RUTHFULLY YOURS

It’s easy to dismiss Donald Trump’s haphazard tariff barrage as silly and self-defeating, especially after so many days of global market turmoil. But critics among liberal Democrats and Republican free traders still need to address the overriding goal behind the seeming madness. The key strategic objective of Trump’s approach is simple: restoring American industrial power. Opponents of the US president ignore this at their peril.

It is true that the American economy continues to outperform those of Europe and the UK, especially in terms of tech, communications and finance. Yet the situation for blue-collar professions and working-class communities has not improved with the pace of globalisation. Between 2004 and 2017, the US share of world manufacturing shrank from 15 to 10 per cent. Since 2000, notes an Economic Policy Institute study, China’s export barrage has cost as many as 3.7million US jobs.

The ‘China shock’ is not just an American but a global phenomenon. Today, China boasts nearly as many factory exports as the US, Japan and Germany combined. Overall, Europe’s industrial sector continues to decline, losing 850,000 manufacturing jobs between 2019 and 2024. Germany could lose around half of its 800,000 auto jobs to Chinese competition by 2030.

To be sure, the early stages of globalisation reaped enormous benefits, both for Western consumers and for developing countries. But China’s admission into the World Trade Organisation in 2000 changed the dynamic. Here was a huge country, with enormous human capital, which adopted a highly mercantilist drive to dominate industries, first at the lower end of manufacturing and then, increasingly, in the most sophisticated sectors.

Wall Street bankers and tech oligarchs may be untroubled by the consequences of Beijing’s mercantilism, as they have little contact with America’s working and middle classes. The poorest have increasingly been forced to subsist on expanding welfare benefits which, in turn, subsidise the affluent for whom they work for a pittance as nannies, gardeners and day labourers.

For the working classes, manufacturing and related fields, like energy and logistics, represent an escape from economic marginalisation. Overall, manufacturing jobs pay $54,000 annually on average, well above the $47,000 average in services. These jobs also come with health insurance and steady employment.

Geography plays a role here. Apologists for the outgoing trade regime often ignore that its impact was felt most acutely in particular regions, like the American Midwest. Researchers John Russo and Sherry Linkon describe how the closure of a steel mill in Youngstown, Ohio – the first of a wave of closures in the region – undermined the sense of worth and optimism among residents. Many can still recall better days, when employment was high, jobs paid well, workers were protected by strong unions and industrial labour provided a source of pride – not only because it produced tangible goods, but also because it was recognised as challenging, dangerous and important.

Similar tragedies have occurred all over the West, away from the elite college towns, leafy suburbs and urban haunts of the upper classes. You can see this in places like England’s Midlands. The UK, the birthplace of the Industrial Revolution, now produces less wealth from manufacturing than countries like Mexico, Russia and Taiwan. Deindustrialisation has also blighted much of the former East Germany and Japan’s Kansai region.

Of course, the post-industrial lobby insists that the West can do without manufacturing due to its service exports. Factories, a Northwestern University economic professor claims, ‘aren’t the future’, and the US can count on our service and tech economies to generate wealth. According to Christina Romer, former chairwoman of President Obama’s Council of Economic Advisers, the notion that building stuff is more important than providing haircuts reflects merely ‘sentiment and history’, not modern economic reality.

Yet services cannot, by themselves, solve the West’s social or trade woes. US service exports, including those that go to tech firms, represent less than a third of overseas sales. Manufactured goods represent a far larger share.

Traditional liberals may find Trump’s tariffs distasteful, but they have to be viewed in the context of what is already a highly illiberal global trading order. As Michael Lind has pointed out, tariffs have long been a tool in the arsenal of advanced countries and remain so today. Other countries, including rising power India, levy tariffs of 70 to 100 per cent on electric vehicles (EVs) from China and elsewhere.

Europe, which screams the most about tariffs, has been reluctant to reduce its historically high protective barriers. Canada, a beneficiary of an almost $100 billion trade surplus with the US last year, has also been very protectionist for a long time. Canada recently levied an 100 per cent tariff on imported Chinese EVs and a 25 per cent surtax on Chinese steel and aluminium.

The critical need to restore US production became particularly obvious during the pandemic. Not only was the US dependent on certain chemical compounds, it also couldn’t produce basic items like masks, as that business had fled to China. I recall having to get masks through a friend from her cousin in Shenzhen, because none were available in California. Domestic production of personal protective equipment did eventually pick up, but only many months into the Covid crisis.

In many critical fields, America and increasingly Europe have become more dependent on Chinese goods. In 2023, the Middle Kingdom forged roughly half of the world’s steel and emerged as the world’s largest car exporter. It has invested heavily to take over aerospace from both America’s Boeing and Europe’s Airbus. It also accounts for more than half of all shipbuilding.

Ominously, unlike Japan in the 1980s, whose growth also threatened American industries, China is producing advanced military goods. The US is increasingly dependent on Chinese inputs for producing critical items like ammunition. If current trends continue, America, the only powerful military in the West, will have to ask the Chinese for help if we want to challenge its conquest of Taiwan and dominance of the South China Sea. This is clearly an untenable situation.

The critical issue now is how to accelerate a move away from Chinese industrial domination. The tariffs Trump introduced in his first term may not have made a huge impact on the US economy overall, but the annual rate of jobs being reshored did increase somewhat. Cumulatively, jobs reshored in recent years represent about five per cent of total US industrial employment. In 2019, for the first time in a decade, US manufacturing growth outpaced the growth in imports from Asia, noted a Kearney study.

If successful, Trump’s tariff policies could encourage even more firms to bring production back to the US. To date, the Trump approach has had some successes in luring – or really coercing – companies to reshore their production. Tariff threats have already prompted companies like Honda to scrap plans for shifting production of new car models to Mexico. Both pharmaceutical giant Eli Lilly and Taiwan-based chipmaker TSMC have been persuaded to invest billions in US factories, when they used to ship their products from abroad. Tariffs, when combined with boosted defence spending, could help spur a revival of America’s ‘greater gunbelt’, in states where the defence industry is concentrated like Texas, Virginia and California. The growth of tech-savvy defence firms could prove essential to both the economy and national security.

It will take more than tariffs, however, to make the most of any new industrial renaissance. American workers will need the right training, education and skills to be able to seize these new opportunities. In the past, President Biden and politicians of both parties talked about having factory workers and oil riggers ‘learn to code’. But in the real world, US companies are crying out most for skilled, dependable workers like drivers, machine-tool operators and welders. As many as 600,000 new manufacturing jobs are expected to be generated this decade which, based on current skills levels, would go unfilled.

These jobs are precisely what is needed for an increasingly marginalised workforce. Even among those who manage to finish college, around 40 per cent of recent graduates are underemployed, meaning that they’re working in jobs that don’t require their degree, the Federal Reserve Bank of New York reports. This incongruence has arisen even though, after non-wage benefits are counted, manufacturing workers earn 13 per cent more in hourly compensation than comparable workers elsewhere in the private sector.

These jobs will become even more valued as artificial intelligence grows, undermining the prospects for computer programmers, paralegals and accountants. Automation of information, former Google China president Kai-Fu Lee suggests, will end up wiping out the ‘coders’. Lee, also a venture capitalist and author of AI 2041: 10 Visions for Our Future, predicts that ‘a lot of [white-collar] employees are going to feel like turkeys waiting for Thanksgiving’.

Fortunately, there is something of a consensus in Washington in favour of boosting domestic manufacturers. Joe Biden also supported strong tariffs against China and poured large subsidies into US manufacturing. During his term, there was a considerable increase in factory employment and a sizeable boom in factory building.

Tariffs have predictably stirred the ire of market fundamentalists, who suggest it will boost inflation and cause a recession. They also warn that Trump’s policies will destroy established supply chains. America’s inability to produce even prosaic goods like screws is taken by ultra-libertarians as a reason to keep the floodgates open. A rational person might suspect that an America that cannot produce basic goods will not long lead the world.

No doubt, no matter what trade barriers are thrown up, there will be many US companies, notably those with strong Chinese supply links, who will prove reluctant to change how they do business. Yet there are many others, including Walmart, that are looking to more local suppliers. McKinsey surveyed supply-chain executives back in 2020 and found that nearly all respondents agreed that their supply chains were too vulnerable to global shocks.

Even if you find Trump’s bombast nauseating, and his policies crude, at least he seems willing to address the decline of manufacturing. For this, even some leftists, like United Auto Worker president Shawn Fain, have praised Trump’s tariffs. Whatever happens to the stock market, his policies will continue to be embraced in the MAGA heartlands. This is where most new industrial growth has already been taking place, including new semiconductor, battery and EV plants. The tariffs will likely do less for the rapidly deindustrialising Northeastern and West Coast regions.

As for rebalancing global trade, whether Trump’s tariff blitz can work will become clearer in the coming weeks and months. As an owner of casinos, the US president seems determined to play ‘a high-stakes game of international poker’ with America’s trading partners and the financial markets. Reports that 75 nations now want to negotiate better trading terms with the US could be a promising sign that a more rational trade policy could yet emerge, as is his decision to pause tariffs on non-retaliating countries for 90 days. Trump should stop obsessing over the raw trade deficits and surpluses the US has with other countries. There is no sense in having tariffs across the board, on all countries and all products. Instead, he should pick critical sectors to protect and cut deals with our best trading and security partners in North America, East Asia and Europe, particularly Japan and the Anglosphere.

A sound tariff policy would not be something to fear. What remains to be seen is whether Trump’s crass approach does so much damage that it discredits the whole mission of restoring domestic industry. If he succeeds, however, this could be the beginning of a very necessary adjustment to a collapsing world order.

Joel Kotkin is a spiked columnist, a presidential fellow in Urban Studies at Chapman University in Orange, California, and a senior research fellow at the University of Texas’ Civitas Institute.