Nostalgia for manufacturing will make the US poorer

Welcome back. Now that Donald Trump has paused his “reciprocal” tariff plans (as predicted in last week’s newsletter), this edition will unpick the US president’s broader agenda to turn America into a “manufacturing superpower”.

In his April 2 “liberation day” speech, the commander-in-chief invited retired autoworker Brian Pannebecker to say a few words: “I have watched plant after plant after plant in Detroit . . . close. [The president’s tariff] policies are going to bring product back into those underutilised plants . . . I can’t wait to see what’s happening three or four years down the road”.

How might one debate against this viewpoint? That’s what I’ll attempt to outline here.

First, empathy. Over the past four decades, manufacturing jobs in America have declined. Competitive imports from abroad have contributed to factory closures, and many former industrial regions have failed to regenerate. (I recommend Peter Santenello’s YouTube channel, which documents life in these US counties.)

In that time, US income inequality has risen. And the most capital-rich have increased their share of overall wealth.

Research by Jim Reid, Deutsche Bank’s head of global macro research, finds that the US wealth-to-income ratio tends to track international trade as a share of global GDP over time.

“[This potentially reflects] the benefits [of globalisation] accruing to shareholders through more efficient global supply chains, a wider marketplace, and the access and influence of lower-cost labour in emerging markets,” he wrote in a client note. “This has arguably squeezed developed market labour, particularly low-skilled workers.”

Indeed, US capital markets tanked as the reality of America’s global protectionist agenda kicked in. But the president used the stock market falls to reinforce his platform: “I’m proud to be the president for the workers, not the outsourcers; the president who stands up for Main Street, not Wall Street; who protects the middle class, not the political class.”

The allure of onshoring manufacturing is, then, clear. But to support the president’s plans, one must also believe that America can, and should, bring back labour-intensive factory jobs, and that tariffs are the best way to do so.

Commerce secretary Howard Lutnick spelt out the ambition in a recent interview: “The army of millions and millions of human beings screwing in little, little screws to make iPhones, that kind of thing is going to come to America.” (Notably, Trump exempted smartphones and other consumer electronics from his “reciprocal” tariffs on Friday, but sector-specific duties are in the works.)

Either way, if the goal is to recreate the scale and specialisation of the developing world’s factories, the US will need workers and capital.

But few Americans want to go into industrial work. A 2024 Cato Survey found that only one in four believe they would be better off in a factory over their current employment. (Much of Trump’s “middle class” work in non-goods-producing sectors today.) The administration is also hostile to immigration.

As for capital, impelling factory owners to set up in America by raising import duties has its limits. Given the costs of moving production to the US, investors will need labour, reliable access to domestic input chains and clarity over how long tariffs will remain in place. All are in short supply.

For measure, take Apple. Dan Ives, a Wedbush analyst, estimated that the iPhone maker would need at least three years and $30bn just to shift a tenth of its supply chain from Asia to the US.

The administration reckons these are a “transition cost” on the path to bringing back blue-collar jobs. And, as Pannebecker’s remarks suggest, some are willing to give it time.

Even if some factory jobs did return to America, my question to Trump and his supporters is what cost they are willing to pay for it.

It’s true that some factory jobs have been lost to outsourcing (although automation has played a significant role too). But focusing on that loss — and seeking to curb US trade openness — obscures the greater, economy-wide benefits that have arisen because of it.

US manufacturing output has actually risen over the past four decades, even as factory jobs have declined. American industry is more productive today. It makes higher-value products at higher wages with fewer workers (and more robots).

In fact, measured by value added per worker, US manufacturing ranks first among the major economies (estimated to be almost seven times that of China). Over one-fifth of US manufactured exports are products with high research and development intensity, such as advanced tech and aerospace products.

The US ranks second only behind China in its share of overall global manufacturing output. By most measures, America is already “a manufacturing superpower”.

It ceded the top spot in part by outsourcing lower wage jobs and shifting into higher value added economic activities: services, research and development, and advanced manufacturing. This has allowed incomes, jobs and the economy to grow.

“Americans now design and engineer products such as tennis shoes and iPhones assembled elsewhere,” said Colin Grabow, an associate director at the Cato Institute. “They may not toil in factories, or even work for companies that own factories, but are nonetheless vital cogs in production lines.”

Since 1990 America has lost over 5mn manufacturing jobs. In that time, it has gained 11.8mn roles in professional and business services, and 3.3mn in transportation and logistical activities, linked to multinational supply chains.

But, if the aim of a tariff wall is to force labour-intensive parts of the supply chain to move onshore, it will come at the cost of these higher-value activities. US businesses will need to shift resources towards them, which would mean scaling back on services and R&D operations. (As mentioned, foreign capital is unlikely to be forthcoming and labour supply is limited.)

This also means accepting higher costs. Given less scale, higher wages (relative to developing economies) and the “transition costs”, Trump’s plan would raise consumer prices for low-income households that currently get cheap goods via international markets. Until domestic supply chains are established, higher import costs thanks to tariffs will have the same effect.

A considerable portion of demand for any new production of physical goods would also have to come from abroad. Higher factory-gate prices and retaliatory tariffs by US trade partners will hinder that. Americans spend a greater portion of their income on services (health, services and entertainment). A lot of goods have also become “dematerialised” in the digital world (eg DVDs, maps).

For measure, research by the Tax Foundation highlights how Trump’s Section 232 tariffs on steel and aluminium imports in his first term raised production costs for manufacturers (reducing employment in those industries), raised consumer prices and hurt exports. The Peterson Institute for International Economics estimated that the cost of “saving” a single job in steel-producing industries was around $650,000. Imagine this across Trump’s panoply of tariffs.

If creating labour-intensive factory work will be hard, undesirable and difficult to achieve with tariffs, what’s the alternative? Should former industrialised parts of America just accept relative income decline?

“What we have learned is that adjustments to big negative shocks to manufacturing employment — including the great recession, automation and import competition — are very slow and have big long-term consequences for communities,” said Kyle Handley, associate professor of economics at the University of California, San Diego.

That means supporting people and businesses to adapt faster rather than protecting jobs. This would include easing planning rules to support regeneration, incentivising financial markets more towards investments in the real economy, backing retraining initiatives to help people upskill and ensuring robust competition policy. (Tariffs add barriers to entry and make it harder for smaller businesses to scale.)

Globalisation has become a convenient scapegoat for domestic policy shortcomings in these areas. Fixing them would also incentivise more foreign investment and job creation in the US than protectionism.

Building economic resilience and agility — to enable post-industrial communities to respond to and benefit more from the forces of international trade — is not easy. Nor is working with trade partners to deal constructively with disputes. But persevering at least preserves the growth-enhancing effects of global supply chains.

Trump’s plan instead amounts to moving America back several decades. If that’s what his supporters want, they must also be content with making the nation as a whole poorer.

Send your rebuttals and thoughts to freelunch@ft.com or on X @tejparikh90.

Food for thought

How many “lost Einsteins” and “lost Marie Curies” are there, and what can be done about them? This IMF blog highlights how talented children from disadvantaged backgrounds end up innovating far below their potential.