“Tariffs are about making America rich again and making America great again. And it’s happening, and it will happen rather quickly,” declared President Trump, pointing to their promise in revitalizing American manufacturing. But things are not that simple. While tariffs aim to bolster home-based production, their ability to drive substantial job growth is contentious. America’s manufacturing base, which was the global leader decades ago, is plagued by issues beyond tariffs’ capability to rectify.
Wells Fargo analysts argue that the solution to bringing U.S. manufacturing back is fraught with hurdles. The sector would require a gigantic investment of $2.9 trillion to meet pre-recession employment levels of 1979. That is a daunting figure, especially considering high labor costs and a shortage of skilled workers. The number of present-day manufacturing employees is a paltry 12.8 million, far short of the 1979 peak of 19.5 million. To arrive would translate into the production of around 6.7 million jobs, a number close to the entire number of unemployed Americans.
And the effect of automation and technological advancements cannot be overlooked either. Despite the promise of technologies like IoT, 3D printing, and AI, U.S. manufacturing productivity is flat since 2010. Robert D. Atkinson of the Information Technology & Innovation Foundation cites that only 23% of U.S. manufacturers engage in process innovation. This insufficient innovation with no federal support has allowed countries like China to be ahead of the U.S. in terms of using manufacturing robots. Atkinson suggests a temporary 25% investment tax credit to spur technological investment, something which would increase productivity by a significant amount.
The broader macroeconomic implications of the tariffs are also at issue. As a report by the Tax Foundation points out, while the tariffs might be protecting specific industries, they also might be holding back aggregate productivity growth. Tariffs increase the cost of imported goods, many of which are required inputs for American manufacturers. The higher production costs lead to, and it can lead to worker layoffs, as did the 2002 and 2018 steel tariffs.
Moreover, the global manufacturing environment has evolved. The United States now boasts the second-largest manufacturing base in terms of value-added output, after China. This achievement is, however, dampened by the declining proportion of U.S. GDP accounted for by manufacturing, from 16% in 1997 to around 10% presently. This is partly due to consumer consumption turning away from goods and towards services, a trend observed across developed economies.
Big players like Nvidia and Apple have issued investment announcements into American production to grow domestic capacity. These, however, are generally indirect investment policy statements regarding tariffs. Small companies are prevented from making significant investments due to the uncertainty in trade policy. West Monroe’s Jeremy Tancredi suggests caution, that firms wait for the policy to settle before making any dramatic changes in their supply chains.
The skills challenge is equally important. According to a Deloitte and Manufacturing Institute report, nearly half of the 3.8 million new manufacturing positions that are anticipated by 2033 may remain vacant due to the lack of skills. The solutions include a coordinated effort in upskilling current talent and new workforce acquisition with the right technical qualifications.
Tariffs are part of a broad approach to shoring up American manufacturing, but they are not the solution. A stable policy framework, heavy investment in technology, and human capital are what the industry’s fate relies on. The future is unknown, but with planning and investment, U.S. manufacturing can be a pillar of economic strength once again.
