Changes in the structure of global production and trade have been difficult for certain sectors of the U.S. economy, especially for workers in these affected sectors. As other countries have developed new manufacturing capacities, the lower wages of workers in those countries have given them a cost advantage relative to manufacturing in the United States. This has led to a steady increase in U.S. imports of manufactured goods that are cheaper than equivalent domestic goods. It has also prompted a number of U.S. companies to close factories in the United States and build new ones in developing countries, where they can take advantage of lower wages and improved manufacturing skills. Combined with technological changes and other factors, these developments in trade have:

1. Contributed to a gradual shrinkage in the share of the U.S. workforce holding secure, manufacturing jobs with decent wages; and
2. Spurred a long-term decline in the inflation-adjusted income of workers in the manufacturing sector. (Figures 13 and 14 illustrate the changes in the structure of the U.S. economy between 1960 and 2007.)¹

American workers, with lower degree of skills, have been hit hardest by foreign imports and plant closings, because they tend to work in the industries in which emerging industrial countries are most competitive. Over the past few decades, as employment and wages have declined in traditional U.S. manufacturing sectors, many more jobs have been created in higher-tech manufacturing industries and in the service sector. These jobs are often higher paying than the manufacturing jobs that have been eliminated. Many workers with manufacturing backgrounds lack the training and education necessary to transition into these new fields.

The U.S. federal government and state governments all sponsor programs designed to help workers displaced by economic change to acquire new skills. One of the largest of these programs is the Trade Adjustment Assistance program, run by the U.S. Department of Labor. Some analysts and labor advocates claim that government support for such programs has been inadequate.

The changing structure of American trade over the past few decades is in many respects a reflection of a larger set of changes in the structure of the U.S. economy. The relative shares of U.S. economic output accounted for by each of the three major forms of economic activity (manufacturing, services, and agriculture) are constantly changing.

At the beginning of 20th century, the dominant trend was the decline of agricultural production and the rise of manufacturing. In recent decades, the dominant trend has been the decline of manufacturing and the rise of the high technology and service sectors.

These long-term changes in the structure of an economy can be marginally shaped by policy. To a large extent, though, they are the inevitable result of the routine operation of a capitalist economy.

The Austrian economist Joseph Schumpeter, in his book Capitalism, Socialism and Democracy, famously characterized capitalism as a process of “creative destruction.” That is, a free market economy will naturally eliminate firms and industries that are less efficient or produce inferior goods. When these companies are eliminated, their more efficient competitors are allowed to maximize the advantages they bring to the market. Efforts to keep these old industries propped up not only inhibit the operations of better firms, but they usually come at the great expense of taxpayers.

Rather than trying to delay or prevent such trends, the alternative would be to offer assistance to those individuals or communities that experience difficulty.

To learn more, read news analyses:

• It’s All About Jobs
• Buy Local: Regional Pride or Protectionism?
• The “Buy American” Clause: A TariffTarrifs are a list of taxes or customs duties payable on imports or exports.-ying Return to Smoot-Hawley?
• U.S. Congress Grants President Trade Promotion Authority 
• Long-Running Trade Dispute over U.S. Tax Break May Be Ending.

1 Source:  2007 Labor force composition statistics found at the CIA World Factbook

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