Trade vs Manufacturing | Employment vs Output

Kevin Drum, making points he rightly suspects I’ll agree with, says that it’s not manufacturing that matters it’s the need to make tradeable products because “we really do have a long-term trade deficit problem.”

I do agree! But two important nuances here.

One is that tradeability is not identical to the NAICS manufacturing category. In many ways, its not even close. Drum mentions America’s exports of music, television shows, and movies. But you can also export lots of different kinds of services. Every time a foreigner signs up for a Flickr Pro account or subscribes to The New York Times, America is exporting. America is also a net exporter of higher education services, with students from around the world flocking to our fair shores. The United States is a net exporter of tourism, meaning that foreign visitors spend more on our hotels, restaurants, shops, etc. than we spend on theirs. If you think about the localized economies of Orlando or Las Vegas, they’re obviously very dependent on tourism exports to other regions of the United States, and as developing countries get richer I bet international tourism exports will become more imporant to them. Now of course tourism is not the most lucrative thing in the world. But neither is manufacturing. If you go back to the list of the highest-wage metropolitan areas in the United States, you’ll see that at both the mid-level and the low-level they’re dominated by centers of software, finance, business service, and biotech. A plausible vision of a more prosperous America is one with more places like Boston and San Jose, not more tire factories.

The other is that there’s a difference between output and employment. A lot of the recent manufacturing conversation has centered on talk of “jobs” and especially “good jobs.” But what matters for the trade balance is simply the dollar value of output. Hollywood does not directly employ a particularly large number of people. But it is as a major export industry. And it does anchor the economy of America’s second-largest city. It’s just that in Los Angeles most people aren’t arning a living as actors or directors or screenwriters. They’re doctors and lawyers and teachers and waitresses and gardeners and yoga instructors and accountants and that’s all fine.

Last (but by no means least) I do think it’s important to emphasize that while the USA certainly seems like it may face a balance of payments crisis in the future, we’re definitley not facing one today. That’s The Crisis We Should Have Had, but it’s not the crisis we are experiencing. And the president ill-serves the country by acting as if we’re facing a balance of payments crisis when we aren’t.