Introduction
On the anniversary of “D-Day,” President Donald Trump declared that imposing high tariffs would quickly bring back millions of manufacturing jobs. Soon after, Commerce Secretary Howard Lutnick spoke about the issue in a television interview, referring to “millions and millions of people adjusting tiny screws to manufacture iPhones.” However, there is concern that Trump’s tariffs on imports will not revive manufacturing jobs in the United States, but instead raise consumer prices, slow economic growth, and increase unemployment.
Five Reasons Tariffs Won’t Reactivate Manufacturing Jobs
1. Decreased Competitiveness for U.S. Producers
Tariffs are often viewed as a consumption tax, but they also act as an investment tax for businesses. Half of U.S. imports consist of industrial supplies, capital goods, and automobile parts. By increasing the cost of these inputs, tariffs will make it harder for U.S. manufacturers to maintain low prices and boost production and employment.
This is not just theory. The trade war during Trump’s first term provides ample empirical evidence to evaluate the current conflict. Economists Aaron Flaaen and Justin Pierce from the Federal Reserve found that during the 2018-19 trade war, job losses in U.S. manufacturing due to increased input costs were five times greater than the job creation from protection against imports.
2. Retaliation from Other Countries Affecting U.S. Exporters
Other countries will retaliate, creating another obstacle to job creation. Trump’s first-term trade war shows that job losses in U.S. manufacturing due to retaliation were almost three times greater than job creation from protection against imports.
Trump’s recent social media posts about potential retaliation against agriculture suggest he may offer similar support during this new trade war. However, various goods are targeted, including cereals, clothing, metals, and whiskey.
3. Time Constraints
While the president can approve tariffs swiftly, building a factory to produce cars, medications, clean energy, or semiconductors takes several years.
4. Policy Environment and Investment Uncertainty
In the current policy environment, which company will commit to a costly, long-term investment? Given U.S. manufacturers’ high dependence on imported intermediate goods, these significant tariff swings create substantial destabilization. Companies cannot predict costs and determine profitable investments when faced with unpredictable tariffs.
It’s no surprise that U.S. companies have reduced their hiring plans since Trump took office.
5. Job Availability and Wages
Reducing the U.S. unemployment rate compared to its current level is unlikely (especially a sustained reduction) because, in recent years, almost anyone wanting a job in the U.S. could find one.
While increasing manufacturing jobs might not solve this issue, the average manufacturing worker in the U.S. already earns less than the average service sector worker. If Trump seriously aims to repatriate manufacturing jobs, the average sector wage will decrease.
Though Lutnick may envision Americans “adjusting screws,” companies won’t pay high wages for such work. There are many reasons not to desire legions of Americans sewing shoes in factories, but the primary reason is that these jobs are low-paying.
Consequences of Trump’s Trade War
Trump’s trade war won’t revive manufacturing jobs; instead, it will have the opposite effect, raising consumer goods prices, slowing economic growth, and increasing unemployment. Tariffs will erode the rule of law by destroying trade agreements and weaken the U.S. constitutional system of governance, as they represent the largest tax increase in peacetime modern history—a power reserved for Congress, not the president, by the Constitution.
These actions will damage U.S. alliances and significantly reduce the credibility of its international economic and financial leadership.
Misconceptions About Trade War Benefits
Supporters of Trump argue that his trade war is a classic case of concentrated benefits and diffuse costs: a measure benefiting industrial workers significantly while slightly harming everyone else. However, this claim is incorrect for two reasons: first, everyone loses in Trump’s trade war; second, those who lose—including industrial workers—will suffer more than Trump’s supporters are willing to admit.
About the Author
Michael R. Strain is the Director of Economic Policy Studies at the American Enterprise Institute and author of The American Dream Is Not Dead (But Populism Could Kill It) (Templeton Press, 2020).
