Large trade deficits are often blamed for the protracted decline in manufacturing employment in the United States. Critics claim cheap imports from low-wage countries erode the competitiveness of US producers, driving American manufacturing plants and jobs abroad. However, manufacturing employment as a share of total employment has been steadily declining in all high-income economies, even those with strong export sectors and trade surpluses, like Germany.
State-level data provide a more complete picture. Germany persistently recorded trade surpluses in goods between 1992 and 2020, but manufacturing employment as a share of total employment in its industrial heartland has fallen at a similar rate to that in the United States, which recorded a trade deficit in goods in that time frame. Manufacturing employment in North Rhine-Westphalia, an industrial hub in western Germany that has recently been reinventing itself as a high-tech and services center, fell as a share of total employment by 11.7 percentage points across the period, losing 658 thousand jobs. In Ohio, a Midwestern state in the United States with a similar manufacturing history, manufacturing employment as a share of total employment dropped by 8.1 percentage points, or 341 thousand jobs. Both states are heavily populated. Ohio's population is 11.7 million and North Rhine-Westphalia's is 17.9 million.
The parallel trends observed in both regions suggest the decline is driven by forces other than trade balances or policy. Common factors, including increased use of labor-saving technologies and improvements in productivity, may be responsible as more efficient technologies reduce the need for manufacturing workers. The regional histories demonstrate the futility of fixating on trade balances to protect manufacturing jobs, a policy course that is doomed to fail while ignoring long-standing injustices.
This PIIE chart was adapted from Adam S. Posen's testimony on the effects of globalization before the House Select Committee on Economic Disparity and Fairness in Growth.