In response to Trump’s faux populism and his misguided attacks on globalization, it has become fashionable in some circles to dismiss persistent US trade deficits as a problem (here’s Dean Baker and I on why this is wrong).
The picture below comes to mind when I hear people try make this case. It shows the real compensation–wages plus benefits–for blue-collar workers in manufacturing from the late 1940s-2016 along with the trade deficit as a share of GDP.
Basically, the real compensation of these blue-collar factory workers doubled from the late 1940s to the late 1970s. It has been essentially flat since then.
I’m not at all claiming that the negative trade balances over the stagnation period fully explains this trend. There were and are many moving parts. But the usual argument by those who want to dismiss any negative impact of the trade deficit is that productivity growth, not trade, was displacing manufacturing workers over this period.
But that doesn’t work on wages (nor does it fully explain the job-loss story, especially in the 2000s). Manufacturing productivity has been growing over this full period, including when real comp was rising. And while I don’t expect within-industry correlations between pay and productivity, I don’t see how rising productivity explains stagnant earnings.
Demand shifts against non-college educated workers, deunionization, eroding labor standards, the absence of full employment, excessive profits in finance–I’m sure they’re all in the mix here.
As is the trade deficit, as US blue collar workers in the factory sector went into global competition with much cheaper workers from the countries with whom we increasingly buy more from than we sell to.