Trade with China and jobs bringing back

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This is the 'damage' imports have done to America's industries

There has been a lot of talk of deglobalization and potential trade wars in the aftermath of Donald Trump's election as US president.

The president-elect has accused China of manipulating its currency, said he will withdraw from theTrans-Pacific Partnership trade deal, and said he will bring back jobs to the US.

With that in mind, Deutsche Bank economists Zhiwei Zhang and Li Zeng took a look at how a trade war (think tariffs and quotas) between the US and China might play out. In a note published Monday, the duo ranked the industries by the ratio between domestic production and domestic demand.

The chart below shows the extent to which domestic demand could be met by domestic production, assuming US-made goods weren't exported. In other words, if there were demand for 100 leather belts in the US in 2015, and the US produced 80 leather belts that year, the ratio would be 80%.

The lower the ratio in the chart below, "the stronger is the indication that a sector was hurt badly by imports."

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(Deutsche Bank)

The most extreme example here is "textile, apparel and leather products," in which domestic production in 2015 met only 36.6% of domestic demand. That is down sharply from 1997, when the percentage was more than 60%.

There is a similar story in the "computer and electronics" industry, though US production there is much higher, meeting 60.5% of domestic demand.

At the other end of the chart, US domestic production of goods like "paper products," "food, beverage & tobacco," "chemicals," and "fabricated metal products" all come in at above 90% of domestic demand. In addition, for many of these industries, the ratios really haven't changed.

"This suggests that these industries are not being hurt so badly by imports," the note said.

Here's Deutsche Bank on the findings:

"Among industries with low domestic production to demand ratios in 2015, there seem to be three groups: (i) Those whose situations had worsened over time, including 'computer and electronics', 'electrical equipment and parts' and 'furniture'. For instance, in 1997, the US's domestic production of 'computer and electronics' could meet 92 percent of its domestic demand. It dropped to 72 percent in 2006, and was only 61 in 2015. (ii) Those where most 'damages' by imports seemed to have taken place prior to 2006. This includes 'textile, apparel and products' and 'automobiles, trailers and parts'. (iii) The last group is 'oil and gas extraction' and 'miscellaneous manufacturing'. Although their domestic production to demand ratios were low in 2015, they had been stable or even improved compared with early periods."

Zhang and Zeng focus on the first and second group, or those industries in which the situation has worsened over time or where the damage was done before 2006. They looked at how a 10% reduction in the trade deficit in each sector would affect gross domestic product and found that the industries that deliver growth would not necessarily bring back jobs to the US, and vice versa. (Deutsche Bank)

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Focusing on "computers & electronics" would add $18 billion to US GDP along with a lot of jobs. But focusing on "oil and gas extraction," while adding a lot in US GDP, would have less of an impact on the labor market than focusing on the "textiles, apparel & leather good" industry.

The report said:

"The analysis suggests that the US should probably have different top priorities in a trade war, depending on whether it wants growth or jobs most. If the US wants the biggest boost to growth, industries with high value-added should be its top priorities, such as 'computer and electronics' and 'automobiles, trailers and parts'. Figure 6 shows that a 10 percent deficit reduction in 'computer and electronics' would raise the US's domestic value-added by some USD18 billion. On the other hand, if what the US wants most is to 'bring jobs back', especially to lower income areas, it should place its top priority on 'textile, apparel and leather products'. While this sector only ranks 4th in terms of additional domestic value-added, the extra labor compensation it would bring is the second highest. Considering the low labor cost in this industry, it probably means most job increase among all industries."

https://finance.yahoo.com/news/d ... ries-171822050.html