NPR Talks About Manufacturing's Prospects Without Mentioning Tariff on U.S. Exports

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Friday, 24 June 2011 04:44

Actually, what NPR did not mention was the value of the dollar, however an over-valued dollar has the same effect on U.S. exports as a tax on exports. In other words, if the dollar is 15 percent over-valued, this is equivalent to imposing a 15 percent tax on all the goods exported from the country, since it makes our goods roughly 15 percent more expensive to people living in other countries. Similarly, if the dollar is over-valued by 15 percent then it is equivalent to subsidizing imports by 15 percent.

When the United States has imposed tariffs of this magnitude on imports, for example President Bush's temporary tax on imported steel in 2001, it has received a huge amount of attention from the media. It is therefore remarkable that a piece devoted to the prospects of manufacturing never mentions the dollar and the likelihood that it is substantially over-valued.

This piece also points to productivity growth as one of the main factors contributing to the reduction in the share of employment in manufacturing. It is important to realize that productivity growth in manufacturing would only lead to a reduced employment share insofar as it has exceeded the rate of productivity growth elsewhere in the economy.

This has in fact been the case. But the gap between productivity growth in manufacturing and the rest of the economy would explain a much smaller drop in the manufacturing share of total employment than the absolute level of productivity growth. Much more of the drop in the manufacturing share of employment is attributable to import competition and the trade deficit. If the U.S. had balanced trade, it would increase manufacturing employment by more than 40 percent, creating more than 4 million new jobs in manufacturing.