policies supporting a ‘strong’ dollar are the real causes of damaging trade deficits

Trade deficits are driven near entirely by the value of the U.S. dollar being too high to balance imports and exports—an outcome that can be traced to macroeconomic policy choices.4 A high value of the dollar makes imports cheap to U.S. consumers and makes U.S. exports expensive on global markets. This, in turn, leads to an excess of imports over exports. It is often taken as given that the United States should pursue a “strong dollar” policy, and that has often been the implicit (sometimes even explicit) goal of Treasury departments during both Republican and Democratic administrations. This bias toward dollar strength has led directly to toleration of excess trade deficits.

A rule of thumb for thinking about policies to reduce trade deficits and boost manufacturing is simply that if a given policy does not lead to a reduction in the value of the U.S. dollar, it will not have any traction in reducing trade deficits. The value of the U.S. dollar is driven by the demand and supply of dollar-denominated assets in global markets—traditionally called the capital account of the United States’ international balance of payments and now sometimes referred to as the financial account. When the demand for dollar-denominated assets is high relative to supply, the dollar rises in value and vice versa (Blecker 2009).

This rule of thumb is why tariffs are highly unlikely to be effective in reducing U.S. trade deficits unless raised to prohibitive levels. Tariffs actually raise the value of the U.S. dollar, which causes exports to fall roughly in proportion to the import declines following imposition of tariffs. This effect is compounded by the fact that many U.S. exports today contain substantial imported content, which causes export prices to rise directly in response to tariffs.5

Currency interventions from foreign governments

The demand for and supply of these dollar-denominated assets is set by macroeconomic policy decisions. One such decision is to allow the capital account to be influenced by intentional decisions of foreign governments. Often, for example, the Chinese and Japanese governments have intervened in global financial markets to purchase dollar-denominated assets to keep the demand for dollars high and to subsequently allow their own exports to gain a cost advantage in U.S. consumer markets. U.S. policy encouraged such policy actions through trade agreements that incentivized offshoring manufacturing production and strong support for financial liberalization that exposed countries to excessive risks of currency, banking, and financial crises.

The role of private capital flows

Another decision is to allow the capital account to be influenced by speculative private capital flows, even if they lead to an uncompetitive value of the dollar. In the late 1990s, for example, capital flowed from European countries to the United States largely due to European investors looking to buy rapidly appreciating U.S. corporate equities. When the U.S. stock market bubble eventually popped, the flow of capital from Europe largely dried up, and the dollar lost considerable value relative to the euro. This reversal led to a welcome decline in the U.S.–euro area trade deficit in the early 2000s. Until the end of 2024, a similar trend seemed to be occurring as the U.S. stock market had seen very large gains relative to those in Europe. This was associated with a large increase in the dollar’s value in recent years. The recent sharp decline of U.S. stock markets has not been mirrored in Europe, so some welcome relief from chronic upward pressure on the dollar stemming from these capital flows may well arrive over the next year.

The safe haven of the U.S. dollar during financial crises

As liberalized global financial markets have grown more volatile and prone to crisis (Reinhart and Rogoff 2011; Claessens and Kose 2013), nation states and financial institutions have sought to insulate themselves by accumulating ever-greater reserves of U.S. dollar financial assets. This demand to acquire dollar-denominated assets led directly to upward pressure on the dollar, which, in turn, led directly to these countries running large trade surpluses (that is, selling more exports to the United States than the imports they buy from the United States). This practice of self-insuring against systemic financial risks caused by liberalized global markets accelerated following the 1997–1998 Asian Financial Crisis, when countries learned it was too costly to depend on external institutions like the International Monetary Fund to help manage these risks.

When instability threatens international capital markets, investors and financial institutions “flee to safety,” meaning they sell off relatively risky assets and buy relatively safe U.S. dollar assets. The worsening of the dollar’s overvaluation occurs at a time when U.S. exporters are under the highest stress. The upshot of all of this is that a more effective international regime to aid countries facing currency and financial crises could reduce the need for countries to “self-insure” by trying to build up dollar reserves. This would be good for both the self-insuring countries who could now use precious financial resources on other social goals and for U.S. trade deficits.

Fiscal and monetary policy choices

Fiscal and monetary policy decisions are other macroeconomic policy choices affecting the U.S. trade balance. In regard to fiscal policy, when the U.S. economy is near full employment, federal budget deficits can push up trade deficits. If budget deficits run at full employment lead to higher interest rates (as they often do), this will lead foreign investors to demand more dollar-denominated assets to earn these now-higher rates. Increased demand for U.S. assets, in turn, causes the dollar to appreciate and the trade deficit to expand.

In regard to monetary policy, the same dynamic holds when the Federal Reserve raises interest rates. Whatever the source, a widening spread between U.S. and foreign interest rates attracts more capital to dollar-denominated assets, and this causes a rise in the value of the dollar, which, in turn, harms U.S. net exports.

Strategies to manage the value of the dollar

Keeping the value of the dollar at a level that more closely balances imports and exports, hence, requires a range of macroeconomic strategies. The most controversial would see the U.S. engage in more active currency management to ensure that foreign influences—either intentional government policy decisions or destabilizing private capital flows—are not allowed to push the demand and supply of dollar-denominated assets out of balance. Currently, Congress requires the U.S. Treasury to monitor currency management by foreign countries and make biannual reports naming countries that undertake active currency management for competitive gain. In practice, Treasury has more often than not demurred on naming clear instances of currency management. (Treasury 2024).

The U.S. government has much stronger options than mere surveillance and naming to countervail trade-distorting currency practices of other countries. If, for example, a foreign government began buying dollar-denominated assets, the U.S. could simply begin buying assets denominated in the currency of the foreign government, thereby neutralizing the effect of the foreign governments’ intervention in the U.S. capital account.6 Another possible option is for U.S. policymakers to institute a “market access charge” such as the one proposed in the 2019 bill, Competitive Dollar for Jobs and Prosperity Act (2019) that would levy a small tax on the foreign purchase of U.S. dollar assets for countries maintaining sustained trade surpluses with the United States (Hansen 2017).

Running fiscal and monetary policies that are consistent with lower levels of interest rates would also relieve upward pressure on the dollar’s value and help close trade deficits. On the fiscal side, this simply means that when the economy is at full employment, deficits should not be increased or should even be reduced. The how of this deficit reduction at full employment is every bit as important as the how much in terms of its effect on the welfare of U.S. residents, but it is the how much that determines the degree to which deficit reduction can help pull down the trade deficit.7 On the monetary side, the Federal Reserve should set interest rates at the lowest level consistent with stable inflation and avoid periods when unnecessarily high interest rates put upward pressure on the value of the dollar.

The advantages of a stronger dollar

Among policymakers, the reflexive privileging of a “strong dollar” policy has contributed to chronic trade deficits in the United States. However, any change in the value of the dollar creates both winners and losers. A strong dollar, for example, makes imports cheap to U.S. consumers and foreign travel more affordable for U.S. residents. It also makes it easier for U.S. businesses both domestically and abroad to attract foreign capital for investment projects. It allows retailers like Walmart and Amazon to source goods more cheaply for resale. These are not trivial benefits.

The advantages of a weaker dollar

But a lower value of the dollar would bring its own significant benefits. Most importantly, U.S. exports would be on a much more level playing field in global markets. Export-oriented production in the United States would expand. Domestic businesses competing with imports would gain competitive breathing room and expand their production. The manufacturing sector in the United States would expand. The reduction in trade deficits would lead to less future income leaking out of the U.S. to foreign investors.

Globalized supply chains are fragile. Industrial policy and trade protection can support their resilience

In recent decades, multinational corporations have prioritized maximizing short-term profits, even at the expense of investing in the resilience of their supply chains. For example, a company that focuses on maximizing current profits might source all inputs from the single lowest-cost producer. They might also minimize the size of their inventories of key inputs to production since inventories, by definition, are inputs not being sold in the current period and generating profits.

This short-term focus both ignores risks to the company’s own operations from supply chain disruption and creates a negative spillover cost for other businesses and consumers that rely on their products. In the jargon of economists, underinvestment in supply chain resilience creates a negative externality, a cost of business that is absorbed by others besides the actor undertaking it.

Underinvestment in supply chain resilience is a valid target of industrial policy interventions, sometimes including trade protection. For example, businesses focused on resilience should spread production of key inputs among different producers to hedge against the risk of disruption at a key link in their production chain, even if this modestly boosted the current cost of producing these inputs.8 This could also include “reshoring” of key inputs if policymakers were worried about threats to resilience stemming from international conflicts that would stop the ability to source imports. One way to ensure this greater regional diversity (including a larger role for U.S. production) of key inputs could include trade policy measures like tariffs.

This logic lies behind the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act passed in the Biden administration. It offers subsidies for chipmakers to set up manufacturing facilities within the U.S., largely in hopes of avoiding the extreme shortage of chips that drove the first wave of inflation in the post-pandemic recovery. There are also undeniable geostrategic issues driving the CHIPS Act (for good or for ill), but even these geostrategic concerns largely center on the basic question of how to make the U.S. economy more resilient to economic shocks.

Further, a resilience-minded business could maintain buffer stocks of key inputs (such as semiconductor chips or fuel oil), so they can keep production flowing in the event of supply delays or disruptions. Failure to do so can create large costs for the firm and the broader economy, as evidenced by the inflation stemming from pandemic- and war-related supply shocks between 2020 and 2024. One obvious long-running example of this is the Strategic Petroleum Reserve, which the federal government can run down or build up to help smooth out fluctuations in energy costs.

Because individual companies are unable to ensure systemic supply-chain robustness, the rational incentive for them is not to incur costs trying to do this. This market failure defines a key role for policymakers in creating incentives for investments to make supply chains more resilient. Besides creating incentives for more private investment, there are also explicitly public roles for policymakers in bolstering resilience. One key example is having federal agencies monitor supply chains for areas of weakness. Providing subsidies or other public supports for investments in resiliency is a worthy priority for policymakers concerned with the challenges of globalization.

The U.S. should buffer its workers against abusive foreign labor practices and incentivize trading partners to strengthen labor standards

The U.S. should reward countries that respect labor rights with preferential access for their imports and incentivize other countries to enforce higher labor standards. Laws and regulations protect workers and businesses against having to compete with producers willing to exploit vulnerable workers within the domestic economy. Given that, there is good reason to be concerned when this kind of unfair competition is embodied in imported goods as well.9

Much of the wage differential between U.S. workers and workers in lower-income countries like Mexico and China is driven by productivity differentials. The U.S. economy is the most productive in the world, while productivity (defined as average output generated in an hour of work) is much lower in our lower-income trading partners. But some of the wage differential between the U.S. and other countries reflects not just productivity differentials, but the state of labor standards and enforcement.

Econometric analysis by Rodrik (1999), for example, shows that the level of democratic institutions has large and significant impacts on national wages. Rodrik finds that moving from a level of democratic quality that characterized Mexico in 1999 to a level characterizing the United States in that year could see wages in Mexico increased by up to 40% even with no change in productivity. Palley (2005) further finds that this effect runs entirely through greater degrees of democracy leading to higher levels of labor standards, measured by the number of International Labour Organization (ILO) “core labor standards” ratified in a given country. In short, even after accounting for productivity differences, labor can be made significantly cheaper through nondemocratic, exploitative labor regimes.

Widespread violation of labor rights and democratic norms is problematic for fairness and for the competitive position of U.S. workers. In countries like China, substantial investments in production technologies and human capital development (health and education) are narrowing the productivity gap with the United States, which should, in theory, lead to less wage pressure. But if the degree of labor exploitation intensifies, this can undo some of the useful lessening of wage pressure that should have accompanied Chinese productivity growth.10 Even when low-income countries might wish to boost labor standards, the destructive race-to-the-bottom logic of global competition among open economies can lead them to hold back for fear of losing export competitiveness and foreign investment attractiveness.

There are many potential benefits for both U.S. workers and for workers throughout the world to engage in economic competition along many margins. But the scope of useful competition should be focused on who can make their exports more efficiently, not who can more effectively serve up their own nation’s workers for exploitation—whether by local or multinational firms. When trade competes on low labor standards, few of the potential benefits from trade flow to workers.

Two different groups have resisted efforts to incorporate enforceable labor standards within the structure of existing international trade rules. On one side, there are developing country interests concerned about losing the comparative advantage of exploitation who see labor standards as a kind of neoprotectionism. In theory and reality, strong labor protections favor, rather than hinder, growth in late-developing economies (Storm and Capaldo 2018). On the other side are advanced economy corporate interests profiting from this exploitation by substituting workers in their own countries for oppressed workers offshore.

The linkage between trade policy and labor standards has a long intellectual history, yet very few workable proposals have been made during that time. For most of this debate, the primary focus was on whether enforceable labor standards should be part of the main treaties governing the global economy, whether it be trade agreements between countries or multilateral agreements like the World Trade Organization (WTO). But these efforts largely aimed to put the onus for enforcing labor standards on national governments that may not have the capacity, resources, or interest in upholding worker rights instead of on the companies profiting from the exploitation. Further, the efforts were hampered by the need to achieve unanimity among parties to an agreement.

A different model was instituted with the so-called Rapid Response Mechanism (RRM) in the U.S.-Mexico-Canada Agreement (USMCA) that entered into force in 2020. In addition to implementing new and improved labor laws in Mexico, USMCA’s RRM allows enforcement of labor standards at the factory level by an independent panel investigation (rather than a government inspector for whom incentives may be conflicted) when freedom of association and collective bargaining labor rights are violated. While the RRM represents a substantial policy innovation, it is not a match for the challenge of lifting labor standards at a systemic level. To date, only slightly more than two dozen cases have been alleged (ILAB 2025). Meanwhile, wages in Mexican manufacturing today are below their level in 2002 in inflation-adjusted terms and now stand at just 10% of U.S. manufacturing wages, or a mere $2.76 per hour.11

A ranking system for countries based on respect for labor rights

There is, however, no real reason why the U.S. must wait until new trade agreements are signed to begin the process of incentivizing better labor standards in trading partners and buffering U.S. workers from destructive competition. Rodrik (2019), for example, urged the U.S. to institute unilateral domestic safeguards.

The broad brush of our proposal is simple. The United States (perhaps led by the International Labor Affairs Bureau (ILAB) in the Department of Labor) should work with other international bodies and experts to develop a five-tiered ranking of countries around the world based on their respect for labor rights.12 Tier one would be countries that have legislated and successfully enforce the highest degree of labor protections around the world. Tier five would be countries whose labor regime is so odious that the U.S. should simply refuse to accept their imports until it is improved. In between, tier two countries should face a 5% tariff on all exports to the U.S., tier three countries a 10% tariff, and tier four countries a 15% tariff.

Are we positive these are the exact right number of tiers and tariff levels? Of course not, but that’s something that could be researched and assessed by the institutional staff assigned to this task. Further, this proposal is not meant to be calibrated to precisely solve the entire problem of differing labor standard regimes around the world. Instead, it is meant to show that the U.S. government takes seriously how labor is treated around the world and how that spills over onto workers in the United States. It is also meant to provide a competitive buffer against unfair competition that is a bit more than purely symbolic. The highest tariff level here (15%) would cut roughly in half the wage penalty imposed by being in the bottom tiers of democracy or labor standards enforcements identified by Rodrik (1999) and Palley (2005).

One difference between this broad proposal and some others that try to address the “social dumping” of exploitative labor practices is that it is country-based, not product-based. Often proposals aimed at integrating labor standards and trade policy require a finding that abusive labor practices provide a competitive advantage in a particular export good. We think a country-based approach makes more sense for two reasons.

First, it requires much less granular information to sort countries into tiers based on their general approach to labor rights than it does to investigate the cost structure of every possible export to the United States and how it might be impacted by labor practices at particular plants. Second, poor countrywide labor practices have powerful externalities that will pull down wages paid in exporting plants, even if the plants themselves have decent labor standards. Export plant owners only have to pay wages above those in the surrounding labor market to attract the workforce they need. If the surrounding labor market has wages suppressed by substandard national labor policy practices, then the exporting plant can have decent labor practices within its walls yet benefit strongly from the substandard national labor environment. Given these considerations, a commitment to provide better market access to entire nations based on their labor practices is a more workable policy.

The highest tariff level in this broad proposal would not be trivial, and it certainly might apply to large and important trading partners like China unless they make some welcome changes to their labor rights regime. In this sense it might sit uneasily with our skepticism about the use of tariffs in the previous section on trade deficits. We argue that it doesn’t. This labor standards-based tariff would be in effect regardless of the state of trade balance between countries. It does not aim to reduce trade deficits (and it cannot). Further, unlike the second Trump administration’s tariffs, it has a clear goal and specifies a clear road map for how trading partners could change their behavior to have it removed.

Harmonizing climate policies will help reduce greenhouse gas emissions and strengthen U.S. industry

Without harmonized climate regulations, individual countries risk the migration of greenhouse gas-intensive production to low-standard locales and the replacement of domestic production with carbon-intensive imports. This dynamic means that national climate policies and emissions regulations might simply push production to lower-standard locales rather than reducing global emissions overall. If, for example, the U.S. instituted a carbon tax and China did not, instead of reducing carbon emissions globally, some of the effect of this U.S.-based tax could be to push production that emitted carbon offshore to China. This “carbon leakage” would undermine the environmental goals of the carbon tax, and it would see U.S. producers of these emitting industries having to find new economic activity to engage in for no particularly useful reason.13

All of this is highly theoretical so far. The U.S. does not have robust regulations against carbon emissions (in part because of rollbacks to key greenhouse gas regulations during the first Trump administration), and no such regulations seem to be on the horizon. But if the day comes when some countries want to move ahead with stricter emissions controls, these countries should have the freedom to use trade tools like tariffs based on the carbon content of goods to ensure that production is not just moved offshore.

But until there are internationally harmonized climate policies, the progressive approach to globalization for the United States would be to leverage trade policies to herd the global economy toward reduced greenhouse gas pollution and other economic practices that threaten planetary boundaries critical for sustained life on Earth (Richardson et al. 2023). As with labor standards, U.S. trade policy could be designed to reward countries pursuing climate change-mitigating policies that incentivize foreign producers to reduce polluting emissions and clean up their manufacturing industries. The latter could be accomplished by forcing the internalization of costs of greenhouse gas emissions embodied in imports. By preventing “leakage” of emissions to foreign pollution havens, U.S. climate policy would also ensure that domestic, emissions-intensive industries would not be put at a cost disadvantage while shouldering the burden of adjusting to low-carbon production on their own.

The European Union is already putting such a policy regime in place with the Carbon Border Adjustment Mechanism (CBAM). This mechanism, in essence, levies a tariff on goods equivalent to the cost of greenhouse gas emitted during production in the country of origin. Beginning in 2026, EU importers will be required to purchase CBAM certificates covering the embodied emissions they import, consistent with EU pricing for equivalent emissions. Foreign producers that pay for emissions costs domestically will receive credits against fees due under the CBAM. Initially, the EU’s CBAM will apply to imports of iron, steel, and aluminum products; cement; fertilizer; hydrogen and electricity goods; with the mechanism expanding to cover imports from additional emissions-intensive industries, such as chemicals and polymers, down the road.

A policy to level the playing field in terms of emissions pollution is critical both to addressing the imminent climate crisis and to ensuring fair competition for U.S. industries. These industries are among the world’s cleanest producers but are up against other countries whose rapidly expanding production capacities are among the world’s dirtiest (Hersh and Scott 2021). During the Biden administration, the United States and European Union made strides toward a cooperative regime to limit unfair global competition from polluting imports with the Global Arrangement on Sustainable Steel and Aluminum. The agreement would provide a platform for onboarding like-minded countries intent on greening the most pressing industrial emissions (Mullholland and Meyer 2024; Malhotra and Tucker 2023). Legislators have already introduced a number of proposals for U.S. versions of a CBAM (JEC 2024).

This approach to limiting global greenhouse gas emissions and the competitive advantage for polluting countries also may conform to World Trade Organization (WTO) rules. The WTO carves out explicit rights for national regulation of “process and production methods,” recognizing that traded goods can be distinguished by how they are made, although WTO case law has yet to define clear boundaries for how such distinctions can be regulated (Benson et al. 2023; Porterfield 2023).

New international agreements should focus much more on taxes than on trade

Most of the benefits of freer trade can be secured by countries unilaterally and do not require international agreements. If a country decides that it is in their economic interest to allow imports to enter without tariffs, they do not need to strike an agreement with a trading partner to allow this. These unilateral tariff reductions are usually the largest source of estimated gains from trade by far.

Taxing capital income (profits from corporations and returns to wealth), however, is different. Here, effective policy requires some degree of international coordination. Without this, some countries will seek to become tax havens and carve out benefits for themselves at the expense of other countries’ ability to tax the richest entities in society. 14

The levers of international reform that would end tax havens and profit-shifting by rich corporations are well known and require political will to enact. One obvious lever would be for countries to agree upon and adopt a global minimum tax on corporate profits, regardless of where profits are booked. Proposals to adopt such a global minimum tax could, by themselves, raise roughly $500 billion over the next decade (Clausing 2021). The Biden administration made some promising first steps in cobbling together an international coalition to adopt and enforce such a tax—but future policymakers need to build on this progress, not tear it down.

Other reforms would build on Senator Sheldon Whitehouse and Congressman Lloyd Doggett’s No Tax Breaks for Outsourcing Act (2025), which would, among other things, fully tax the foreign income of U.S. multinational corporations, eliminate the tax-free return on foreign tangible assets, and eliminate a subsidy for excess profits from exporting that exists in current law. The overarching principle is that taxes owed should depend on the level of income, not the type of income (or one’s accountant’s creativity in claiming what type of income is being earned).

The current method of taxing capital incomes, and especially the corporate income tax, provides an incentive for corporations to shift both accounting profits and tangible production abroad.15 The current tax method essentially subsidizes firms to generate income outside of the United States. This is a perverse and inefficient setup, one aiming to serve the interests of rich corporations rather than the broad U.S. economy. It can be stopped with some straightforward policy changes.

Conclusion

Donald Trump’s approach to trade policy is bad for the United States and the rest of the world. But this does not imply that the pre-Trump global trade regime was working well. As usual, Dani Rodrik (2019) has put it best, arguing about Trump’s first term: “In a way, one of the worst consequences of Trump [emphasis added] is that he is reinforcing the views of the architects of the existing system as to why there shouldn’t be a change.”

The flawed approach inherited by Trump’s first administration perpetually sought to extend a set of international agreements and norms that privileged corporate interests over workers. From a progressive perspective, the bad part of this system was that it privileged corporate interests. From Trump’s perspective, however, the bad part was that it was a set of international agreements.

The Biden administration made some useful breaks with past practice on globalization. While the administration did not go far enough on many margins, it set off in a useful direction. The administration prioritized the effect of trade on workers, not just consumers, and didn’t prioritize corporate-led trade agreements. Key industrial policy targets aiming to solve market failures were put ahead of ideological fealty to free trade. In short, the Biden administration was not simply a return to the pre-Trump globalization regime that was so bad for American workers—instead they had tentatively begun charting a new path.

The second Trump administration has completely spurned this new path and doubled down on xenophobia and dominance displays as the center of trade policy. If this policy approach continues, it will lead to a poorer United States and a poorer global economy. It will not lead to a renaissance of good jobs in manufacturing.

At some point, a serious approach to the challenges of globalization will need to be reestablished. We hope this paper can help spark and inform that more serious debate.

Notes

1. See Bivens 2017 for an overview of the effect of globalization on American wages and how policy has amplified the harms of globalization. U.S. Bureau of Labor Statistics (BLS), “Table A-4. Employment Status of the Civilian Population 25 Years and over by Educational Attainment: Monthly, Seasonally Adjusted” retrieved from FRED, Federal Reserve Bank of St. Louis, February 12, 2025. David H. Autor, David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” American Economic Review 103, no. 6 (2013): 2121–2168.

2. The theory here (supported by evidence) is called the Stolper-Samuelson theorem. Its broad outlines are explained in Bivens 2017. The summary is that it predicts that trade with labor-abundant countries will lower wages in the United States and raise returns to other factors of production (like human capital).

3. See Mishel and Bivens 2021 for a decomposition of all the policy changes that led to wage suppression and wage inequality.

4. For a broad overview of trade deficits and their economic effects, see Blecker 2009.

5. See Steil and Della Rocca 2021 for an assessment of the economic effect of tariffs introduced in the first Trump administration. Another obvious issue in regard to tariff effects on the balance of trade is the retaliation that may occur.

6. See Gagnon 2020 for a discussion of countervailing currency intervention and its role in keeping trade deficits manageable for the U.S.

7. See Bivens 2019 on how different routes to deficit reduction imply very different outcomes for the welfare of most Americans. In a nutshell, deficit reduction achieved through higher levels of revenue raised progressively (mostly from rich households and corporations) can see deficit reduction go hand in hand with improved welfare for most, but deficit reduction achieved through cuts to income support, social insurance and public investment programs will harm welfare for the majority.

8. See Acemoglu 2021 for a broad discussion of how private investment decisions can lead to supply chain fragility.

9. See Rodrik 2019 for a good overview of these types of fairness concerns when domestic regulation and the rules of the global economy seem to conflict.

10. From 2010 to 2025, Chinese output per hour of work increased from 11% to 24% of the U.S. productivity level (ILO 2025a, 2025b). A recent ILO report (2025a) confirms China’s expanding use of mass detention and forced labor in export industries. Friedman 2014 shows how labor regulation in China has evolved to increase repression as wages and development have increased—a model that is being exported to other developing economy countries with increasing Chinese foreign direct investment.

11. EPI analysis of ILO (2025b) and BLS (2025a, 2025b) data.

12. There are numerous bodies around the world that collect detailed information on the state of labor rights in countries around the world. Freedom House periodically publishes a report on the global state of workers’ rights, the International Labour Organization and the International Trade Union Confederation annually track countries’ progress in protecting key labor freedoms, and the WageIndicator Foundation and the Centre for Labour Research collaborate to produce a tiered ranking of countries’ labor protections called the Labour Rights Index. In short, much of the raw material to provide a ranking of the type called for in this report already exists.

13. See Sato and Burke 2021 for an explanation of “carbon leakage.”

14. See Zucman 2015 for an overview of the problem of tax havens.

15. For evidence on this, see Kimberly Clausing, “Profit Shifting and Offshoring, Then and Now,” and Rebecca Kysar, “Profit Shifting and Offshoring in the New International Regime,” presentations for “Will the Trump Tax Cuts Accelerate Offshoring by U.S. Multinational Corporations?,” a conference hosted by the Economic Policy Institute, May 7, 2018.

References

Acemoglu, Daron. 2021. “The Supply-Chain Mess.” Project Syndicate, December 2, 2021.

Autor, David H., David Dorn, and Gordon H. Hanson. 2013. “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.” American Economic Review 103, no. 6: 2121–2168.

Benson, Emily, Joseph Majkut, William Alan Reinsch, and Federico Steinberg. 2023. Analyzing the European Union’s Carbon Border Adjustment Mechanism. Center for Strategic and International Studies, February 17, 2023.

Bivens, Josh. 2013. 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.

Bivens, Josh. 2019. Thinking Seriously About What ‘Fiscal Responsibility’ Should Mean. Economic Policy Institute, September 2019.

Blecker, Robert A. The Trade Deficit Trap: How It Got So Big, Why It Persists, and What to Do About It. Economic Policy Institute, August 2009.

Claessens, Stijn, and M. Ayhan Kose. 2013. “Financial Crises: Explanations, Types, and Implications.” International Monetary Fund Working Paper no. 13/28, January 2013.

Clausing, Kimberly. 2018. “Profit Shifting and Offshoring, Then and Now.” Paper presented at “Will the Trump Tax Cuts Accelerate Offshoring by U.S. Multinational Corporations?,” a conference hosted by the Economic Policy Institute, Washington, D.C., May 7, 2018.

Clausing, Kimberly A. 2021. Testimony before Senate Finance Committee, Washington D.C., March 25, 2021.

Competitive Dollar for Jobs and Prosperity Act, S.2357, 116th Cong. (2019).

Congressional Joint Economic Committee (JEC). 2024. “What Is a Carbon Border Adjustment Mechanism (CBAM) and What Are Some Legislative Proposals to Make One?,” February 8, 2024.

Economic Policy Institute (EPI). 2025. EPI Extracts of Current Population Survey: Share of Civilian Population. Accessed March 17, 2025.

Friedman, Eli. 2014. Insurgency Trap: Labor Politics in Postsocialist China. Ithaca, New York: Cornell Univ. ILR Press.

Gagnon, Joseph E. 2020. Taming the U.S. Trade Deficit: A Dollar Policy for Balanced Growth, Peterson Institute for International Economics, November 2020.

Gracia, Shanay. 2024. “Majority of Americans Take a Dim View of Increased Trade with Other Countries.” Pew Research Center, July 29, 2024.

Hansen, John R. 2017. “Why the Market Access Charge Is Necessary to Fix Trade Imbalances.” Coalition for a Prosperous America Newsroom. September 8, 2017.

Hersh, Adam, and Robert Scott. 2021. Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures. Economic Policy Institute,. March 2021.

International Labour Organization (ILO). 2025a. Application of International Labour Standards 2025.

International Labour Organization (ILO). 2025b. ILOSTAT Data Explorer. Accessed March 21, 2025.

Kysar, Rebecca. 2018. “Profit Shifting and Offshoring in the New International Regime.” Paper presented at “Will the Trump Tax Cuts Accelerate Offshoring by U.S. Multinational Corporations?,” a conference hosted by the Economic Policy Institute, Washington, D.C., May 7, 2018.

Lange, Jason, and David Lawder. 2024. “Americans Are Sour on Tariffs If They Spark Inflation, Reuters/Ipsos Poll Finds.” Reuters, December 13, 2024.

Malhotra, Sunny, and Todd N. Tucker. 2023. “Why Biden’s Green Steel Deal Is Smart International Relations.” Roosevelt Institute Blog, May 30, 2023.

Mishel, Lawrence, and Josh Bivens. 2021. Identifying the Policy Levers Generating Wage Suppression and Wage Inequality. Economic Policy Institute, May 2021.

Mulholland, Ryan, and Timothy Meyer. 2024. Designing a New Paradigm in Global Trade. Center for American Progress, May 20, 2024.

No Tax Breaks for Outsourcing Act, S.409, 119th Cong. (2025).

Palley, Thomas J. 2005. “Labour Standards, Democracy and Wages: Some Cross-Country Evidence.” Journal of International Development 17: 1–16.

Porterfield, Matthew C. 2023. Carbon Import Fees and the WTO. Climate Leadership Council, September 2023.

Reinhart, Carmen, and Kenneth Rogoff. 2011. “From Financial Crash to Debt Crisis.” American Economic Review 101, no. 5: 1676–1706.

Richardson, Katherine et al. 2023. “Earth Beyond Six of Nine Planetary Boundaries,” Science Advances 9, no. 37. September 13, 2023.

Rodrik, Dani. 1999. “Democracies Pay Higher Wages.” Quarterly Journal of Economics 114, no. 3: 707–738.

Rodrik, Dani. 2018. “Towards a More Inclusive Globalization: An Anti-Social Dumping Scheme.” Economics for Inclusive Prosperity, December 2018.

Sato, Misato, and Josh Burke. 2021. What is Carbon Leakage? Clarifying Misconceptions for a Better Mitigation Effort. London School of Economics Grantham Institute Commentary. December 8, 2021.

Steil, Benn, and Benjamin Della Rocca. 2021. “Tariffs and the Trade Balance: How Trump Validated His Critics.” Council on Foreign Relations Geo-Graphics Blog, April 21, 2021.

Storm, Servaas, and Jeronim Capaldo. 2018. “Who Says Labor Laws Are ‘Luxuries’?, Institute for New Economic Thinking. June 11, 2018.

U.S. Department of Labor, Bureau of Labor Statistics (BLS). 2025a. “Average Hourly Earnings of All Employees, Manufacturing [CES3000000003].”

U.S. Department of Labor, Bureau of Labor Statistics (BLS). 2025b. “CPI-U-RS.”

U.S. Department of Labor, International Labor Affairs Bureau (ILAB). 2025. “USMCA Cases.” Accessed May 18, 2025.

U.S. Treasury. 2024. Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, November 2024.

Zucman, Gabriel. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens. Translated by Teresa Lavender Fagan. Foreword by Thomas Piketty. University of Chicago Press.

Industrial supplies (45%) and capital goods (26%) led export growth in 2022, while capital (42%) and consumer goods (30%) and automotive vehicles (20%) led import growth. #trade #data 2/

— Adam S. Hersh (@adamshersh) February 7, 2023

Despite surging fuel prices, US #petroleum imports *fell* in real terms to $325.9b in 2022, or $26b shy of pre-pandemic levels. #trade #data 4/

— Adam S. Hersh (@adamshersh) February 7, 2023

Similarly, the US trade deficit with Canada and Mexico ($212b) and with #IPEF countries ($350b) set new records, widening by 20% over the previous year. #trade #data 6/6

— Adam S. Hersh (@adamshersh) February 7, 2023

The surge in the U.S. goods trade deficit extends a surge in offshoring that has eliminated more than 5 million manufacturing jobs and nearly 70,000 factories since 1998, with overlooked costs for Black workers and other workers of color, as we describe in this new EPI report.

While both imports and exports were depressed in 2020 due to the COVID recession, U.S. trade deficits increased sharply in both 2020 and 2021, as shown in the figure below. This is because the United States was unable to produce the goods needed to respond to the pandemic and to meet increased domestic demand for consumer goods.

However, contrary to popular opinion, the growth in U.S. imports was not just caused by increased domestic goods consumption coming out of the 2020 COVID recession. Imports explained more than 60% of the growth in U.S. goods consumption in 2021, and U.S. goods imports increased faster (21.3%) than domestic goods consumption (17.8%).

Growing trade deficits have hurt U.S. manufacturing output and employment during the recovery, contributing to the net loss of 226,000 U.S. manufacturing jobs since December 2019. Federal relief spending is leaking away from domestic producers and supporting job creation in other countries.

U.S. trade deficits are almost entirely explained (98.8%) by the deficit in manufactured products, as shown in the figure above, in part because the United States has become a net exporter of crude oil and refined petroleum products over the past two years. The U.S. trade deficit in manufactured goods is explained by China’s soaring global trade surplus, which has increased 60% since 2019, and by imports from other countries with structural trade surpluses, including Japan, South Korea, and the European Union.

These trade surpluses are, in part, the result of these countries undertaking trade and industrial policies to boost manufacturing. If the United States fails to do the same, we’ll continue to lose ground. In addition, China and other surplus countries have maintained persistently undervalued currencies since the 1990s through financial manipulation and excess U.S. capital inflows, which help explain these trade imbalances. 

To rebuild demand for domestically made manufactured goods, U.S. policymakers need to develop more effective Buy America and other trade and industrial policies, and offset unfair trade and currency policies. Rebalancing U.S. trade and capital flows can create millions of good jobs for U.S. manufacturing workers.

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

1

1

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.

Share this chart:

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

2

2

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.

Share this chart:

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

3

3

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.

Share this chart:

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

4

4

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.

Share this chart:

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

5

5

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.

Share this chart:

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

6

6

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.

Share this chart:

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

7

7

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.

Share this chart:

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

8

8

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.

Share this chart:

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

9

9

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.

Share this chart:

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

10

10

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.

Share this chart:

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

11

11

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.

Share this chart:

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

12

12

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.)

Share this chart:

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

13

13

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.

Share this chart:

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

14

14

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.

Share this chart:

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

15

15

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.

Share this chart:

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 pronounced inflation uptick in 2021 has attracted enormous attention from both the media and policymakers. While it would be better for working families if inflation were lower, by far the biggest danger this episode poses is the prospect that policymakers will overreact, prescribing a cure that is worse than the disease. One obvious example of a policy overreaction would be a swing toward more-contractionary monetary and fiscal policy, most notably an increase in interest rates.

However, another potentially damaging overreaction to last year’s inflation would be a return to pre-2016 trade policy. Yes, it is true that the Trump administration’s trade policy amounted to little more than unfocused rhetoric. In particular, the Trump administration’s tariffs on steel, aluminum, and other specific products—as well as the general tariffs of up to 25% on more than half of all U.S. imports from China—were treated too often as an end goal rather than a strategic tool to pair with other efforts to restore American competitiveness.

But it is equally true that the pre-Trump status quo in trade policy for decades was deeply damaging to working families and domestic business. Many of those who inflicted this damaging status quo on U.S. workers have tried to leverage the current inflationary episode to roll back all tariffs introduced under the Trump administration in the name of containing inflation. This is a deeply dishonest linkage. Tariffs introduced over the past five years were not large enough, and the timing of them is completely inconsistent with them being a cause—or plausible significant solution—for today’s inflation.

Further, rolling tariffs back would return efforts to reshore key elements of global manufacturing supply chains to the United States back to square one. Given how damaging fragile global supply chains have proven to be—and how important it is to reshore production back to the United States—claims that tariff rollbacks are an answer to inflation are dangerous. Below, we point out the following salient facts:

• The timing of the tariffs clearly shows no correlation with inflation and eliminating tariffs could not plausibly restrain it. The bulk of the tariffs were in place before 2020, yet inflation only began accelerating in March 2021. Clearly, inflation was driven by many sources besides tariffs.
• In theory, tariffs do not need to have caused inflation for their removal to help restrain it. In practice, however, the size of the tariffs introduced after 2016 are simply insufficient for their removal to make a dent in current inflation. A top-down estimate that compares tariff revenue (a good proxy for the upper bound on price effects) with personal consumption expenditures shows that removing all 2016 tariffs would lead to a one-time, 0.3-percentage-point reduction in consumer prices.
  • In the best-case scenario, eliminating tariffs would offset just 7.2% of the total increase in consumer prices, but provide no buffer to price increases thereafter.
• If tariff removal was costless, then it would be worth considering. But it is not costless. The current global supply chain chaos is just the latest sign that global trade needs to be rebalanced and the U.S. manufacturing footprint should be reinforced. Until a coherent overall strategy is put into place, tariffs can give key industries breathing room.

Total U.S. tariff and customs duties collected rose from $36.6 billion in the fourth quarter of 2016 to $85.7 billion in the third quarter of 2021. This increase of $49.1 billion represents only 0.3% of total U.S. personal consumer expenditures of $16.0 trillion (Bureau of Economic Analysis). Rolling back or even eliminating U.S. tariffs would have only a minimal and transitory impact, at best, on price levels and inflation in the United States.

Further, tariff increases took effect in early 2018 and early 2019—well before inflation accelerated in March 2021—as seen in Figure A below, which shows the inflation rate and total U.S. customs duty revenues as a share of personal consumer expenditures.

Figure A

In theory, tariff removal could help tamp down inflation. However, the tariffs introduced since 2016 are too small for their removal to make a dent in current inflation. A top-down estimate that simply compares tariff revenues (a good proxy for the upper bound on price effects of tariff removal) to personal consumption expenditures shows that removing all tariffs impose after 2016 would lead to a one-time, 0.3-percentage-point reduction in consumer prices, as illustrated in Figure A.

Tariff removal could, in theory, eliminate about 7.2% of the 4.3% inflation rate in the third quarter of 2021 (lowering the inflation rate from 4.3% to 4.0%), but that would just provide a one-off reduction in price levels and no further buffer or insulation from the inflationary forces in the economy thereafter.

If tariff removal were costless, even if it pushed inflation back by a tiny amount, it might be worth doing. However, it would not be costless. Trade restraints have helped numerous domestic industries rebuild and recover from unfair trade, including the steel and aluminum industries, as we have shown in earlier reports. Tariff removal would threaten these gains and could result in job losses, plant closures, cancellations of planned investments, and further destabilization of the domestic manufacturing base, which would increase domestic dependence on unstable import supply chains.

A review of data at the product and industry levels confirms that tariffs have had only temporary and transitory effects on overall price levels (including competing domestic products), as shown in Figure B. Steel tariffs of up to 25% were imposed beginning in March 2018. The domestic price indexes for overall competing iron and steel and for steel mill products increased by 10.2% to 17.7% between February and September 2018, as shown in Figure B, an increase that was smaller than the tariffs imposed on imports.

Markets then adjusted and domestic steel prices retreated below pre-tariff levels until commodity shortages hit in late 2020 and steel prices surged again to historic highs. The two surges in steel prices are clearly distinct, and COVID price shocks (from August 2020 to November 2021) were eight to 11 times larger than those that followed the imposition of steel tariffs in 2018.

Figure B

As stressed by economist Daron Acemoglu, “recent bottlenecks and price surges have underscored the risks that come with sprawling global supply chains.” Over the past two decades, the United States lost nearly 70,000 manufacturing plants and more than 5 million manufacturing jobs (forthcoming EPI research). The erosion of the U.S. manufacturing base was driven in large part by systemic distortions of the global trading system by China and other countries. These foreign governments have used massive and illegal subsidies, unfair trade policies, and currency manipulation and excessive private capital inflows that have resulted in the systematic overvaluation of the U.S. dollar by 25% to 30%.

These policies made imports artificially cheap and U.S. exports less competitive on world markets, resulting in growing trade deficits and jobs losses and overextended domestic supply chains that were unprepared to meet the challenges posed by the COVID crisis. And as Acemoglu notes, multinational corporations pounced on the opportunities to globalize supply chains, in part to shift corporate income from workers toward shareholders (and CEOs).

Many of Trump’s tariff hikes lacked a strategic purpose and end goal, and there was no underlying policy effort made to restore American competitiveness. However, tariffs have provided breathing room for some key industries to rebuild. For example, as we showed in a prior report, since the 10% aluminum Section 232 tariffs were imposed in 2018, at least 55 new and expansion projects have been announced in downstream aluminum industries that will employ 4,500 additional workers and generate $6 billion in new investments. Similar results have been observed in the U.S. steel industry following imposition of 232 tariffs. 

Tariffs alone are no substitute for comprehensive new trade and manufacturing policies to rebalance trade and rebuild American manufacturing. Investments are desperately needed in research and development, training, and workforce development. And most importantly, new currency and financial policies are needed to rebalance U.S. trade and capital flows and lower the dollar to a more sustainable level to meet the growing competitive challenges posed by China and other nations seeking to expand their unfair trading empires. 

Tariffs provide sorely needed breathing room while more serious strategies and policies are developed and put into place. The United States should not pull the rug out from under the Biden administration’s efforts toward building “resilient supply chains, revitalizing American manufacturing, and fostering broad based growth” by removing tariffs before these new strategies can be developed and implemented.

Speakers will give an overview of the report’s findings and then answer questions from the media. The report will be embargoed until the press call.

Please register here to RSVP.

What: Media Zoom conference to discuss new report on the effectiveness of Section 232 aluminum tariffs.

Who:

• Robert E. Scott, Senior Economist and Director of Trade and Manufacturing Policy Research at the Economic Policy Institute
• Thomas M. Conway, International President of United Steelworkers
• James Powell, Casthouse Manager at Century Aluminum
• Jesse Gary, Chairman of the American Primary Aluminum Association

When: Wednesday, May 26 at 11:00 a.m. Eastern

Where: Zoom Meeting

To RSVP, please register here.

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.