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Did China or Automation Lead to US De-industrialization?

West Exit of Zhengzhou East Railway Station. Zhengzhou, in China's Henan province, is famous for its "iPhone City" (photo by Windmemories via Wikimedia Commons)

Automation has become a major topic of debate in the United States. A recent study by Oxford Economics claimed that robots could take over 20 million manufacturing jobs around the world by 2030.

Democratic presidential candidate Andrew Yang has made the fight against automation's disruption of the labour market one of the central themes of his campaign.

"Technology is quickly displacing a large number of workers, and the pace will only increase as automation and other forms of artificial intelligence become more advanced," Yang wrote on his campaign website. "⅓ of American workers will lose their jobs to automation by 2030 according to McKinsey. This has the potential to destabilize our economy and society if unaddressed."

Amid Donald Trump's "trade war" with China, one of the controversial issues regarding the US' loss of manufacturing jobs is the role of free trade as a cause for de-industrialization vis-a-vis the impact of automation.

During the Democratic presidential debate in October, Elizabeth Warren and Andrew Yang argued over the reasons for de-industrialization. While Yang blamed it on automation, Warren claimed that it was brought about by bad trade policies.

According to PolitiFact, however, there is no consensus on the issue among experts, and available data show that both explanations are valid.

Nevertheless, advocates of free trade seem to be using the automation argument to push for an end to trade confrontation with China and the resumption of free trade policies.

Recently the International Monetary Fund (IMF) published a report, according to which "China's rise" cannot be blamed for regional job losses in developed countries.

The IMF is by far not an unbiased institution. As economist Joseph Stiglitz noted:

The unwavering faith in markets is sometimes referred to as market fundamentalism, sometimes as neoliberalism. Market fundamentalists believed, for instance, that if only the government would ensure that inflation was low and stable, markets would ensure growth and prosperity for all. [I]n most of the world, market fundamentalism has been discredited, especially in the aftermath of the 2008 global financial crisis ... [S]imilar ideas, pushed by the IMF and the World Bank around the world, led to a lost quarter-century in Africa, a lost decade in Latin America, and a transition from communism to the market economy in the former Soviet Union and Eastern Europe that was, to say the least, a disappointment (Joseph Stiglitz, The Euro, p. 9).

On May 18, 2004, Anne O. Krueger, then Acting Managing Director of the IMF, gave a speech to the Graduate Institute of International Studies entitled "Willful Ignorance: The Struggle to Convince the Free Trade Skeptics", which was a tirade against those who questioned "free trade". She said:

[T]he opponents of free trade ... are a disparate group. They often seem united only by what they are against—not what they are for. Those of us who believe—indeed, I would say know—that free trade makes possible rapid sustainable growth, rising living standards and poverty reduction must recognize that our debate is with, at best, a loose coalition of overlapping interests. But I am not, tonight, directing my remarks solely at the anti-globalization protesters. 
A surprising number of governments, especially in the developing world, remain fundamentally skeptical of the potential benefits of free trade. Poor countries are those who stand to gain most from a successful conclusion to the Doha round: the World Bank estimates that around two thirds of the benefits would accrue to developing countries. Yet policymakers in many of these countries remain at best skeptical, at worst philosophically opposed, to the idea of trade liberalization as something to which developing as well as industrial country governments should be committed.

As I have already discussed in a previous post, there is little evidence that trade liberalization has brought much benefit to the vast majority of US citizens, and a similar argument could be made for most developed countries, where trade liberalization has not led to higher median incomes and living standards.

Automation seems just a semantic evolution of the "post-industrial society" narrative pushed forward in the heyday of neoliberalism. As Adrian Little wrote in 1998:

Since the 1960s there has been a growth in literature questioning the continuing nature of industrialism and the potential advent of a post-industrial society. Originally this perspective gained most influence in neo-pluralist circles in the USA, although it was also inspired by the rise of a variety of social movements in the late 1960s (Dunleavy and O’Leary 1987:290-2). This development has been accompanied more recently by proclamations that Western capitalism has moved variously from Fordism to post-Fordism (Amin 1994b), from modernity to post-modernity or into the age of McDonaldisation (Ritzer 1993). The 1990s have also witnessed new literature which accepts that post-industrial societies have now emerged (Esping-Andersen 1991, 1993; Clement and Myles 1994).1
1. Adrian Little, Post-Industrial Socialism: Towards a New Politics of Welfare (London: Routledge, 1998), 15,

As I have already argued, industrialization is not, contrary to what neoliberals may believe, a "natural" market development, but the result of conscious policy decisions in which governments were very much involved.

So, did trade or automation lead to job losses in the US?

It would be wrong to dismiss the role of automation and AI altogether. Technology has indeed had an impact. But if automation had been the major cause for US de-industrialization, then a similar level of manufacturing jobs decline should be observed in most industrialized or emerging economies.

Let us now look at the data.

If we examine China's employment in industry as a percentage of total employment, we can see that from 1991 to 2018, industrial employment actually significantly went up, from 21.5% to 28.6%. To name just one example, the company Foxconn employs around 1.2 million manufacturing workers in China, mainly in the production of Apple products.

By contrast, industrial employment in the United States declined from 25.4% in 1991 to 19.4% in 2018. The decline of US manufacturing jobs, the increase of China's manufacturing jobs, and the growing trade deficit of the US with China, seem to suggest that wrong trade and industrial policies have disrupted American manufacturing. As we can see in the graph below, the United Kingdom has experienced a similar decline in manufacturing jobs. 

Just like China, Vietnam has seen an increase in manufacturing jobs.

Obviously, millions of jobs have not been automated, they still do exist - in countries where labour is cheap.

But if we compare countries like France, Japan and Germany to China, the US and the UK, we can see that their industrial decline has been much more limited than the US or UK. At 27.1%, industrial employment in Germany is even higher than it was in the US back in 1991, and only slightly lower than in China.

What Japan, Germany and China have in common is that they pursue a much more active, state-sponsored industrial policy than the US and the UK, although it must be noted that in the neoliberal era prior to 2008 they, too, gave in to pressure to downsize government intervention.

It seems clear that automation cannot be the main reason for the US' loss of manufacturing jobs. Much more likely, de-industrialization is the result of neoliberal policies that actively sought to promote the service sector, especially finance and banking, while neglecting industrial policy and industrial employment, and promoting unfair trade with countries like China.


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