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A trade policy for the middle class will not save US manufacturing

By Daniel Gros

11 Jul 2023 · 4 min read

informed Summary

  1. The decline of US manufacturing is not primarily due to globalization and free trade, but rather a combination of high energy prices and increased energy production, a phenomenon known as the "Dutch Disease."

MILAN – US trade policy is on the cusp of a major transformation. In a recent speech at the Brookings Institution, Jake Sullivan, President Joe Biden’s national security adviser, outlined the administration’s strategy to “build a fairer, more durable global economic order.” At the heart of this new approach is the belief that, although the world has reaped the benefits of free trade over the past several decades, American workers got a raw deal.

Sullivan’s first piece of evidence is that “America’s industrial base had been hollowed out.” While most analysts focus on manufacturing’s declining share of GDP – 11% in 2021, compared to 28.1% in 1953 – the decline of manufacturing is also reflected in the composition of US trade. Around the turn of the century, manufactured goods accounted for more than 80% of US merchandise exports. By 2022, this share had shrunk to below 60%.

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