Mark Twain is one of the most famous people to be the subject of a death hoax. In his case, the newspapers were just careless. This is when he uttered his famous quote, “The report of my death was an exaggeration.”
Perhaps the death of manufacturing in America exists only in the minds of politicians and media people seeking a story with a clickable headline.
I’ve made a trip across Indiana’s US Rt 30 twice these past two weeks. Somewhere in the middle of the state stands a large billboard. It proclaims how many jobs exist in Indiana from automotive manufacturing. I was driving, but I’m sure it said greater than 200,000. That’s a significant amount of jobs.
A publicist sent a link to an analysis by EIG Chief Economist Adam Ozimek. For an economist, the research and thinking seems pretty rational. He reveals how the most popular arguments for tariffs on auto imports today rest on a misreading of history. It debunks four widely accepted but flawed narratives.
You need to read this entire analysis for a proper understanding.
Protectionists love talking about the auto industry. Believing it offers a potent example of the harms of globalization, their arguments have long been politically attractive to politicians on both left and right. Most recently they have justified the Trump administration’s 25 percent tariffs on auto imports by emphasizing the long-term decline of the industry.
It is time to set the record straight.
The protectionist argument for insulating the American auto industry from foreign competition not only draws the wrong lessons from history, it gets the history itself wrong. It rests on four myths, all of which I debunk in this analysis:
- The U.S. auto industry has collapsed.
- Globalization caused the death of Detroit.
- Japanese imports nearly destroyed the auto industry in the early 1980s…
- … until auto protectionism saved it.
Once these myths are set aside in favor of a clear, accurate understanding of the auto sector and its history, there is no reason to be optimistic that the Trump administration’s protectionist approach to the sector will work as intended. Indeed the case for it falls apart entirely.
Sometimes we extrapolate from similar, but different, data sets.
Apparel, for example, is a quintessential globalized good, its factories shifting across the globe in search of the lowest labor costs. The United States once made a lot of clothes. Today it employs more than 90 percent fewer workers in apparel than it used to, and produces 90 percent less of the output. Apparel was a classic “China Shock” industry, where imports caused substantial and long-lasting economic disruptions in the parts of the country where it used to be concentrated.
Extrapolating from apparel to automotive doesn’t fly.
But the domestic auto industry is different. It remains alive and well, with 10.5 million vehicles assembled in American factories last year. This number is down from the peak of the post-NAFTA boom period, but it is well above the depressed years of the 2000s and nearly equals the average of 10.3 million annual vehicles made in the pre-NAFTA period dating back to 1969.
What about economic value?
The economic value of the cars being made has climbed substantially through the years. As a result, real value added and industrial production — two different ways of measuring actual output — are now at all-time highs.
And jobs?
What about jobs? The auto industry today employs 1 million workers. Between 1950 and the signing of NAFTA in 1993, it averaged 1.1 million workers, just slightly higher.
Take a closer look.
But we are left with a puzzle. The perception that the auto industry has been decimated — and decimated specifically by globalization — is widespread. Where does it come from?
The likely answer is that in Detroit, the decline of the auto industry is certainly not a myth. But its very real decline was caused by competition not with the rest of the world, but with the rest of the United States.
The deindustrialization of Detroit is typically understood as a phenomenon of the 1970s and 1980s, and it is therefore blamed on the growth of trade during this period. But the fact is that auto investment and employment had started moving out of Detroit decades earlier.
I pieced together data from a variety of sources, which shows that auto manufacturing employment in the City of Detroit had already peaked in 1950, at just over 220,000 workers. [3]
By 1970 the biggest declines had already occurred, with employment falling by more than half, to fewer than 100,000 jobs.
An important nuance is that many of these lost jobs migrated to other parts of Michigan, at least for a while. So while auto employment was collapsing in Detroit, the rest of Michigan managed to hold auto employment stable for another five decades until the 2000s, when it started falling everywhere in the state.
What about investments?
The historical record paints the picture. Henry Ford II announced in 1950 that his company’s investments would no longer be concentrated in their established industrial centers. By the mid-1960s, Ford had made major investments not just in the southern states of Alabama, Tennessee, and Georgia, but also in New York and New Jersey.
For its part, GM made investments in Indiana, Ohio, Illinois, New Jersey, Mississippi, and California, while Chrysler invested in New York, Delaware, Indiana, and Ohio — all by the late 1950s.
He continues his analysis with data from Japanese imports through foreign investment in the US. For anyone concerned with manufacturing in America, this is an essential read.
