New World, New Policy

The changing composition of U.S. trade 
international_trade_2We have often heated discussions on trade policy shifts. To make reasonable arguments, we must consider that the fundamental composition of trade has been changing. For example, from the 1960s to 1990s, the trade role of primary commodities has declined precipitously while in parallel, the importance of manufactured goods has increased. This has meant that those countries and workers who had specialized in commodities such as rubber or mining typically fell behind those that had embarked on strengthening their manufacturing sector. With sharply declining world market prices for commodities and rising prices for manufactured goods, commodity producers were increasingly unable to keep pace. Some commodity-dependent countries realized temporary windfalls as prices of oil, wheat, and corn rose dramatically, only to watch them evaporate as prices dropped in 2009.

More recently, there has been a shift in manufacturing to nations which are newly emerging in the world market as both customers and suppliers. In the mid-1800s, manufacturing accounted for about 17 percent of employment in the United States. This proportion grew to almost 30 percent by the 1960s, only to decline at a rising rate. In mid-2009, U.S. manufacturing employment fell to 9 percent, with the loss of some 2 million manufacturing jobs in the recession. The decline continues until 2014. Despite this loss in employment, the U.S. manufacturing industry is in the process of significant transformation as productivity gains and skills upgrading have created a leaner and more skilled manufacturing workforce. We need to consider that due to innovation a smaller sized workforce can manufacture more and better products. For example, U.S. value-added manufacturing output has been increasing even though there have not been major increases in employment or number of facilities. The U.S. share of global manufacturing output has remained stable at about 25 percent over the past two decades.

Manufacturing changes during that time were not confined to the United States. In the past 30 years, German manufacturing employment has dropped by 13 percentage points, while in Japan the decrease was 6.5 percentage points. Such shifts in employment reflect a transfer of manufacturing away from traditional manufacturers toward the emerging economies. During the times of large decline in the United States, Germany, and Japan, the proportion manufacturing of gross domestic product (GDP) has more than doubled in Malaysia, Thailand, and Indonesia, helping their economies and global participation grow. Considering the large scale of benefits that so have been transferred, it is sensible to ask whether such economic transfers need to continue to be subsidized by the United States and other key industrialized nations. In an era of freedom and global opportunity most countries should be able to use their own resources to support their growth, and understand the possible disadvantages emanating from trade or investment overhangs.

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