Trump’s tariffs won’t bring back manufacturing jobs

On "Liberation Day," US President Donald Trump declared that sky-high tariffs would cause jobs to "come roaring back into our country." Not long after, Commerce Secretary Howard Lutnick expanded on this point in a television interview: "The army of millions and millions of human beings screwing in little screws to make iPhones – that kind of thing is going to come to America."

Well. For my part, I don't see the need to drive up manufacturing employment in America. But even if I shared the Trump administration's goal, I would still be very concerned about the trade war, because the tariffs will not succeed in reviving factory jobs for (at least) five reasons.

First, Trump's tariffs will reduce US producers' competitiveness. Tariffs are often discussed as a tax on consumption, which of course they are. Less noted is that they are also a tax on business investment. A little over half of US imports are industrial supplies and materials, capital goods, and automotive parts. By making these inputs more expensive, tariffs will make it harder for American manufacturers to maintain low prices and expand output and hiring.

This is not just a theory. Because Trump waged a (relatively scaled-down) trade war during his first term, we have ample evidence to assess the current conflict. US Federal Reserve economists Aaron Flaaen and Justin Pierce estimate that US manufacturing-job losses due to costlier inputs were five times larger than manufacturing job gains from import protection during the 2018-19 trade war.

Second, other countries will retaliate, hurting US exporters – another impediment to expanding employment. Here, again, we can turn to Trump's first-term trade war. Flaaen and Pierce find that losses in domestic manufacturing employment from retaliation were nearly three times as large as gains from import protection.

Trump is clearly worried about retaliation. Just a few days ago, he posted to social media that, in his first term, "China was brutal to our Farmers (sic)," whom he subsequently "rewarded" with a $28 billion bailout. While Trump's post implied a promise of similar support during the current trade war, agriculture will not be the only sector targeted for retaliation. A wide range of goods – from grains and clothing to metal and whiskey – are already in the crosshairs.

The third reason why Trump's policies will not substantially increase manufacturing employment comes down to time. The president may be able to enact tariffs with the stroke of a pen, but building factories – whether for cars, drugs, clean energy, or semiconductors – takes several years.

That leads to the fourth reason: What business would commit to an expensive, multiyear manufacturing investment in the current policy environment? Given that US producers rely heavily on imported intermediary goods, wild swings in tariffs are hugely destabilizing. When firms can't forecast their costs, they can't determine which investments are likely to generate profits. Unsurprisingly, US businesses have been scaling back their hiring plans since Trump's inauguration.

Lastly, who is going to take these jobs? America's unemployment rate is unlikely to be lower than it currently is, at least on a sustained basis – over the last few years, basically everyone in the US who wanted a job could get one. True, a large number of people are out of the job market entirely. But market wages would presumably need to be higher for many of them to enter the workforce.

Boosting manufacturing employment will not fix this problem. In America, the average manufacturing worker already earns less than the average service-sector worker. And if Trump is serious about bringing back factory jobs from overseas, then the average manufacturing wage in the US would drop. 

Lutnick may want Americans "screwing in little screws," but businesses aren't going to pay high wages for that type of work. There are many reasons why we should not wish for legions of Americans to stitch sneakers together in factories, but chief among them is that those are low-wage jobs.

Trump's trade war will not revive manufacturing employment. It will do the opposite, all while raising consumer prices, slowing economic growth, and increasing unemployment. Trump's import tariffs will degrade the rule of law, as trade agreements are torn up. They will also weaken America's constitutional system of government. Trump's tariffs are the largest peacetime tax increase in modern history, but the Constitution gives Congress, not the president, the power to raise taxes. America's alliances will suffer, and the credibility of US global economic and financial leadership will be greatly diminished.

Many of Trump's supporters have defended the trade war by arguing that it is a classic case of concentrated benefits and diffuse costs: manufacturing workers will benefit a lot, and the rest of us will suffer a little. This is wrong on two counts. Trump's trade war is a lose-lose proposition. And the losers – including manufacturing workers – will lose a lot more than Trump's defenders are prepared to admit.

Michael R Strain, Director of Economic Policy Studies at the American Enterprise Institute, is the author, most recently, of The American Dream Is Not Dead (But Populism Could Kill It) (Templeton Press, 2020).

Disclaimer: This article first appeared on Project Syndicate, and is published by special syndication arrangement.