There's a strong narrative in the chattering classes of Washington and the news media, best exemplified by CNN's Lou Dobbs, that open trade policies have decimated America's manufacturing base, requiring a protectionist, trade-restricting reaction.

As the Progressive Policy Institute's Edward Gresser shows in an important new report, Healthy Factories, Anxious Workers, Lou Dobbs and those who agree with him are right that manufacturing employment declined sharply in the early part of this decade. But they are simply, factually, decisively wrong about the strength of the U.S. manufacturing economy itself. By any objective measure, U.S. manufacturers are adjusting to global economic competition, mainly by expanding overseas markets. That's why we believe the best course to take is to forge a new social compact that deals with the often-calamitous personal impact of job dislocations in manufacturing and elsewhere, instead of pursuing trade-restricting measures that will damage manufacturing without actually helping workers.

As Gresser reports, the "declining manufacturing base" or "deindustrialization" talk, despite massive new competition, especially from China, just isn't accurate:

American factories, contrary to much speculation, are meeting their new competitors with remarkable success. Manufacturing production in the United States is growing fast. Factories all over the country -- in Alabama, Washington, Pennsylvania, Delaware, and dozens of other states -- are enjoying an export boom unrivalled in their modern history. And statistics show that American factory industry holds a strong and steady place in the U.S. economy, and in the world manufacturing economy as well.

The problem isn't that America is losing the manufacturing fight; it's that U.S. factories are meeting the competition through technological improvements that shed jobs.

And that shedding of jobs -- three million, just between 2001 and 2003 -- carries a large human toll because U.S. social policies uniquely make workers bear the cost of economic change. As Gresser puts it:

All countries must grapple with the rise of new economic powers and the intrusions of the Internet. But the stress may be more acute here than in Europe and Japan, because there are more extensive national safety nets in those countries. Dislocated German, Swedish or Japanese workers need not fear loss of health insurance or pension guarantees. Nor, with extensive access to free universities, need their families fear losing the chance to send a teenager to college. In some European countries, larger and differently focused trade union movements bolster government programs with extensive unemployment benefits and job training and placement services.

Their American counterparts have no national health care system, no wage insurance, no pension guarantees beyond Social Security, and only modest supports for college. Thus loss of a job in the United States can be a fall from a cliff.

This matters because Americans face a simple choice in dealing with the decline in manufacturing employment. They can support policies that restrict trade but that also restrict manufacturing production and income, and also boost prices for domestic products, while sacrificing U.S. global economic leadership. Or they can support policies that allow the manufacturing and overall economy to adjust and grow, while significantly improving economic security and opportunity for working families. We can continue to accept a false choice between national economic growth, and economic fairness for our own citizens, or insist on a win-win proposition.

As Gresser concludes:

Strengthening foreign competition is real, it emerges from logical changes in technology and economic policy, and it does not at bottom reflect anything "unfair." Of course we can and should enforce trade laws and agreements, and there are many trade issues to raise in our relationships with China and India. But this will neither slow change nor make competition easier to meet. China is fundamentally good at making things, and India is using its open society and global links to succeed for good reason. Both have raised their game considerably. Americans need to accept that the world is changing and do the same.

[But] Americans are nervous and anxious for good reasons. Facing a stunningly fast reshaping of factory work, and shift in the services world that may loom even larger, they are right to worry and also right to be skeptical of easy solutions and proposals to stop inevitable change. Their need is for painstaking creation of new policies for national competitiveness, a different and better national safety net and new sorts of worker associations for security -- altogether, the new social contract that can replace one whose time has past, and provide America's 21st- century workers and middle class with the confidence that their future is as bright as the nation's.

Lou Dobbs is wrong, but the anxieties he reflects are very real, and must be addressed boldly and immediately.