IMPACT OF 1980-82 CHANGES IN TRADE RATIOS ON OUTPUT AND EMPLOYMENT IN SELECTED INDUSTRIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000100140008-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 14
• Document Creation Date: December 21, 2016
• Document Release Date: August 20, 2008
• Sequence Number: 8
• Content Type: REPORT

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IMPACT OF 1980-82 CHANGES IN TRADE RATIOS ON OUTPUT
AND EMPLOYMENT IN SELECTED INDUSTRIES
Purpose.
Historically net U.S. exports have tended to decline following
most recessions. The decline since the 1980-82 recession has been
particularly sharp and has been a source of wide-spread concern.
This paper focuses on and is limited to the question of what
.would have happened to shipments and employment in selected manufac-
turing industries and in manufacturing as a whole in 1982, if
exports/shipments 1/ ratios and import penetration ratios had
remained the same in 1982 as in 1980, which was a peak year in terms
of net U.S. exports. The import penetrat.ion ratio is defined as
imports divided by apparent consumption. ?/ This type of 'analysis
is useful in identifying specific industries that are significantly
affected by changes in trading patterns in the short run. Although
in the long run, losses in some adversely affected industries may be
made up by gains in some others, the overall impacts on output and
employment in the U.S. economy are not examined in this paper.
The procedure used for this analysis was to take domestic
apparent consumption of manufactured products in 1982 as given and
compute what hypothetical shipments, exports, and imports would have
been in 1982 if:
imports had supplied the same fraction of domestic apparent
consumption in 1982 as they did in 1980; and
1/ Shipments are value of domestic output plus or minus inventory
changes.
2/ Apparent consumption equals shipments plus imports minus exports.
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exports were the same fraction of shipments in 1982 as in
1980.
Actual shipments in 1982 were lower than the computed hypo-
thetical shipments by $22.7 billion, or by about one percent. This,
in turn, implies roughly a quarter million fewer manufacturing jobs
than if trade ratios had remained at the 1980 levels. This
difference is equivalent. to about 1 percent of all manufacturing
employment in 1980 and about 16 percent of the decline in
manufacturing jobs from 1980 to 1982. (See Table 4). The steel,
aircraft, and electronic computing equipment industries exhibited
the most pronounced adverse effects. Modest positive effects of
changes in trade ratios were found for the aircraft equipment,
n.e.c. (not elsewhere classified), construction machinery, and farm
machinery industries. -
Procedure and Limitations
Hypothetical 1982 shipments were computed, as indicated earlier,
by assuming that the import penetration ratios and exports to ship-
ments ratios were the same in 1982 as in 1980. The effects of the
changes in the ratios on direct employment in total manufacturing
and 15 selected industries were then estimated individually based on
the difference between actual and hypothetical shipments in 1982. 31
Fifteen industries were selected for illustrative individual study
(see Table 1) on the basis of their major roles in U.S.- foreign
3/ No attempt was made to: estimate the effects that the changes in
the manufacturing sector had on other sectors of the economy, or
the economy as a whole.
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trade. They accounted for about 40 percent of total exports and
imports of manufactured products in 1981. Nine of these industries
were among the leading 20 industries in both the value of exports
and the value of imports. The other six industries were among the
top 20 in-either the value of exports or the value of imports. 4/
The indirect employment effects on other industries were
estimated for the 15 industries on the basis of historical industry
input-output relationships and employment-output relationships.
Indirect effects reflect the output and employment created in other
industries which supply goods and services to the industries
examined.
The procedure used for this study invo:-;es several simplifying
assumptions. The first assumption is that a dollar's worth of
change in exports has the same effect on output and employment as a
dollar's worth of change in imports within a particular industry.
The second assumption is that the price movements of shipments,
imports, and exports between 1980 and 1982 were similar within each
industry. The realism of these assumptions varies widely from
industry to industry and requires analysis which goes well beyond
the limited scope of this paper.
This study does not address the causes of changes in the exports
to shipments ratios or the import penetration ratios. Nor does this
study take into account the effects on the selected industries of
changes in exports by other industries whose products embody part of
U.S. Department of Commerce, Bureau of Industrial Economics,
1983 U.S. Industrial Outlook (January, 1983), Table 4 (p. xxv)
and Table 6 (p. xxvii).
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the output of these industries. Therefore, the total effects on
output and employment in these industries, resulting from changes in
U.S. trade balances, are not revealed in this study.
A Caveat
Changes in trading patterns and trading ratios are an integral
part of the dynamic economic process. They occur as a result of
changes in comparative advantage among trading nations. Analyzing
the effect of changes in trade ratios does not imply that these
ratios should be restored to their former values through some
specific policy measures. This paper focuses only on the
industry-specific effects and ignores the effects on the aggregate
economy. These macro considerations are important, but they were
beyond the scope of this paper. For example, rising imports do not
necessarily imply lower aggregate output in this country; imports
often enhance domestic output. A rise in imports permits greater
domestic consumption and even investment in some sectors of the
economy. Also, the increasing trade deficit and capital inflow in
recent years may have moderated interest rates in this country,
thereby benefiting some interest-sensitive U.S. industries.
Changes in Trade Ratios
Table 1 shows the import penetration ratios and the exports to
shipments ratios for the selected industries. The import
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penetration ratios increased for 12 of the 15 industries between
1980 and 1982. The exports to shipments ratios increased for four
industries and decreased for the remaining eleven.
The dollar volume of imports in these industries grew sub-
stantially from 1980 to 1982 while exports declined. In current
dollars, actual exports decreased by $1.1 billion or roughly
2.0 percent, while imports increased by $8.3 billion or 18.2 percent
(see Table 2).
The import penetration ratio for all manufactured products
increased from 8.1 percent in 1980 to 8.8 percent in 1982.
meanwhile, the exports to shipments ratio decreased from 9.0 percent
to 8.7 percent. The total value of actual manufactured exports
declined by half a billion dollars during this period while actual
imports rose by nearly 21 billion dollars. _
Impacts on Shipments and Employment
Table 3 shows the effects of the 1980-82 changes in import
penetration ratios and exports to shipments ratios on 1982 shipments
and employment. Actual changes and computed hypothetical changes in
employment are shown in Table 4. Figure 1 shows a comparison of
changes in actual employment during the 1980-82 period with
hypothetical changes in direct employment attributable to the
1980-82 changes in trade ratios. The net effect of the changes in
the trade ratios on the 15 selected industries was that product
shipments in 1982 were lower by $13.2 billion, and consequently,
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U.S. Trade Ratios, 1980 and 1982
Import Penetration
Ratios 1/
Exports/Shipments
Ratios
Product Group
1980
1982
1980
1982
Motor vehicles 2/
20.9%
21.4%
4.7%
3.5%
Motor vehicle parts
7.1
8.0
7.3
7.7
Aircraft
6.4
7.1
39.4
33.2
Aircraft equipment, n.e.c.
12.5
17.7
35.7
42.1
Construction machinery
7.4
12.6
38.5
42.4
Farm machinery
16.1
13.8
22.2
24.3
Oil field machinery
1.2
1.2
50.2
49.2
Steel mill products
11.7
15.9
4.7
3.3
Industrial organic chemicals,
n.e.c.
5.0 -
4.2
16..4
15.3
Electronic computing equipment
6.0
8.3
29.1
26.1
Semiconductors
34.5
36.7
36.'2
34.6
Radio and TV communication
equipment
5.1
6.8
8.5
8.0
Radio and TV receiving sets
52.2
57.7
19.7
14.5
Photographic equipment and
supplies
12.8
13.2
17.1
14.7
Paper and paperboard
11.1
10.6
7.5
6.3
All Manufacturing
1/ The Import Penetration Ratio is the ratio of imports to apparent
consumption (shipments plus imports minus exports).
2/ Trade between the United States and Canada is excluded from the
calculations for motor vehicles and parts because of the integrated
nature of the automobile industry in the two countries.
Source: U.S. Department of Commerce, Bureau of Industrial Economics.
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U.S. Exports and Lrports of Manufactured Products
Selected Industries and All Manufacturing - 1980 and 1982
1980
SIC Industry Exports Imports Balance
CODE (Product Group) (millions) (millions) (millions)
3711 Motor vehicles 1/ $2,896 $15,453 $-12,557
3714 Motor vehicle parts 1/ 2,615 2,516 99
3721 Aircraft 9,206 970 8,236
3728 Aircraft equipment, n.e.c. 3,555 917 2,638
3531 Construction machinery 5,742 736 5,006
3523 Farm machinery 2,631 1,773 858
3533 Oil field machinery 3,271 38 3,233
3312,
5,6,7 Steel mill products 2,557 6,887 -4,330
2869 Industrial organic chemicals, n.e.c. 4,443 1,190 3,253
3573 Electronic computing equipment 7,468 1,159 6,309
3674 Semiconductors 3,422 3,183 239
3662 Radio and TV communication equip. 1,971 1,139 832
3651 Radio and TV receiving sets 1,107 4,919 -3,812
3861 Photographic equipment and supplies 2,394 1,698 696
2621,
31,61 Paper and paperboard 2 059 3 159 1 100
Totals $S5, $X:5, 7 7 $9,600
1982 1980-1982
Exports Imports Balance Net Change
(millions) (millions) (millions) (millions)
$2,211 $16,529 $-14,318 $-1,761
2,876 3,031 -155 - 54
7,236 1,160 6,076 0
4,401 1,320 3,081 443
3,968 779 3,189 -1,617
2,378 1,180 1,198 340
5,130 65 5,065 1,832
1,601 8,958 -7,357 -3,027
4,387 1,055 3,332 79
8, 957 2,295 6,662 353
3,769 4,128 -359 -598
2,402 2,022 380 -452
765 6,150 -5,385 -1,573
2,390 2,107 283 -413
1 766 3 291 1 65 -425
$ 4, 3 $-54, 0 $ 16-7 V--9-, 33
All manufacturing $166,157 $148,137 $18,020 $165,711 $168,756 $3,045 -$14,975
1 Trade between the United States and Canada is excluded from the calculations for motor vehicles and parts.
2/ Excludes imports and exports of gold bullion and products that are not allocated to 4-digit SIC industries.
Source: U.S. Department of Commerce, Bureau of Industrial Economics.
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Effects of Changes in Trade Ratios Between 1980 and 1982
on Domestic Industry Shipments and Employment in 1982
1982 Product Shipments
1982 Employment Effects
Actua L
Computed
Difference
Product Group (millions)
(millions)
(millions)
Direct
Indirect
Total
Motor vehicles (3711) 4/
$62,830
$64,053
$-1,223
-4,491
-18,413
-22,904
Motor vehicle parts (3714).!/
37,500
37,760
-260
-2,419
-4,828
-7,247
Aircraft (3721)
21,791
25,249
-3,458
-37,878
-37,764
-75,642
Aircraft equipment, n.e.c.(3728)
10,469
10,169
300
4,246
4,233
8,479 ?
Construction machinery (3531)
9,366
9,303
63
687
898
1,585
Farm machinery (3523)
9,779
9,249
530
5,410
8,521
13,931
Oil field machinery (3533)
10,432
10,653
-221
-1,605
-2,098
-3,703
Steel mill products (3312,5,6,7)
48,870
52,082
-3,212
-22,561
-35,828
-58,389
Industrial organic chemicals,
n.e.c. (2869)
28,675
28,804
-129
-393
-834
-1,227
Electronic computing equip.(3573)
34,335
36,694
-2,359
-21,952
-33,631
-55,583
Semiconductors (3674)
10,888
11,538
-650
-9,089
-8,207
-17,296
Radio and TV communication
equipment (3662) 30,100
30,830
-730
-10,739
-12,994
-23,733
Radio and TV receiving sets(3651) 5,267
6,342
-1,075
-8,833
-17,287
-26,120
Photographic equipment and
supplies (3861) 16,300
16,856
-556
-3,417
-4,924
-8,341
Paper & paperboard (2621,31,61) 29,450
29,674
-224
-1,326
-2,328
-3,654
Totals $366,052
$379,256
$ -13, i6 4
-114,360
-165,484
-279,844
?
All Manufacturing $1,910,100
$1,932,822
$-22,722
-224,210
5/
Standard Industrial Classification Codes in parentheses.
if Actual 1982 product shipments for the individual industries are estimated by the Bureau of
Industrial Economics; 1982 Census data are not yet available.
2/ Computed 1982 shipments are the amounts that would have been shipped by domestic industries
if the trade ratios had not changed between 1980 and 1982.
3/ Employment effects represent the estimated number of jobs lost or gained in 1982 because of
the changes in trade ratios between 1980 and 1982.
4/ Trade between the United States and Canada is excluded from these calculations.
5/ Estimates of indirect erployment effects are not available for all manufacturing. However,
the direct employment estimate includes all employment, both direct and indirect, that is
attributable to industries in the manufacturing sector.
Source: U.S. Department of Commerce, Bureau of Industrial Economics.
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Industry Direct Employment, 1980 and 1982 and Changes in
Actual and Hypothetical Direct Employment Between 1980 and 1982
Industry Employment
Actual
Hypothetical
SIC
CODE
1980
Industry (000's)
1982
(000's)
1980-1982
Change
(000's)
1982
(000's)
1980-82
Change
(000's)
3711
Motor vehicles 274
244
-30
248
-26
3714
Motor vehicle parts 369
322
-47
324
-45
3721
Aircraft 231
280
49
318
87
3728
Aircraft equipment, n.e.c. 159
134
-25
130
-29
3531
Construction machinery 158
111
-47
110
-48
3523
Farm machinery 133
109
-24
104
-29
3533
Oil field machinery 79
90
11
92
13
3312,
5,6,7
Steel mill products 481
365
-116
388
-93
2869
Industrial organic chemicals, n.e.c. 117
109
-8
109
-8
3573
Electronic computing equipment 305
346
41
368
63
3674
Semiconductors 161
172
11
181
20
3662
Radio and TV communication equipment 413
453
40
464
51
3651
Radio and TV receiving sets 65
53
-12
62
-3
3861
Photographic equipment and supplies 114
117
3
120
6
2621
,
31,61
Paper and paperboard 201
192
-9
193
-8
Totals 3,260
3,097
-163
3,211
-49
All manufacturing-1V 20,285
.18,853
-1,432
19,077
-1,208
1/ Bureau of Labor Statistics data.
Source: U.S. Department of Camierce, Bureau of Industrial Economics.
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FIGURE .1. ACTIHL c.rirLU 1 jI I tXANUL uurlrAKLIJ w 1 I H 111 I ht 11 LAL J1FLOYMENT
CHANGE RESULTING FROM CHANGES IN TRADE RATIOS, 1980-82
MOTOR VEHICLES
MOTOR VEHICLE PARTS
AIRCRAFT
CONSTRUCTION MACHINERY
FARM MACHINERY
OIL FIELD MACHINERY
STEEL MILL PRODUCTS
IND. ORGANIC CHEM., N.E.C.
ELECTRONIC COMM. EPUIPMENT
SEMICONDUCTORS
RADIO & TV COMM. EQUIP.
RADIO & TV REC. EQUIP.
PHOTO. EQUIP. & SUPPLIES
PAPER & PAPERBOARD
-125 -100 -75 -50 -25 0 25 5O 75 100
ALL MANUFACTURING
-1.5 -1.0 -0.5 0 0.5 1.0
MILLION EMPLOYEES
ACTUAL
CHANGE
HYPOTHETICAL CHANGE
ASSUMING CONSTANT
TRADE RATIOS
SOURCE: U.S. DEPARTMENT OF COMMERCE, BUREAU OF INDUSTRIAL ECONOMICS
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direct employment in these industries declined by over 114,000.
Indirect employment was reduced by an additional 165,000 jobs.
Changes in the trade ratios had the largest impact on the
aircraft industry. The import penetration ratio for aircraft
increased, while the exports to shipments ratio declined. The total
effects were to reduce aircraft industry shipments by $3.5 billion
in 1982 and to reduce the total number of jobs by about 75,600.
The U.S. aircraft industry's share of the world market for large,
transport aircraft declined to 80 percent in the 1981-1982 period,
from an average share of about 90 percent during the previous
ten-year period.
The next largest impact of the changes in the trade ratios was
on the steel industry. The import ratio for steel mill products
increased while the export ratio declined. Consequently, steel
shipments were reduced by $3.2 billion and total employment was
reduced by about 58,400 jobs.
The competitiveness of the U.S. steel industry has been
gradually declining for more than a decade. High labor costs for
domestic producers and the growth of, modern, efficient production
capacity in Japan and some of the developing countries contributed
to the decline. Government subsidies for some of the high-cost
European producers have also been a factor. The industry was
particularly adversely affected by a sharp world-wide reduction in
demand for steel during the 1980-82 period.
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The effect of the 1980-82 changes in the trade ratios on the
motor vehicles and parts industries was to reduce combined shipments
by $1.5 billion and total employment by about 30,000 jobs. (Trade
between the U.S. and Canada is excluded from these calculations
because of the integrated nature of the automobile industry in the
two countries.) Imports have been capturing a rising share of the
U.S. automobile market for over a decade. This trend accelerated
after the sharp rise in gasoline prices in 1979, when consumers'
preferences shifted markedly toward more fuel-efficient smaller cars.
Changes in the trade ratios resulted in a $2.4 billion decrease
in shipments by the electronic computing equipment industry. This
drop in output resulted in a total reduction of nearly 56,000 jobs
in the U.S. economy. Between 1972 and 1980, exports and imports of
computing equipment rose at fairly comparable rates, 24 percent and
27 percent, respectively. However, between 1980 and 1982, computer
imports increased five times faster than exports and captured over
8 percent of the U.S. market. Japan contributed the bulk of this
growth in imports. It increased its total share of U.S. imports
from 16 to 35 percent. Domestic manufacturers appear vulnerable to
future foreign competition across a wide spectrum of computer
equipment, but particularly in high-volume, low-cost products such
as personal computers and associated peripheral equipment. The
principal challenge in U.S. and world markets will come from
Japanese producers.
Some other high technology industries among this group of
selected industries also were adversely affected by deteriorating
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trade ratios between 1980 and 1982. In addition to the aircraft
industry and the electronic computing equipment industry, there were
substantial effects on output and employment in the semiconductor
industry, radio and TV communication equipment industry, and the
photographic equipment industry. 5/
Three of the 15 selected industries had increases in output and
employment as a result of changes in the trade ratios between 1980
and 1982. These industries were aircraft equipment, n.e.c., farm
machinery, and construction machinery. The total impact was to
increase output in these industries by $0.9 billion and direct
employment by about 10,000. 5/
For total manufacturing, the 1980-82 changes in the trade ratios
resulted in a net decrease of $22.7 billion in 1982 shipments with
an associated loss of manufacturing employment of about 224,000
jobs. Some additional employment was lost among nonmanufacturing
industries which supply goods and services to the manufacturing
industries. However, estimates of these additional jobs are not
available. The actual loss of jobs in all manufacturing between
1980 and 1982 was 1.4 million. If the trade ratios had not
deteriorated during this period, the loss would have been smaller by
nearly a quarter million jobs.
Developments in these, and the other selected industries are
discussed in more detail in the Appendix.
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Implications
This analysis has the following implications for the
manufacturing sector:
o Deteriorating U.S. trade ratios during the 1980-82 period
added to the declines in manufacturing output and
employment that were already being caused by the recession.
o Even the high technology sectors are not immune to the
internal and external forces that have caused U.S. trade
balances to deteriorate in recent years.
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