Manufacturing trade surpluses may not prevent declining manufacturing employment

September 24, 2020
Manufacturing trade surpluses may not prevent declining manufacturing employment

Advanced economies like the United States are pursuing policies that increase trade balances in manufactured goods to revive domestic manufacturing jobs. But, contrary to widespread beliefs, trade surpluses are not necessarily indicative of growing manufacturing employment, and even countries with large trade surpluses have experienced a decline in manufacturing employment in recent years.

The six economies that recorded the largest average manufacturing trade surpluses between 1995 and 2011 have all experienced a decline in their manufacturing shares of employment. Ireland, which recorded the highest average manufacturing trade surplus of 11.6 percent of its GDP in 1995-2011, saw a decline in its share of manufacturing jobs from around 20 percent of total employment in 1980 to less than 10 percent in 2017.

The explanation lies in improved productivity. Trade surplus countries have higher levels of value added per worker than countries with manufacturing trade deficits. The higher productivity increased their manufacturing output and created larger trade surpluses but generated fewer jobs.

This PIIE Chart was adapted from Robert Z. Lawrence’s blog post, "Will smaller trade deficits bring back manufacturing jobs?”