Editors’ note: This column first appeared as a chapter in the CEPR book, The Economic Consequences of the Second Trump Administration: A Preliminary Assessment, edited by Gary Gensler, Simon Johnson, Ugo Panizza and Beatrice Weder di Mauro.
President Trump has stated many goals to justify his trade war. He has argued that tariffs on imports produce leverage that the US can use to reduce inflows of fentanyl and illegal immigrants and to negotiate better trade deals. He has also argued that tariffs will advance US national security and economic resilience, and be a source of revenue for the federal treasury.
But the two most prominent arguments the President has advanced – both during the early months of his second term, and for decades prior – are that protectionism will reduce the trade deficit and increase manufacturing employment. This chapter will focus on the latter claim.
On “Liberation Day” – 2nd April 2025, when the administration announced increases in US tariff rates that would take the average rate higher than under the Smoot Hawley Tariff Act of 1930 – President Trump said: “Jobs and factories will come roaring back into our country, and you see it happening already. We will supercharge our domestic industrial base.” The President said the following on 7th January 2025: “We’ll impose new tariffs so that the products on our stores will once again be stamped with those beautiful words, made in the USA.”
Other prominent members of Trump’s administration have made similar assertions. US Trade Representative Jamieson Greer, for example, testified before the Senate Finance Committee in April: “The President wants to see factories back here.”
The President and his advisors are going to be disappointed. This chapter will argue that the tariff increases imposed by the current administration will not substantially increase US manufacturing employment. Indeed, the trade war will likely decrease the number of manufacturing jobs in the US. I will also argue that increasing US manufacturing employment is not a particularly important or desirable goal, and that the protectionist impulse is predicated on incorrect judgements of economic trends for typical workers and households.
Tariffs won’t increase manufacturing employment
Protectionists can appeal to intuitive economic logic. Tariffs are a tax on imported goods, but not on domestically produced goods. By increasing the relative price of imported goods, price-sensitive consumers will substitute away from imports. This will increase the competitiveness of domestic producers, in turn boosting the market demand for manufacturing labour services. Manufacturing employment and wages will therefore increase.
Protecting domestic manufacturers from competing with imported goods is, indeed, a major part of the economic story. But two other factors are of first-order importance. Because US manufacturers import a good deal of what they need to produce final goods, tariffs are not just a tax on consumption – they are also a tax on business investment. Taxing investment should reduce the competitiveness of domestic manufacturers, putting downward pressure on the demand for manufacturing labour services. In addition, though they are often discussed as static events, tariff increases should be thought of in a dynamic context. Other nations will retaliate, which will hurt domestic exporters and reduce the demand for manufacturing workers.
Because of these competing effects, the impact of the Trump administration’s trade war on manufacturing employment is ultimately an empirical question.
A look at the import statistics should give protectionists immediate pause. In each quarter of the years 2023 and 2024, between 54% and 56% of US imports consisted of industrial supplies and materials, capital goods, and automotive engines and parts.
Or consider the case of steel. The administration’s steel tariffs might help US steel producers. But for every one job in steel production, there are 80 jobs in US industries that use steel. Among others, US manufacturers of household appliances, farm machinery, mining machinery, batteries, and hardware are steel intensive, and will face higher production costs due to steel tariffs (Russ and Cox 2018).
Beyond summary statistics and industry anecdotes, scientific evidence comes from rigorous studies of President Trump’s first-term trade war. A comprehensive literature review is beyond the scope of this short chapter. Instead, I will highlight three papers that I find of particular relevance to current policy issues. Each takes a different lens to study the manufacturing employment effects of the first trade war. Flaaen and Pierce (forthcoming) conduct an industry analysis of manufacturing employment, Autor et al. (2024) analyse local labour markets (i.e., commuting zones), and Javorcik et al. (2022) study labour demand.
Flaaen and Pierce (forthcoming) estimate the effect of the US tariff increases of 2018-2019 on manufacturing employment. The authors decompose the overall effect into the three components described above: import protection, higher input costs, and retaliation. They find that shifting a detailed (four-digit NAICS) industry from the 25th to the 75th percentile of tariff exposure was associated with a 0.4% increase in employment due to import protection, a 2.0% decrease in employment due to higher input costs, and a 1.1% decrease in employment due to retaliation. On net, they find that moving from the 25th to the 75th percentile of exposure reduced employment by 2.7%. They also provide evidence that lower rates of job creation is the main mechanism by which manufacturing employment fell in response to the 2018-2019 tariffs.
Autor et al. (2024) study the effect of the 2018-2019 tariffs on local labour markets. Their analytical design separately considers the employment effect of US import tariffs and foreign retaliatory tariffs. They do not find a positive employment effect from US import tariffs, but they consistently find negative employment effects in response to foreign retaliatory tariffs. They also find that the agricultural subsidies the administration put in place to counteract retaliatory tariffs did little to compensate for the damage to agricultural employment.
Javorcik et al. (2022) study the effect of the 2018 tariff increases on online job postings, which are a measure of labour demand. They do not find that exposure to import protection increased labour demand. They do find that a local labour market’s exposure to tariff-driven higher intermediate-input costs and foreign-export tariffs both led to declines in labour demand. In addition, they find that relative labour demand declines were larger for vacancies aimed at workers with relatively lower skill levels.
There are two other reasons why this specific trade war will not lead to a revival of US manufacturing employment. The first comes down to time. The President may be able to enact tariffs with the stroke of a pen, but building factories – whether for cars, drugs, clean energy, or semiconductors – takes several years.
The second – and more important – reason is policy uncertainty. Businesses are unlikely to commit to an expensive, multiyear manufacturing investment in the current policy environment, which is characterised by unclear policy goals, incompetent execution, sudden policy reversals and changes, and a chaotic atmosphere. As I wrote in a recent commentary: “Given that US producers rely heavily on imported intermediary goods, wild swings in tariffs are hugely destabilizing. When firms can’t forecast their costs, they can’t determine which investments are likely to generate profits” (Strain 2025b).
Why the focus on manufacturing jobs?
Tariffs are unlikely to increase manufacturing employment as an empirical matter. But more fundamentally, invoking manufacturing employment declines as a justification for protectionism fundamentally misunderstands the root causes of employment dynamics. Manufacturing employment as a share of total nonfarm employment has been declining since the end of World War II because manufacturing productivity has been increasing over that period. The main driver of manufacturing employment declines has been technological progress, not international trade.
Figure 1 clearly illustrates declining manufacturing employment well before China’s accession to the WTO in 2001 or the North American Free Trade Agreement (NAFTA) coming into effect in 1994. If protectionists really wish to boost manufacturing employment, then they should be arguing for reducing manufacturing productivity, not imports.
Figure 1 Manufacturing employment share
Note: Total employment in manufacturing divided by total nonfarm employment, from the Current Employment Statistics programme.
Source: Bureau of Labor Statistics; author’s calculations.
Why should manufacturing employment receive so much attention? Protectionists often cite the quality of manufacturing jobs relative to service sector jobs, the need for strong domestic manufacturing capacity, and resilience and security concerns. But these concerns are either misplaced or will be aggravated, not ameliorated, by the current trade war.
Supporters of protectionism often tout the quality of manufacturing jobs. But the average wage of a manufacturing job has been lower than the average wage in a services sector job since 2018. Manufacturing jobs are often more dangerous and less pleasant than services jobs. And if the current administration succeeds in transferring low-wage, low-value-added manufacturing jobs from other countries to the US, then the average US manufacturing wage will decrease.
Some supporters of protectionism seem to think that because manufacturing employment has been declining for decades, the US’s ability to produce has also been declining. Indeed, the assertion that “the United States doesn’t make things anymore” is as common as it is incorrect. The US does not need to adopt protectionist policies – to say nothing of starting a severe global trade war – to create the capacity to produce goods; it already has that capacity.
US industrial output reached its post-World War II high in February 2025. It is true that the growth of industrial output substantially slowed following the 2008 global financial crisis. But the level of industrial output today is higher than it was prior to China’s 2001 accession to the WTO. Industrial output was higher in 2001 than in 1994, when NAFTA came into effect. And as shown in Figure 2, industrial output was higher in 1994 than in any earlier year.
Figure 2 US industrial output
Note: Industrial production: total index, from the Federal Reserve Board’s Industrial Production and Capacity Utilization (G.17) statistical release.
Source: Federal Reserve Board; author’s chart.
The US is not just producing more than ever before; relative to other nations, it is a global manufacturing powerhouse. As shown in Figure 3, the US produces more manufacturing output than any nation except China – and third place is a distant third. It is important to note that China overtook the US because it ramped up its production, not because the US began producing less.
It may or may not be important for the US to have a robust manufacturing sector. One could reasonably argue that all that matters for the US is to have strong alliances with trading partners in which the goods Americans wish to consume are produced.
But even economists who hold that view might grant exceptions for a small number of critical goods, like semiconductors or certain pharmaceuticals. The disruptions during the Covid-19 pandemic arguably exposed the need for greater resilience in supply chains. And escalating geopolitical tensions highlight the relationship between imports and national security.
Figure 3 The US is a global manufacturing powerhouse
Note: Total value added from manufacturing from 1970 to 2023 for the top 10 countries in terms of total manufacturing value added in 2023, measured in 2015 constant dollars, published by the United Nations Statistics Division.
Source: United Nations Statistics Division; author’s calculations.
The right way to address these resilience and security considerations is to take a judicious approach in targeting a narrow set of products and technologies that clearly warrant intervention, and to pursue that intervention in concert with a broad coalition of allies. If done properly, policymakers would take great care not to conflate economic security goals with domestic economic or political considerations, like trends in manufacturing employment (Strain 2024a).
Contrast that approach with the Trump administration’s. It is hard to think of a better way to exacerbate supply chain disruptions than a sudden, severe global trade war. And America is clearly less safe because of the President’s trade war.
Trade deficits and tax revenue
The subject of this chapter is manufacturing, but permit me a few sentences to discuss some of the other ways in which tariffs are justified. In addition to manufacturing considerations, the other major justification for the trade war is concern about the trade deficit. But the President is wrong to assert that the trade deficit is a problem. The trade deficit offers consumers greater product variety and gives US businesses a competitive edge by allowing workers to focus on more productive tasks. Moreover, the President is wrong to conclude that large tariff increases will narrow the trade deficit (Strain 2024a). The trade deficit is determined by aggregate savings and investment. Because the US invests more than it saves, it runs a trade deficit. Tariffs will do little to address that.
In addition to concern about manufacturing and the trade deficit, the President and some of his advisors sometimes argue that tariffs will increase tax revenue. The President is right that the government should increase revenue. But tariffs are in part a tax on business investment, which will result in lower productivity and lower wages. An actual consumption tax would be far superior.
In addition, raising tax revenue through tariffs is constitutionally improper. As I wrote in a recent commentary: “For the President to attempt to unilaterally raise taxes by hundreds of billions of dollars per year is an aggressive and egregious assault on our constitutional system of government. In the Constitution, it is Congress’s role to raise revenue, not the president’s. I am an economist, not a constitutional scholar. I don’t know whether Trump is violating the Constitution in a technical legal sense. But I am a citizen of the United States, and I know that Trump is violating the spirit of the Constitution. The President raising this much revenue through import taxes without authorization from Congress is an obvious and extreme abuse of power” (Strain 2025a).
As for extracting concessions from other nations around a host of issues (fentanyl, illegal immigration, export conditions), the President’s tariffs may in some cases prove somewhat effective. But at such a high cost, and with no success on his two main objectives, this will be small consolation.
False premises
The twin foundations of today’s protectionist impulse seem to be the view that economic outcomes for typical workers and households have been stagnant or deteriorating for decades and, relatedly, that the US’s 2000 decision to grant China permanent normal trade relations (PNTR) and China’s 2001 accession to the WTO were major policy errors that devastated the working class. Both of these views are mistaken.
The first crack-ridden foundation of this trade war is the mistaken view that economic outcomes for typical workers and households have stagnated or deteriorated for the past several decades. As I argue in my book, The American Dream Is Not Dead: (But Populism Could Kill It), this view is at odds with the best reading of the economic evidence (Strain 2020).
Figure 4 clearly shows that real wages for production and nonsupervisory workers were stagnant or declining during the 1970s and 1980s. But the US left that period behind over three decades ago. Since the early 1990s, real wages for typical workers have been steadily rising.
This has not been a period of uninterrupted progress – see, for example, the stagnation following the 2008 global financial crisis
and the Covid-19 pandemic – and this pace of wage growth should not lead to complacency.
But from July 1990 to February 2025 (the latest data available at the time of this writing), the purchasing power of the average wage of workers – specifically, production workers in the manufacturing sector, construction workers in the construction sector, and nonsupervisory workers in the service sector – has increased by 44%. This is a substantial increase in average real wages.
Figure 4 Real wages for production and nonsupervisory workers
Note: Average hourly earnings of production and nonsupervisory workers, from the Current Employment Statistics program, deflated by the price index on personal consumption expenditures, from the Bureau of Economic Analysis. Wage data are presented in December 2019 constant dollars.
Source: Bureau of Labor Statistics; Bureau of Economic Analysis; author’s calculations.
There is no doubt that the middle of the labour market was ‘hollowed out’ in recent decades, with employment growth concentrated among low- and high-wage jobs. But this disruption has been driven mostly by technological progress, not by trade. And the disruption of these decades has mostly been a story of upward economic mobility.
The share of households earning real incomes (measured in 2023 dollars) between $35,000 and $100,000 – a proxy for middle-income – fell by 16.4% from 1967 to 2023. But this was not accompanied by an increase in the share of households earning less than $35,000, which fell by 10.3%. Instead, the share of households earning real incomes above $100,000 grew by 26.5% over this period (Strain 2020, Strain 2024b).
In addition, a ‘new middle’ is forming in the labour market. Manufacturing jobs and clerical jobs may be shrinking as a share of total employment, but a new middle is rising, with occupations including sales representatives, truck drivers, managers of personal service workers, heating and air conditioning mechanics and installers, computer support specialists, self-enrichment education teachers, event planners, and health technologists and technicians (Strain 2020).
The second argument serving as a faulty foundation for the trade war – that China’s 2000 PNTR status and 2001 WTO entry were major US policy errors with devastating consequences – misunderstands both history and economics. China had most-favoured nation (MFN) status renewed annually with the US since 1980, which meant that it faced similar US trade barriers to other nations during the two decades prior to its WTO entry. While the elimination of trade policy uncertainty that accompanied the developments of 2000 and 2001 did play a role in increasing Chinese exports to the US, that role is overstated in the policy debate and ignores the huge increase in imports from China during the 1980s and 1990s (Handley and Limão 2017, Amiti et al. 2020). Indeed, in the decade prior to China receiving PNTR, US imports from China (in current dollars) increased by nearly a factor of seven. China’s booming export capacity had much to do with its own internal economic reforms, not changes in US policy.
On the economics, it is of course true that trade liberalisation – including the ‘China shock’ – contributed to manufacturing jobs losses. Autor et al. (2013) find an average reduction in manufacturing employment of 90,000 jobs per year from 1990 to 2007, while Acemoglu et al. (2016) find an average reduction in manufacturing employment of 200,000 per year from 1999 to 2011.
But there are two important considerations in interpreting those estimates and applying them to real-world policy issues. First, they must be placed in the context of broader economic dynamism. Second, they fail to account for export-driven manufacturing job gains. The following five paragraphs and associated footnotes discuss those issues, and most of the text in those paragraphs is directly taken from Strain (2024a).
In a typical month, five million workers separate from their employers. In the manufacturing sector, typical monthly separations are 351,000.
Two hundred thousand jobs per year sounds like a lot, but in the context of US labour market dynamism it feels less apocalyptic than today’s political rhetoric implies.
Moreover, Autor et al. and Acemoglu et al. focus on half the story of increased trade openness. Trade liberalisation is associated with increased imports and exports. Economic theory suggests that employment reductions in sectors exposed to import competition should be roughly balanced by employment increases in export-intensive sectors and in other sectors.
Feenstra et al. (2019) note that the literature on the China shock has focused on the impact that surging imports from China have had on job losses, with little attention paid to the job gains from growing exports.
They expand Acemoglu et al.’s framework to incorporate not only US imports from China but also imports from the rest of the world, exports to China, and exports to the rest of the world.
In their preferred specification, Feenstra et al. estimate that, at the industry level, a one percentage point rise in import penetration from China reduces industry employment by 0.81 percentage points. This estimate is very similar in magnitude to the findings of Acemoglu et al. But when they study the effects of trade more broadly, Feenstra et al. find that the job losses identified by Acemoglu et al. and Autor et al. are fully offset by job gains due to US exports.
Specifically, in their preferred specification, they find job losses of 533,000 due to import competition between 1999 and 2011. These losses were offset by job gains of 411,000 due to exports. Since export-driven gains were greater than import-driven losses during the 1990s, over the entire 1991–2011 period they find a net gain of 379,000 jobs.
What lessons, then, should economists and policymakers take away from the China shock? It is the case that the domestic economic effects of trade with China intensified around the turn of the century, leaving some people and places behind.
The following three paragraphs, taken from Strain (2024a), discuss two important lessons.
First, the labour market is less fluid than many economists had thought, and it is harder for workers specialised in one sector with declining opportunities – in the case of trade, in import-competing sectors – to reallocate to other sectors with expanding opportunities. The second lesson is that workers may be less willing to relocate from regions with declining opportunities to regions with expanding opportunities than many economists had thought.
These are generalisable lessons that apply to labour market disruptions broadly, regardless of the source of the disruption. For example, the development of generative artificial intelligence raced forward in 2023 and portends substantial labour market disruption (Strain 2024c). The energy transition away from fossil fuels could create a situation similar in kind to the China shock, given the geographic concentration of that industry. These lessons from the China shock will apply to AI and the energy transition.
Other lessons from the China shock are important for understanding that episode but may be of limited generalisability. China’s export growth was rapid, with its share of world manufacturing exports rising from 3% in 1995 to 18% in 2014, to 21% in 2020.
And the reallocation of workers across sectors was likely severely adversely affected by the 2008 global financial crisis and Great Recession, in which the US unemployment rate peaked at 10% and there were as many as six unemployed workers for every one job opening in the labour market. To the extent that adverse effects on import-competing workers created Keynesian aggregate-demand reductions, post-2007 economic slack was a major contributor.
Conclusion
Regarding the trade war and manufacturing, the two most important conclusions are as follows. First, the current administration’s trade war is founded on a deeply flawed analysis of the US’s economic challenges. American manufacturing is not in crisis, and open trade has not been the most important driver of declining manufacturing employment. From an economic perspective, manufacturing jobs do not deserve special attention.
Second – and, from a political perspective, perhaps most importantly – the trade war will not substantially increase manufacturing employment. Indeed, it is likely to decrease manufacturing employment. It will fail to achieve its wrongheaded goal.
Protectionists are motivated by misplaced nostalgia for an imagined past. They are trying to turn back the clock. They will not succeed. A better and achievable goal would be to create more on-ramps to the economic opportunities of the present – and the future.
Author’s note: I thank Duncan Hobbs for excellent research assistance.
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