The Foundry

We’re in one of the worst economic downturns our nation has ever faced, and policymakers have rightly expressed their concerns about losing more jobs. Fearing that we’re losing too many jobs overseas through trade pacts, 106 Members of Congress are seeking to revamp U.S. trade policy:

Many Democrats on Capitol Hill, however, are unhappy about manufacturing job losses that they blame on trade pacts such as NAFTA and say they do not want to approve any more agreements without some safeguards.”

So, politicians want to protect manufacturing jobs, yet they are hastily moving forward with a cap and trade bill that will deal a crushing blow to the U.S. manufacturing sector. The higher energy costs from cap and trade will kill economic activity and jobs. This is particularly true of manufacturing jobs.

Just how bad will it be? Economists in The Heritage Foundation’s Center for Data Analysis estimate that manufacturing jobs will fall on average by 400,000. Peak year unemployment in the manufacturing sector alone rises by almost 1.4 million.

Some will disappear completely. Others will go overseas to countries that choose not to implement a carbon reduction scheme, where the cost of production will be much cheaper. (Sidebar: This should not be an invitation to implement protectionist policies that further drive up the costs for consumers. It’s simply a very good reason not to move forward with cap and trade).

Over time, the American economy has taken on many forms. Productivity gains shifted a once largely agrarian economy to manufacturing, but today most Americans work to provide goods and services. As a result, manufacturing employment in the U.S. necessarily shrunk but output was higher. Despite the decline, the manufacturing base in the U.S. is strong. Cap and trade could change that.

While manufacturing employment was a necessary decline in years past as efficiency gains put labor and capital to more productive use, cap and trade would needlessly shrink the manufacturing industry. More people by the day are realizing cap and trade is an energy tax in disguise. Energy-intensive sectors (i.e. manufacturing) will experience the most severe consequences.

The Heritage Foundation created a Manufacturing Vulnerability Index (MVI) to show which states would be hit hardest from cap and trade. It works like this: The percentage of employment based in manufacturing in each district was multiplied by the percentage of power generated by coal. The higher the MVI, the more vulnerable a particular area is to the economic harm imposed by a policy that limits CO2.

Just a little regional disparity.