What are the potential consequences of Trump’s global trade war on the U.S. economy? How might rising tariffs affect consumer prices and job creation? What challenges do companies face when considering relocating manufacturing to the U.S. amid tariff uncertainties?
President Donald Trump’s widening global trade war has clobbered the stock market, raised the odds of a U.S. recession, and started to push up inflation for American households with the prospect of much steeper price increases ahead. Trump says the ultimate prize – spurring more production in the U.S. and reclaiming the nation’s status as a manufacturing stronghold – will be worth the turmoil.
“Tariffs are about making America rich again and making America great again. And it’s happening, and it will happen rather quickly,” Trump said during a joint address to Congress early in March. “There will be a little disturbance, but we’re OK with that,” he added. “It won’t be much.”
Is he right?
Amid Trump’s tariff threats, a handful of large manufacturers have said they’ll locate factories or new production in the U.S., including Hyundai, Honda, and Apple. But trade experts and economists say it’s unlikely a significant share of makers with overseas factories will move established supply chains halfway around the world under the threat of on-again, off-again tariffs whose duration is uncertain in a tumultuous economic climate. Those that do would have to grapple with severe shortages of skilled workers.
Even if a sizeable share relocated to the U.S., the number of jobs created would be relatively small and more than offset by those wiped out in a recession, economists say. Trump’s tariffs during his first term led to more job losses in industries forced to pay the higher duties than gained in sectors protected by the import fees, studies show.
“This is not going to succeed at reviving U.S. manufacturing,” said Michael Strain, director of economic policy studies at the American Enterprise Institute, a conservative think tank. Trump already has imposed a 25% tariff on steel and aluminum; 20% on shipments from China; and up to 25% on goods from Canada and Mexico that aren’t covered by a 2020 trade deal.
Last week, he ratcheted up the trade war, announcing a 25% tariff on all imported vehicles, effective Thursday, and on auto parts, slated to kick in a month later. The levies are expected to increase the price of a new car by several thousand dollars or more.
Also set to take effect Wednesday are sweeping reciprocal tariffs that would match whatever levies other countries charge the U.S.
“FOR YEARS WE HAVE BEEN RIPPED OFF BY VIRTUALLY EVERY COUNTRY IN THE WORLD,” Trump wrote on Truth Social last week, referring to the nation’s heavy reliance on imports and $1.2 trillion trade deficit in goods last year. “BUT THOSE DAYS ARE OVER.”
One problem with Trump’s strategy: his mixed messages. He wants tariffs to spur a manufacturing renaissance but says he’ll drop the reciprocal duties if foreign countries lower theirs, Strain noted. Still, some companies say they’re on board. Hyundai last week announced plans for a $5.8 billion steel plant in Louisiana to supply its auto factories in Alabama and Georgia. Honda said it will build its next-generation Civic hybrid in Indiana instead of Mexico to avoid tariffs on one of its top-selling models, Reuters reported. And Apple said it would add 20,000 workers and produce AI servers in the U.S. as it seeks relief from Trump’s tariffs on goods imported from China, according to Bloomberg.
Companies including Volvo Cars, Volkswagen’s Audi, and Mercedes-Benz also have said they’ll move some production to the U.S. this year. But some CEOs privately expressed reluctance to make long-term business decisions based on what could be a short-term policy.
“If (the tariffs) become permanent, then there’s a whole bunch of different things that you have to think about, in terms of where do you allocate plants, do you move plants, etc.,” General Motors Chief Financial Officer Paul Jacobson told investors last month.
“Those are questions that just don’t have an answer today. As much as the market is pricing in a big impact of tariffs and lost profitability, think about a world where we’re spending billions in capital, and then it ends. We can’t be whipsawing the business back and forth.”
At least some automakers will produce more cars in the U.S. and buy American steel and aluminum to dodge tariffs, said Panos Kouvelis, professor of supply chain, operations, and technology at Washington University in St. Louis. Some, he said, have additional capacity and electric vehicle supply chains are still being formed, making them easier to reshuffle.
Yet most will likely drag their feet and see how the tariffs evolve as long as possible, said Robert Lawrence, a professor of international trade and investment at Harvard’s Kennedy School of Public Policy and Government. Other industries are also taking a cautious approach.
EVCO, a Wisconsin-based maker of plastic parts for other companies, has been hit with hefty tariffs on its molding for boats, all-terrain vehicles, and other power sports materials it produces in China, said Anna Bartz, company vice president of communications. But it would be difficult for EVCO to switch production to the U.S. even after figuring in the tariffs, which it partly passes along to customers. American labor costs are significantly higher than those in China, Bartz said. And it would cost $12 million to $15 million and take a year to build a new U.S. plant, plus another year before some of its factory equipment is certified, she said.
“It’s naïve to think that it’s that easy – that we can put things anywhere,” Bartz said.
By contrast, EVCO makes medical devices in the U.S. because doing so pays dividends, said Richard Duval, EVCO’s vice president of U.S. operations. Their production demands greater precision and merits the wage premium earned by high-skilled American workers, he said.
More companies are weighing bringing production to the U.S., Canada, or Mexico than to the U.S. specifically, said Dave Evans, CEO of Fictiv, a supply chain consulting firm. Broadly speaking, Trump is seeking to restore a U.S. manufacturing heyday that hasn’t existed for decades. In the 1950s, factory jobs made up nearly a third of the nation’s workforce. But offshoring to countries with lower factory wages began in earnest in the 1970s and 1980s and gained steam in the 2000s after China joined the World Trade Organization.
Today, the nation’s 12.8 million manufacturing jobs make up just 8.4% of U.S. payrolls and are down from 17.3 million in 2000, Labor Department figures show. But that doesn’t mean America doesn’t make things anymore.
From 1979 to 2018, even as the industry shed a third of its payrolls, manufacturing production more than doubled, JPMorgan Chase said in a report. Of the 5.6 million manufacturing jobs the U.S. lost from 2000 to 2010, 4.5 million were wiped out by improved productivity, including automation, while just 1.1 million fell victim to offshoring, according to a study by Michael Hicks, an economist at Ball State University in Indiana.
The U.S. still has a strong manufacturing base for products that rely on high-skilled labor and automation such as advanced machinery, medical devices, and engine components, said Neil Bradley, executive vice president of the U.S. Chamber of Commerce. “We’re always going to elect to sell things to people in other countries and buy things from them,” Bradley said.
Some American companies have brought production back to the U.S. to benefit from faster deliveries, higher-quality production, and plentiful energy resources, such as natural gas. During his first term, Trump sought to turbocharge the movement, slapping tariffs on Chinese imports, solar panels, washing machines, and steel and aluminum. Steelmakers had struggled for years because of a global overcapacity that led to massive import surges, especially from China, that undercut American steel prices.
Hicks argued that as a result of the 25% steel tariff imposed during Trump’s first term, U.S. producers “simply boosted their price to become more profitable” rather than shift production from overseas. But Kevin Dempsey, CEO of the American Iron and Steel Institute, said the tariff helped revive the industry before the levy was watered down by exceptions and loopholes. U.S. steelmakers announced plans to invest about $15.7 billion in new or upgraded steel facilities, creating at least 3,200 new jobs, according to a 2021 study by the Economic Policy Institute.
Some studies are skeptical. While the tariffs created 1,000 jobs for steelmakers protected by tariffs, they reduced employment by 75,000 in steel-using industries such as autos and construction as prices rose and sales fell, according to a study by Harvard University and the University of California, Davis. Dempsey disputed the figures, saying steel comprises just a small portion of a vehicle and the price increases amounted to a few hundred dollars for a $30,000 car.
In all industries affected by Trump’s tariffs, the duties boosted factory employment 0.4% by protecting certain sectors from imports but reduced payrolls 2% by harming the many more fields socked by rising costs, a Federal Reserve study concluded.
The remedy? Make the tariffs so sweeping that they prod both the makers of parts and finished goods to shift manufacturing to the U.S., said Harry Moser, head of the Reshoring Initiative, a nonprofit that advocates bringing manufacturing jobs back to the U.S. Until then, manufacturers that make more solar panels or cars in America, for example, will be stuck paying Trump’s tariffs for Chinese solar materials or Mexican auto parts.
But shifting entire product ecosystems from one country to another is a tough proposition. Companies that spend as much as billions of dollars to move production from China or Mexico to the U.S. “have to ask how long (the tariff) is going to last,” Kouvelis said.
Another challenge: Manufacturers must be willing to make big investments in an uncertain environment in which tariffs have increased recession risks and weakened customer demand, Kouvelis said.
Prevelo Bikes, which makes premium children’s bikes, mostly in Cambodia, doesn’t currently face additional tariffs. But company CEO Jacob Rheuban is worried. “It’s so volatile I feel like I could wake up any day and there’ll be a 50% tariff on everything,” Rheuban said.
In that case, Rheuban said he couldn’t spend several hundred thousand dollars to build an assembly plant in the U.S. “That’s a lot of money,” he said. If he did, he also would want to move production of parts such as tires, brakes, and cranks to the U.S. so any glitches can be fixed in hours instead of days or weeks. Those goods are made by Asian suppliers.
“There’s just no way," he said. "I don’t have the resources.”
Still another challenge for manufacturers mulling a move to the U.S. is a historically low 4% unemployment rate that limits the pool of skilled workers, the chamber’s Bradley said. The problem, he said, is intensified by baby boomers’ retirements. If the furniture industry brought more assembly back to the U.S., the wood, glass, hinges, and other parts would still be made in Asia, said Shannon Williams, CEO of the Home Furnishings Association.
And if it tried to reshore manufacturing full-scale, it would be scrambling for workers, she said. The 4% jobless rate means that if 30% of all unemployed people could work in manufacturing, that would supply 2 million employees for furniture and other industries, compared to hundreds of millions of workers in Asia, Williams said.
Asian factory workers earn an average of $13,000 a year, compared to $43,000 for U.S. employees, Williams said. Bearing those labor costs would make the traditional furniture industry uncompetitive with online discounters such as Wayfair that ship modular pieces for consumers to assemble, Williams said.
“The industry couldn’t bring (production) back and have it be sustainable,” she said.
In a best-case scenario, if tariffs spurred so much new production in the U.S. that it wiped out the entire $1.2 trillion U.S. trade gap, Lawrence estimates it would create about 1.5 million manufacturing jobs. That’s 1% of all U.S. jobs and a blip in a labor market that sees 5 million workers quit or lose jobs every month, Lawrence and Strain said.
By contrast, if tariffs set off a recession, it likely would mean 3.5 million fewer jobs by 2027, according to Moody’s Analytics.
Contributing: Reuters
This article originally appeared on USA TODAY: Trump tariffs unlikely to bring back U.S. manufacturing glory: Experts
Trump Says the Ultimate Fruits of Tariffs Will Be Worth the Pain. Experts Disagree
In recent years, the landscape of global trade has been reshaped by the policies of leaders like Donald Trump, who has championed the use of tariffs as a means to bolster American manufacturing and reduce trade deficits. Trump has argued that the ultimate fruits of his administration’s tariff policies will make the temporary pain of higher prices and trade tensions worth it. However, many economic experts express skepticism about this assertion, highlighting potential long-term consequences that could overshadow any short-term benefits.
A Trumpian Philosophy on Tariffs
Trump’s approach to tariffs stems from a broader philosophy that prioritizes America’s interests in a global economy he views as inherently unfair. By imposing tariffs on foreign goods, particularly from countries like China, Trump aimed to encourage consumers and businesses to buy American-made products. He posited that these protective barriers would lead to a revival in domestic manufacturing, job creation, and an overall strengthening of the U.S. economy.
In his speeches, Trump often emphasizes a patriotic duty to support American workers and industries. He argues that the revenue generated from tariffs can be redirected into infrastructure projects and social programs, further benefiting the public. "America first" has become a cornerstone of his narrative, with tariffs branded as a necessary tool in a trade war aimed at leveling the playing field against what he describes as unfair trade practices by other nations.
The Immediate Impact of Tariffs
The imposition of tariffs, especially on imports like steel, aluminum, and various consumer goods, has produced immediate and observable effects. On one hand, industries that were protected saw some relief, while on the other hand, sectors reliant on imported materials faced increased costs. This price inflation trickled down to consumers, who felt the sting of higher prices at checkout lines across the country.
While Trump and his supporters insist that the long-term benefits will manifest in revitalized American manufacturing, the reality is that many companies looked for alternative solutions to rising costs. Businesses often shifted their operations overseas, seeking cheaper labor markets and alleviating the impact of tariffs rather than passing costs directly to consumers. Additionally, supply chain disruptions during the COVID-19 pandemic further complicated the landscape, leading to criticism of the sustainability of such tariff-heavy policies.
Expert Opinions on the Efficacy of Tariffs
Economic experts have largely expressed concern over the unilaterally applied tariffs. Leading voices argue that while tariffs may yield some short-term gains for specific sectors, they ultimately create a ripple effect that negatively impacts the broader economy. The consensus among many economists is that tariffs, in their essence, act as taxes on consumers. Higher prices for imported goods reduce consumer purchasing power, which can dampen economic growth.
Harvard economist and former Treasury Secretary Larry Summers has been vocal about the risks of using tariffs as a policy tool. He cautions that the strategy could lead to retaliatory measures from trading partners, further escalating tensions and resulting in a tit-for-tat cycle. In his view, the predictability of negative outcomes is not only a theoretical concern but has been borne out in history; past tariff disputes have often spiraled into trade wars with damaging consequences for all involved.
Another critical point raised by experts is the potential for job losses in sectors highly reliant on imports. Economists like Joseph Stiglitz warn that while some manufacturing jobs may return, many sectors could suffer significant setbacks. The risks of job losses in retail and other dependent industries are particularly salient. Tariff policies often favor certain industries while inadvertently punishing others, creating a lopsided economic policy that does not promote holistic growth.
Long-term Consequences
In examining the long-term implications of Trump’s tariff policies, the potential for a fragmented global trading system becomes evident. Experts warn that increased protectionism could lead to a decrease in global economic growth. Economies are increasingly interlinked, and the prioritization of unilateral tariffs can disrupt long-standing trading relationships. This phenomenon risks a retrogression toward isolationist policies that could stymie innovation and limit economic dynamism.
Furthermore, as countries respond to U.S. tariffs with their own protectionist measures, the impact can extend beyond simple trade disputes. A prolonged trade war could result in increased uncertainty for investors and businesses, driving down economic performance as companies reconsider expansion and hiring plans.
Conclusion
While Trump promotes the narrative that the ultimate fruits of tariffs will justify the pain, experts remain skeptical. The juxtaposition of short-term gains against long-term economic realities paints a complex picture of the efficacy of such policies. As America navigates its place in a globalized economy, the continuation of tariff-heavy strategies requires careful consideration of their far-reaching impacts. The debate continues, echoing the age-old argument of protectionism versus free trade—one that weighs immediate American interests against the broader implications for global economic stability and growth.
President Donald Trump has consistently argued that the long-term benefits of implementing tariffs on imports will outweigh the short-term economic challenges they may create. He believes that these tariffs will protect American jobs, bolster domestic industries, and lead to a more favorable trade balance.
However, many economists and experts have raised concerns about this approach. They argue that while tariffs may provide temporary relief for certain industries, they can also lead to higher prices for consumers, retaliation from trading partners, and disruptions in global supply chains. Experts point out that increased costs for imported goods can reduce consumer spending and hinder overall economic growth.
The debate centers around the potential trade-offs involved in using tariffs as a tool for economic policy. Supporters highlight the need to protect domestic industries from foreign competition, while critics warn of the broader economic repercussions that could arise from trade disputes and increased costs for consumers and businesses. Overall, the conversation about tariffs reflects a complex interplay between national interests, economic theory, and real-world implications.