US fixation on the hard-hat economy and making manufacturing great again makes little sense | US economy
The exhortations to protect America’s industrial muscle have resonated in the US at least since maverick presidential candidate Ross Perot brought up the supposed “giant sucking sound” of jobs pulled to Mexico by the Nafta trade agreement back in 1993.
They flourished under Donald Trump’s first presidency and his promise to restore jobs lost to trade agreements. Joe Biden, too, put “rebuilding the backbone of America: manufacturing, unions and the middle class” at the center of his agenda. And in 2024, Trump reheated his old promise that “jobs and factories will come roaring back into our country”.
There is an undeniable appeal to the hard hat and the grease-stained overalls; to the sweat on the brow of hard men in vintage posters; to the virtue of a hard day’s labor on the production line. But the American political class would do well to overcome its nostalgia for the past and forget about promises to make manufacturing great again.
The promises make little sense.
They haven’t really worked politically. One study concluded that job losses in big manufacturing counties did not push voters toward Trump in 2016, on average. (While they led to increased support for the Republican in predominantly white areas, they were associated with diminished support in diverse counties.) And despite Biden’s strenuous efforts, in 2024 even rust belt counties that benefited richly from his incentives to support manufacturing voted for Trump.
If the politics don’t work, the efforts to “restore” manufacturing – which accounts for less than 8% of the jobs in the country – make even less sense in economic terms. It’s about as sensible as a commitment to restore agriculture – which employs less than 2% of Americans – to the place it occupied at the center of the US economy in the 19th century.
A line chart showing that manufacturing makes up less than 8% of US jobs
Placing tariffs on imports, Trump’s preferred policy tool, is a particularly inept approach. Over half of American imports are in fact, capital equipment and intermediate goods that American manufacturers put into finished products, often for export. About 91% of respondents to a survey by the National Association of Manufacturers said they use imported components. By raising the price of such inputs, tariffs make domestic firms less competitive. Steel, for instance, is more expensive in the United States than practically anywhere else, which makes life difficult for every manufacturer that uses the stuff.
While the Biden administration’s strategy was not quite as stupid, it was nonetheless ineffectual. Indeed, despite all the help from the White House, manufacturing output has not recovered its level from before the Covid pandemic. It remains at roughly where it was 20 years ago. And manufacturing jobs show no sign of a revival.
A line chart showing that manufacturing output has not recovered to its pre-Covid level
One problem is that Biden’s multibillion spending on industrial policy – through the Inflation Reduction Act, the Chips and Science Act, and the Infrastructure Investment and Jobs Act – made manufacturing more expensive, by bidding up the costs of capital goods and other inputs, like materials and wages of factory workers, as well as pushing up interest rates and the dollar. Moreover, Biden stiffened some trade barriers inherited from the first Trump administration, for instance tightening “Buy America” government procurement rules.
While factory construction did boom, investment in industrial equipment did not. Moreover, real spending on other bits of infrastructure – like bridges and highways – contracted despite a massive infusion of federal dollars, according to an analysis by Jason Furman from Harvard’s Kennedy School. And the building of manufacturing plants has fizzled under Trump.
The decline in manufacturing, however, is less a story about policy blunders than one about the long progress of the US economy, which has to a large extent graduated out of producing stuff like phones and cars and into the delivery of services, like finance and healthcare – a process similar to that followed by other countries that moved up the ladder of success.
One study found that the number of manufacturing firms in the US declined by 21% in the two decades from 2002 to 2022, even as the overall number of companies in the country grew by 10%. The only industrial sector that saw substantial growth in the number of firms and jobs was that of beverages and tobacco products – largely a consequence of the fad for trendy drinks like canned kombucha and fancy sparkling water.
A chart showing that manufacturing productivity has stalled
For many years, the story US manufacturing was one of fast productivity growth, which propelled production increases despite stable or falling employment. But the growth of manufacturing productivity stalled about 15 years or so ago, even as productivity across the economy continued to improve.
There is a valid case for a nation like the United States to nurture some manufacturing industries – especially those that will prove important for national security, like advanced semiconductors, or advanced energy technologies needed to reduce carbon emissions.
But the many campaigns Washington has embarked on over the years to restore manufacturing to some image of past glory are largely driven by misplaced nostalgia. It is true that manufacturing workers earn more, on average, than those employed in the service economy. But that is an argument for policies to raise wages for low-wage service sector workers. The dream of greasy overalls and hard hats does not justify protectionist policies that harm American consumers or other wasteful incentives that are failing both to generate jobs or to produce anything of value.
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