Donald Trump and Narendra Modi: A similar agenda

Both leaders need to grapple with the problem of employment and a low share of manufacturing

You can accuse us of trying too hard to find similarities where none exist. However, it would be difficult to miss the fact that the policy challenges that both Mr Trump and Mr Modi confront seem to be from the same page of the economics textbook. To begin with, employment remains the key challenge for both administrations. While India’s job problems have been documented somewhat copiously, it might help to put America’s problem in perspective. While the unemployment rate has indeed moderated to 4.9 per cent, roughly 95 million Americans over the age of 15 remain jobless and are not looking for work. This number has been growing even as official payrolls data improve. To be fair, some of this is due to an aging population but that’s not the entire story.

Similarity two: Both India and the US have seen a secular decline in the share of manufacturing. While India’s share is a paltry 15 per cent, America fares even worse at 12 per cent. Both have large service sectors but for “good jobs” in this segment, a “skill gap” becomes a constraint. Sounds familiar? Thus it is not surprising that political rhetoric has focused on reviving manufacturing and getting good old fashioned brick-and–mortar jobs back on the classifieds page. Finally, both economies are betting on a huge revival in infrastructure to produce job-creating growth. India is perhaps ahead of the curve on this.

Since this is meant to be a column on international economics, we will focus on the Trump job plan and leave the analysis of the Modi job doctrine for another day. As far as the US goes, there are two competing narratives on its employment problem. The Trump argument is of course that job losses are entirely due to unfair trade particularly with China and Mexico. The counter-narrative is this is just a populist rant—automation, not offshoring, has been the villain of the piece.

A remarkably well researched yet easy-to-comprehend report by Andrew Hunter of Capital Economics (Can Trump make American manufacturing great again? US Economics Focus, April 11) puts the US employment problem in perspective. Roughly five million manufacturing jobs were lost in the US since 2001 and five sectors—computers and electronics, textiles, transport, machinery and printing—account for a bulk of this. Hunter uses a simple but intuitive test to see if these jobs were lost because of forces of globalisation or to automation or rising productivity (more machines with the same worker). If both employment and output of a particular sector have declined over time, it could be argued that offshoring played a critical role. The relocation of production simply killed the sector and this seems to be true of segments like textiles and printing and machinery.

Two sectors, computers and electronics and transport equipment (cars and trucks), however, reveal somewhat conflicting trends. Despite the sharp fall in employment, output in these sectors expanded substantially. In short, growth actually shed jobs and that, prima facie, is evidence of the fact the use of machines played an important role in the employment decline.

However, on examining productivity patterns (remember more machines mean higher productivity of the employed worker), Hunter points out that “automation appears to have ceased being a major driver of manufacturing job losses more recently. The annual growth rate of manufacturing productivity has fallen to an average of only 1.6 per cent over the past five years. That slowdown has also been reflected in the transport and computers and electronics industries, with labour productivity in the latter having declined slightly since 2011”.

The bottom line is, Trump’s claim that American jobs have been lost to the forces of globalisation is not just a demagogue’s sophistry. The argument that if Trump focuses on resurrecting US manufacturing, he will bring relatively low paid, low skill jobs in segments like textiles and furniture making seems a little misplaced when a key problem seems to be a shortage of skills, not manpower.

Thus, Trump’s America First policy might not be based on ‘’alternative facts”—its logic finds support in the data. The question then is: How much and what kind of protectionism can US afford to push for without facing a backlash from trading partners and disrupting the global supply chain?

Abheek Barua is chief economist, HDFC Bank. Bidisha Ganguly is chief economist, CII