New Math: Don't Blame Asia For Loss of U.S. Factory Jobs
By Phillip Day

23 September 2003
Asian Wall Street Journal

Singapore -- THE MATH USED by critics of Asian currency policies is relatively simple: Asia's cheap currencies equal U.S. job losses.

"The United States has stood by too long while China and other Asian countries skew the markets to keep their currencies artificially low and steal U.S. jobs," Rep. Donald Manzullo, an Illinois Republican, said last week. Mr. Manzullo is co-sponsor of a congressional resolution that calls on the Bush administration to step up pressure on Asian countries to allow their currencies to appreciate.

The debate so far has centered on the value of Asian currencies: Are they undervalued because of currency intervention or pegs? Should Asian countries be forced to let their currencies strengthen?
But some new research questions a basic precept of the critics' math: that the U.S. has lost a large number of jobs overseas in the first place.

A report issued this month by Jonathan Anderson, a UBS economist based in Hong Kong, suggests the U.S. has only lost a small number of manufacturing jobs to Asia. Mr. Anderson agrees with estimates that the U.S. has lost on the order of six million manufacturing jobs during the past 10 years, but he concludes, "that would have happened even if the U.S. had no trading partners."
Should key policy makers accept the math used by Asia's critics, it could dash any hope of what is now expected to be an economic recovery for Asia over the next year or so. If protectionism becomes the dominant theme in the U.S. as the 2004 presidential elections approach, it would threaten not only Asian economies, but also foreign investors who have piled back into Asian capital markets this year and multinationals who now use Asia to manufacture their goods.
" Jobs are certainly being lost," Mr. Anderson said in an interview. "The question is, are they being lost to Asia?"
Mr. Anderson looked into the past 10 years of manufacturing job losses in the U.S. and Japan, countries that have both pointed the finger at Asian countries for stealing jobs. He concluded that about 50,000 manufacturing jobs a year have shifted from the U.S. and Japan to non-Japan Asia during the past decade, a "pretty damn small" number when compared with an estimated nine million manufacturing jobs lost in the two countries during that period.

Instead of jobs being stolen by non-Japan Asia, Mr. Anderson says, the bulk of manufacturing job losses can be explained by two factors: the natural move into service jobs and away from manufacturing as economies mature, and productivity gains in manufacturing. He also points out that most of those jobs haven't really been lost. The nine million figure -- six million lost in the U.S. and three million in Japan -- comes from economists looking at the rate of employment growth and calculating how many manufacturing jobs should exist if manufacturing employment had grown at the same rate as job creation in the rest of the economy.
If those jobs had gone to Asia, the shift should have been reflected in statistics on manufacturing trade, Mr. Anderson says in his research. U.S. and Japanese trade in manufacturing with non-Japan Asia should have grown enough to account for the production of all those workers.

That trade has grown, as reflected in the widening manufacturing-trade surplus of non-Japan Asia with the U.S. and Japan. But it hasn't grown enough to explain the job loss -- only 500,000 over the past 10 years, or a little more than 5% of the total jobs lost in the U.S. and Japan, Mr. Anderson found.
In fact, Mr. Anderson writes in a report, the overall job-loss figure "has nothing to do with international trade, but rather with standard economic growth patterns in any economy." As people become richer, they spend more on things such as travel, education and restaurants than they do on basic manufactured goods. That trend has been combined with high rates of productivity growth in manufacturing in the U.S. and Japan, so that fewer workers can produce the same amount of goods.
Because of the maturing economies and the higher productivity, "these so-called job losses are a positive, not a negative," Mr. Anderson said.
Lately, there has been anecdotal evidence that service jobs have been moving to Asia. Some companies have begun to move service jobs, such as help-desk centers, to places like India and the Philippines. Should the export of service jobs become a serious trend, "that's a much more interesting story, principally because the technology to do that has just come into being," Mr. Anderson said.