More on manufacturing and trade policy

There has been, and there will continue to be a lot of speculation about manufacturing and tariffs. Tariffs started to increase with Trump in 2017, and were kept by Biden. But among the differences between Trumponomics and Bidenomics (for more go here and here) was the smarter use of industrial policy, in the latter case.

The figure below shows Total Private Manufacturing Construction in the United States. Essentially how much firms spent on constructing of manufacturing installations. A poor proxy for manufacturing output (or potential), if not employment. Actual manufacturing output didn't grow much (a discussion on re-industrialization here; a very old post on deindustrialization here).

As it can be seen, it is flat during the first Trump presidency, and takes off at some point towards the middle of 2021. This in part reflects the CHIPS Act and the Inflation Recovery Act, both from well into 2022, but given the timing, it also shows that simply the expansion of spending, that occurred as soon as Biden assumed the presidency, with the $1.9 trillion package of March 2021, may have been instrumental. By about mid-2024, the boom had lost steam.

I think there are good reasons to be skeptical about Peter Navarro's manufacturing boom (see last post here).

Why Manufacturing Still Matters

I've been reading in the spare time (not as much as I would like, and worse with the World Cup) Louis Uchitelle's Making It: Why Manufacturing Still Matters. I tend to agree with the general idea of the book and with many of the policy conclusions, even though I have some problems with minor points (for another post). As a result of this I went to check manufacturing output. There are many different statistics to check in the FRED database. Below a measure of industrial output.

And yes, it is below the peak from the previous recession. We were talking about this with Tom Palley, and it is clear to me that this statistics played an important role in the rise of left (Bernie) and right-wing (Trump) populism in the US. The failure of the Obama recovery to lift manufacturing, not just jobs, but output too is central to any political economy story about the last election.

Payroll employment rose by 215,000 in March

That's more or less the same pace of growth as before, and suggests that the slow recovery continues. The unemployment rate ticked up to 5%, since the labor force participation rate increased from previous month. (but still below the pre-recession level, as shown below). So in this case, a slightly higher rate of unemployment is not a bad thing. It means more people are confident they can find jobs.

Notice that manufacturing employment has declined for the third month in row.  This also might add to Yellen's reasons for being dovish, as discussed earlier this week.

PS: Report here.

Krugman on manufacturing deficits



Krugman correctly points out that depreciation has had a role in the reduction of the manufacturing trade deficit in the US (above).  However, he forgets to say that the recession was also instrumental in reducing the deficit.  While he is correct that those that are afraid that depreciation would lead to the collapse of the dollar (a hysterical exaggeration), and do not see the positive role of a depreciation, it is also true that the reduction of the deficit is not all good news. A reduction that results from a recession is hardly good news.

Note also that it is important to explain why the manufacturing sector is key for the economy. Nicholas Kaldor used to argue that it is manufacturing growth that drives productivity change (and that productivity in agriculture and services is derived). In that sense, as I noted before, even though employment in the sector have shrunk and the trade balance in the sector has been perennially negative, the US is still the leading innovator in the sector.