In a new paper, EPI Research Director Josh Bivens argues that, to maximize its impact on jobs, an ambitious investment in U.S. infrastructure should be accompanied by efforts to reduce the U.S. trade deficit. Bivens finds that a $500 billion infrastructure investment would create an additional 45,000 manufacturing jobs if the manufacturing trade deficit were cut by roughly two-thirds.
“A large, sustained increase in infrastructure investment would benefit the U.S. economy in many ways, from direct and indirect job creation to improving roads and public transit,” said Bivens. “When crafting an infrastructure plan, policymakers should seek to maximize its impact by taking steps to reduce the trade deficit and ensuring that the plan supports U.S. jobs.”
Spending in any given economic sector sets off ripple effects, or linkages, across other sectors. The number of jobs supported by any increase in economywide spending depends in part on how much of this spending goes to purchase imports rather than domestically produced goods and services. In the case of infrastructure investments specifically, the number of U.S. manufacturing jobs supported depends on the share of manufactured goods that are produced domestically as opposed to being imported. Increasing the amount of manufactured goods purchased domestically—and reducing the amount we import—would mean any investment in infrastructure would create more jobs as a result.
Bivens suggests several policy levers that would put American manufacturing production on a more-level playing field with global competitors. The most effective ones are systemic, particularly those that target misaligned exchange rates or other persistent unfair trade practices that are the root cause of overall trade deficits. Until more systemic reforms are enacted, other measures—such as strengthened “Buy America” policies—could ensure that publicly-financed projects use goods produced by American companies and workers, providing an economic boon to our manufacturing sector with no additional spending.