Technology, International Trade, and Pollution from US Manufacturing

Pollution emitted by US manufacturers has been declining steadily over the past several decades, while at the same time, the real value of manufacturing output has been increasing. This cleanup has two sources: advances in production or abatement processes (“technology”), and changes in the composition of goods manufactured in the United States. The composition changes can be divided further into decreases in polluting goods consumed, and increases in polluting goods imported (“international trade”). How much of the overall pollution reduction comes from technology, and how much from international trade? From 1987 to 2001, air pollution emitted by US manufacturers decreased by 25 percent, while the real value of manufacturing output grew 24 percent. Section I of this paper shows that technology accounted for the majority of this improvement, with a smaller share coming from changes in the composition of manufacturing industries. Section II shows that over the same period, increases in net imports of polluting goods accounted for only a small part of the pollution reductions due to the changing composition. Shifting polluting industries overseas has contributed at most a minor share—around 10 percent—of the overall cleanup of US manufacturing. Allocating credit for the cleanup of manufacturing among these trends in technology and international trade is important. If the US cleanup has come from simply increasing imports of polluting products and producing less of them domestically, then the US experience will not be replicable on a global scale. The poorest countries will never have even poorer countries from which to import their polluting products. However, if the cleanup has come from technology, it will be replicable, and may even be replicable more easily if there are economies of scale or learning-by-doing in abating pollution. To be clear, manufacturing is not the only source of pollution in the United States. It emits less than 25 percent of the most common air pollutants (US Environmental Protection Agency (EPA) 2000). But manufacturing accounts for a large share of the rhetoric in the debate about the economic consequences of environmental regulations, the changes over time in the structure of the US economy, and the effects of international trade on US production workers and other countries’ environments. Other major polluting sectors, electric utilities and transportation, are not subject to concerns about pollution havens or industrial flight, which is why I focus here on manufacturing. Section I uses data from the EPA to show that the cleanup of US manufacturing comes mainly from changes in technology, rather than from changes in the mix of domestic industries. Because the data report historical emissions consistently for only four common air pollutants, the analysis focuses on air pollution. And because the earliest industry-specific accounting of emissions dates Technology, International Trade, and Pollution from US Manufacturing