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Manufacturing & The Economy

PNTR with China Cost U.S. Millions of Manufacturing Jobs

According to the Bureau of Labor Statistics, U.S. manufacturing employment fell from 19.6 million in 1979 to 13.7 million in 2007. Surprisingly, more than half of this decline occurs in the years following the relatively mild 2001 recession. In fact, the 1.5 million manufacturing jobs lost in the first year of that downturn far exceeds the 900 thousand jobs lost during the first year of the Great Recession.

The Surprisingly Swift Decline of U.S. Manufacturing Employment by Justin R. Pierce of the Federal Reserve Board of Governors and Peter K. Schott of the Yale School of Management uses production and trade data from the U.S. Census Bureau to examine the relationship between the sharp drop in U.S. manufacturing employment after 2001 and the U.S. granting of permanent normal trade relations (PNTR) to China in October 2000, just a few months before the March 2001 business-cycle peak. While trade liberalization is a prime suspect in the overall decline of U.S. manufacturing employment in recent decades, PNTR is notable for having had little effect on the tariffs actually applied to Chinese imports. Rather, the principal impact of PNTR was to eliminate uncertainty. Prior to receipt of PNTR, exports from China were subject to potentially large increases in U.S. import tariffs due to politically contentious annual renewals of its temporary NTR status. The shift in U.S. policy in October 2000 and the related entry of China into the WTO in December 2001 eliminated the possibility of these jumps.

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