The 1992 Clinton‐Gore campaign book, “Putting People First,” somehow imagined “Japan and Germany “threaten to surpass America in manufacturing by 1996.” The Tokyo‐based journalist Eamonn Fingleton’s subtitled his 1995 book “Blindside” as “Why Japan is Still on Track to Overtake the U.S. by the Year 2000.” Americans were being sold an economic inferiority complex, and many bought it. Or at least they bought the books.
What was really happening? From 1990 to 2000, industrial production increased by 49½ percent in the United States, 13.4 percent in Germany and 1½ percent in Japan. By 2003, Japan’s industrial production index was still much lower than it was in 1990. Trade surpluses appeared in Japan and Germany only because their economies, and therefore their imports, grew slowly, not because exports grew rapidly. Japan’s merchandise exports grew only 3 percent a year from 1990 to 2001, slower than Europe’s 4 percent pace and only half as fast at the 6 percent yearly increase in U.S. exports.
Manufacturing jobs declined in all three countries, and most others, but industrial job losses were much greater in Japan and Germany. From 1990 to 1995, manufacturing jobs fell 1.6 percent a year in Japan and 4.2 percent a year in Germany, but only 0.6 percent in the United States. From 1995 to 2000, manufacturing jobs fell by 1.9 percent a year in Japan, by 0.8 percent in Germany but only 0.1 percent in the United States.
Neo‐Luddites who view productivity gains as bad news should take note that annual increases in manufacturing productivity from 1990 to 2001 were 3.8 percent in the United States and 2.8 percent in Japan and Germany. The country with by far the largest gains in industrial production and productivity also had by far the least traumatic loss of industrial jobs. That country was not Japan, which probably failed to overtake the United States even in sushi consumption
In the United States, unlike Japan and Germany, the secular trend toward automation of arduous manufacturing tasks was more than made up for by increased employment opportunities in finance, health, education and various professions. From 1990 to 2001 (which includes two recessions), employment rose 1.2 percent a year in the United States, compared with 0.3 percent in Japan and 0.1 percent in Germany.
Most of these facts are easily verified at the Bureau of Labor Statistics Web site, bls.gov. But in the mid-‘90s, as today, those who claimed U.S. jobs losses were due to trade deficits never bothered to look at facts. Instead they assumed trade deficits meant lost jobs. So they likewise assumed that trade surpluses in Japan and Germany have meant those countries were gaining the jobs we lost. At last count, Germany still had a huge trade surplus — $153 billion over the past year — and an unemployment rate of 10.3 percent.
Trade was balanced in the United States in 1981 and 1991. Economies in recession don’t need to import much oil, copper, bauxite, high‐tech components, etc. The trade deficit increased after those recessions ended. But it would be absurd to claim (as some really do) that such increases in the trade deficit meant we would have had more jobs by staying in recession forever.
Despite the evident nonsense of equating trade deficits with job loss, and surpluses with job gains, that assumption is nonetheless still used by the AFL-CIO and Progressive Policy Institute to estimate or “impute” job losses to trade deficits.
It follows Japan and Germany must still be gaining all those jobs we are supposedly exporting. But nobody is foolish enough to try repeating that claim again. So those afflicted with chronic trade phobia have recycled their faded stories by simply replacing the words “Japan and Germany” with “China and India.”
Mr. Fingleton’s latest effort is an article called “Trading Down” in the American Prospect. Citing fellow curmudgeons Lester Thurow, Pat Choate and Lou Dobbs, Mr. Fingleton predicts “a devaluation from hell… a truly devastating devaluation.” Given the author’s forecasting record, the dollar naturally started moving up on this non‐news.
Such efforts to rewrite the old “Japan will overtake us” melodrama lose a lot in translation. Unlike Japan, India has a chronic trade deficit in merchandise, averaging about 3 percent of GDP, so India has to export services to pay for rapidly increasing imports of food and machinery.
Diehard “twin deficits” zealots have even more explaining to do. India’s budget deficit has ranged from 9 percent to 10 percent of GDP for a number of years, but that doesn’t seem to have slowed the economy a bit.
China still has a small trade surplus, but the notion China has been stealing our manufacturing jobs faces a bigger problem. According to the Asian Development Bank (adb.org), China’s industrial employment fell from 109.9 million in 1995 to 83.1 million in 2002 — a drop of 24 percent.
Anyone who wonders where U.S. manufacturing jobs have gone need not bother looking for those jobs in China, Japan, Hong Kong or South Korea. All those countries suffered much larger percentage declines in manufacturing jobs than the United States has. Politically inconvenient, perhaps, but true.
Nobody denies many manufacturing industries went through rough times from July 2000 to June 2003. Yet super‐economist Brian Wesbury at gkst.com notes the manufacturing component of the U.S. industrial production index rose at an impressive 7.1 percent annual rate over the past six months.
Six months is not enough time for that big turnaround to have had much affected employment, but it will. People who keep reminding us that many measures of employment are not yet entirely back to the previous peak — which took nine years to reach — make a lot of noise without saying anything.
Whenever overly excited journalists, politicians and pseudo‐economists start telling you the United States should worry more about economic strength in China and India than about economic weakness in Europe, Mexico and Canada, remember to check what they said about Japan and Germany overtaking the U.S. economy a mere decade ago.