In the United States 24% of nonfarm workers were manufacturing workers in 1971. It's 8.6% today. Maybe it would be 9% if NAFTA has not been negotiated and if China had not joined the WTO, but maybe it would still be 8.6%--analysts disagree on trade expansion vs. trade diversion here.Granted but let’s go further. The standard Mundell-Fleming model notes that under floating exchange rates, trade protection tends to appreciate the currency which virtually offsets any benefits to net exports from the trade protection. Of course one might wonder if there is anything one could do to alter net exports to which Brad adds a little more wisdom:
Maybe it would be 12% if the United States had followed Japan's and Germany's roads of being high-savings low-currency value countries focused on nurturing their communities of engineering excellence, rather than running the Reagan and Bush 43 deficits and combining that with a focus on financialization and a strong-dollar policy. I certainly think that would have been a better policy road for the United States. But it gets you only to 12% at most--not back to 24%.Again – the standard Mundell-Fleming result. Germany and Japan’s policies have been the reverse of the disastrous mix of tight monetary policy and excessive fiscal stimulus we witnesses in the early 1980’s, which led to a massive appreciation of the dollar and a massive decline in net exports. While I’m all for a large public infrastructure stimulus, let’s not overdo fiscal stimulus by also providing massive tax cuts for the rich. If the President elect wants to see more net exports, he should stop asking the Federal Reserve to raise interest rates. Trade restrictions are not the answer – a more intelligent mix of fiscal and monetary policy is.