A Good Man for U.S. Manufacturing Is Hard to Find

American factories are already having difficulty filling jobs, and not because of trade policy

By Allysia Finley. Excerpts:

"The labor force participation rate among working-age men is now about five percentage points lower than in the early 1980s. As a result, there are about 3.5 million fewer men between the ages of 25 and 54 in the workforce, and 1.3 million between the ages of 25 and 34, than there would have been were it not for this decline."

"So where have all the good working men gone? Some are subsisting on government benefits or living off their parents. About 17% of working-age men are on Medicaid, 7.4% on food stamps and 6.3% on Social Security (many claiming disability payouts), according to the Census Bureau. Many spend their days playing videogames and day-trading."

"Only about 41% of men complete a bachelor’s degree in four years, and about a quarter take more than six. Many high-paying vocations don’t require college degrees, but government subsidies and public K-12 schools nonetheless steer high-school students to that track."

"Federal student loans won’t pay for apprenticeships, but they will cover the cost (including living expenses) of worthless graduate degrees in community organizing, creative writing, tourism, dance and more. Rarely does one need an advanced degree to enter such fields"

"The unemployment rate among recent college grads with a sociology degree is 6.7% and their median wage is $45,000, according to the New York Federal Reserve Bank. Sociology grads could earn twice as much working on an auto assembly line, which pays on average $100,000 a year. Good gig, but not many want it."

"Only 31% of blue-collar workers feel that their type of work is respected"

Trump’s New Protectionist Age

Blowing up the world trading system has consequences that the President isn’t advertising

WSJ editorial. Excerpts:

"Tariffs that blunt competition invite monopoly profits while reducing the need to innovate. This is the story of the American steel and car industries in the 1950s and 1960s before global competition exposed their deficiencies."

"41% of S&P 500 firms’ revenues come from abroad."

"U.S. exports will suffer directly from retaliatory tariffs. And they will suffer indirectly as other countries strike trade deals that give preferential treatment to non-U.S. firms."

"The U.S. share of global GDP has been stable at about 25% for decades, even as industries rise and fall."

"in his first term Mr. Trump abandoned the Asia-Pacific trade deal that excluded China. Beijing has since struck its own deal with many of those countries."

More Foreign Investment, Less Tariffs and Subsidies

By Tad DeHaven of Cato.

"Greenfield investment occurs when a foreign company establishes (or expands) a business in the US. Most foreign direct investment (FDI) in the US are acquisitions. However, the “US affiliates of foreign multinationals spend hundreds of billions of dollars per year in the United States on research and development and capital expenditures, with the biggest shares going to manufacturing.” In short, we should welcome it. 

According to a new report from Global Trade Alert, however, neither the Trump tariff-driven approach to attracting greenfield investment to the US nor the subsidy-driven approach preferred by the Biden administration bore results beyond an initial “sugar high.” 

Job creation, a stated aim of the presidents’ policies, trended south under both administrations. 

The report also looks at the degree to which import tariffs motivated foreign investment into US manufacturing (“tariff-jumping”). Only two of the eight manufacturing sectors show that imports may have been replaced with more foreign investment, which “cast doubt on the effectiveness of both Trump (sticks) and Biden (carrots-and-sticks) approaches to reviving US manufacturing in part by repatriating production from abroad.” 

Circling back to FDI via acquisitions, Japanese Nippon Steel’s proposal to acquire US Steel for $14.9 billion, which would come with $2.7 billion in badly needed investment in American steel facilities, has been on the ropes thanks to opposition from the Biden administration. President-elect Trump is also opposed to the deal. The opposition from the presidents comes despite reports that 90 percent of US Steel employees favor the deal. 

Scott Lincicome has a detailed breakdown of the Nippon-US Steel matter. The main takeaway is that the Biden administration and Trump want the public to believe their opposition is based on national security concerns and “protecting workers.” The truth is they’ve both chosen to support union bosses at the expense of said workers and the economy in general. 

Tariffs and taxpayer subsidies did not make the American economy the world’s most successful. Instead, the US’s success stems from cultural, economic, and institutional strengths that foster innovation and entrepreneurship. Sure, we could (and need to) do better by improving our relatively favorable regulatory environment and getting our fiscal house in order. But nationalist trade and industrial policies are counterproductive—as is stopping allies from investing here to placate union leaders."

Trump’s Tariffs and Economic Risk

How much would his border taxes offset his pro-growth policies?

WSJ editorial. 

"Donald Trump said recently that “tariff” is the most beautiful word in the dictionary, except “faith” or “love,” and in this belief he seems consistent. So it’s worth taking seriously Mr. Trump’s campaign promise to impose a universal baseline tariff of 10% or 20% on all imports to the U.S., plus 60% on China.

A first question is whether Mr. Trump really would do this, since it would dwarf his last tariffs. The average tariff rate on all U.S. imports is currently about 2%, the Tax Foundation says, and Mr. Trump’s plan could raise it to “highs not seen since the Great Depression.” That was under the infamous 1930 Smoot-Hawley tariff.

Mr. Trump started his first term with pro-growth deregulation and tax reform. He began his tariff wave in 2018, with targeted levies on steel, aluminum, washing machines, solar cells, and a variety of goods from China. He held off adding a tax of up to 35% on foreign autos, even as his Commerce Department wrote a report calling them a national-security threat.

The evidence is clear that the tariffs had real costs and reduced the growth spurred by his other policies. Other countries retaliated, hitting U.S. producers of everything from apples to whiskey. The government paid farmers billions in compensation. Harley-Davidson had to shift production for its overseas customers to Thailand to stay competitive.

There was no great boom in manufacturing employment. More jobs involve using steel than making it, and one study said higher steel prices led to 75,000 lost manufacturing jobs. Consumers paid more for many products, as companies passed on tariff costs. The economic studies on these points are copious, and it’s worrisome that Mr. Trump and his advisers dismiss them.

The next question is whether Mr. Trump has the power to impose a universal tariff. The Constitution grants Congress, not the President, authority over trade. It’s unlikely that Congress would pass a new broad-based tariff on all imports, though protectionism has been gaining support in the Trump era.

But Congress has already ceded considerable power to the President, especially provisions against “unfair” trade practices (Section 301) and “national security” threats (Section 232). Mr. Trump used these powers in his first term, and he was aggressive in exploiting 232 in particular, as he no doubt would be again.

The bigger danger is that Mr. Trump might use the International Emergency Economic Powers Act (IEEPA). This law gives the President broad authority, after declaring an emergency, “to deal with any unusual and extraordinary threat” from abroad. IEEPA has been used to freeze Venezuelan assets and stop exports to Iran. It has never been used to impose tariffs. Mr. Trump threatened Mexico with it in 2019 but stood down amid a deal to expand the “Remain in Mexico” migrant policy.

Yet it’s hard to believe Mr. Trump could legally get away with declaring all imports from everywhere an emergency to impose a tariff. That would transform IEEPA from a sanctions law into a grant of limitless presidential power over trade. Progressives love the idea of a carbon tariff. Could President Biden impose one unilaterally by declaring foreign emissions to be an emergency?

If Mr. Trump tries it, he may find himself in court, perhaps the Supreme Court. The current Justices have struck down similar efforts to abuse presidential power, such as Mr. Biden’s $400 billion student-loan forgiveness.

Mr. Trump sometimes says he sees tariffs merely as a means to gain trade reciprocity: If Japan had zero tariffs on U.S. goods, the U.S. would do the same. But the process of getting to zero is likely to be messy if it is even achievable. Once imposed, tariffs build business and union constituencies that won’t easily give them up. The current 25% U.S. tariff on foreign trucks was imposed in 1964.

Yet at other times Mr. Trump sounds like a true believer in high tariff walls for their own sake—as the way to return manufacturing to the U.S. and protect it from foreign competition. This seems to be the view of his chief trade adviser, Robert Lighthizer, and perhaps running mate JD Vance.

Known as import substitution, this model of economic growth kept India globally uncompetitive for decades. It would guarantee higher consumer prices and the slow erosion of U.S. business competitiveness. Our guess is that financial markets would signal their disapproval if Mr. Trump goes this far.

Another risk, and a special case, is trade with China. Mr. Trump’s first-term tariffs didn’t change Chinese behavior, but he seems more determined than ever to raise the stakes. China’s mercantilism and IP theft have caused foreign firms to reduce their investment in China, which is the prudent move. Strategic economic decoupling is warranted. But an all-out trade war with China would have significant costs for America too.

Mr. Trump’s overall economic agenda is superior to Kamala Harris’s model of tax, spend, mandate and regulate. But his tariff agenda is an anti-growth wild card that poses considerable economic risk in a second term. We’d have to hope financial markets and Congress deter the worst."

The real value of U.S. industrial output is near an all-time high and U.S. trade deficits represent a net inflow into America of capital that expands our productive capacity

By Donald J. Boudreaux.

"Here’s a letter to the Wall Street Journal:

Editor:

Greg Ip quotes Oren Cass offering his now-familiar claim that “things that used to be made in America are now made elsewhere in exchange for pieces of paper” (“Republicans Are Fracturing on the Economy,” July 11). Nothing could be more misleading. The implication that Americans no longer produce tangible things is false: The real value of U.S. industrial output hit an all-time high in September 2018 and is today only a fraction of a percentage point below that level. Importantly, U.S. industrial output is now 21 percent higher than in 1998 – the year just prior to the so-called “China Shock” – and 152 percent higher than in 1975, the last year that America ran an annual trade surplus.

Equally wrongheaded is Cass’s suggestion that when the U.S. runs trade deficits it receives in exchange only “pieces of paper.” In fact, U.S. trade deficits represent a net inflow into America of capital that expands our productive capacity, one result of which is that U.S. industrial capacity is today at an all-time high. Further, as Colin Grabow reports, “manufacturing value added on a per‐​worker basis shows America to be the world leader at over $141,000. That’s 45 percent higher than second‐​place South Korea and over seven times that of workers in China. Such high productivity helps explain why manufacturing attracted over $55 billion in foreign direct investment last year [2022] – more than any other sector.” By comparison, FDI in 2022 for Chinese manufacturing was, at $49.67 billion, nearly ten percent less than in the U.S. This fact is yet another that’s impossible to square with Cass’s suggestion that Americans no longer make things."

Navarro’s Freight Train of Fallacies

By Donald J. Boudreaux.

"Here’s a letter to the Wall Street Journal:

Editor:

Peter Navarro’s “A Tariff Issue on Which Free and Fair Traders Can Agree” (May 29) is a train freighted only with fallacies. Here are three.

First, free-trade economists do not “insist” that tariffs result in less employment. In reality, free-trade – that is to say, competent – economists recognize that tariffs, although they shift workers and resources from more- to less-productive uses, have no effect on the overall employment level.

Second, Mr. Navarro leaps heedlessly from an accounting identity to a false economic conclusion when he writes that “imports don’t contribute to gross domestic product.” It’s true that the value of imports is not directly included in GDP. But because at least half – and on some calculations nearly all – imports are inputs into domestic production, increased production efficiencies made possible by lower-priced imports do indeed contribute to a higher GDP.

Third and most fundamentally, Mr. Navarro writes as if, when assessing international trade, exports are benefits and imports are costs. Yet this assessment is backwards. To anyone who disagrees with me and agrees with Mr. Navarro, I hereby offer to accept from you as many automobiles, consumer electronics, household furniture items, and other real goods and services as you wish to give to me and I promise to give to you in exchange nothing but pieces of paper on which I’ve scrawled the face of George Washington."