Rumors of the demise of the US manufacturing industry are greatly exaggerated. ~ Elon Musk
Recently President Biden decided he
can help American manufacturers by momentously raising US tariffs on certain
imported Chinese goods. I lament this action. Yet the importance of our
economy’s manufacturing sector has been perennially bellowed by many.
Manufacturing is the process of
fabricating goods by manual labor and/or machinery. Humans have been
manufacturing objects for thousands of years. Predecessors of Homo sapiens created
stone tools 200,000 years ago. About 3,000 years ago during the Bronze Age dagger
blades were manufactured using an alloy of copper and tin (aka, bronze), shown
below. In this era, technology every so gradually evolved over multiple centuries.
Needless to say, since those not really good ol’ days technological advance has
speeded up big time.
Bronze Age dagger blade. Wikipedia.
Most recently, the president has
promoted substantial increases in American tariffs on Chinese EVs and batteries
(to 100%) and solar panels (to 50%) to protect and assist domestic
manufacturers. It’s another political nail sealing the doorway to free trade
that a decade ago was a popular and proven prescription for gaining national
benefits. Most economists recognize that when tariffs are imposed on imported
goods they represent an additional, indirect tax in the form of higher prices ultimately
paid by consumers, not manufacturers.
This isn’t the first time elected
officials have imposed sizeable tariffs on the US public. The lamentable Smoot-Hawley tariffs were put in place by President Herbert Hoover in June 1930. These big-time
tariffs covered over 20,000 imported goods and exacerbated the effects of the
Great Depression.
President Biden’s new-found
preference for substantial trade protectionism – he voiced disapproval when then-President
Trump previously created similar tariffs – will hopefully assist domestic
manufacturers. Even if successful, which is by no means certain, such policies
will take quite a while to have beneficial effects. These tariffs will
certainly produce unintended consequences. Expected consequences include the imposition
of retaliatory tariffs by China. Yet the president is quite eager that voters
will somehow fondly remember these measures on November 5, even if they’ll
eventually pay higher prices as a result. Attempting to recreate the past is
never easy.
These tariffs will likely result in
somewhat higher prices that consumers will face for a broad array of imported items,
including solar panels, lithium-ion batteries, semiconductors, steel, aluminum,
syringes, needles, personal protective equipment (PPE) and surgical gloves. I
didn’t realize surgical gloves and syringes were strategic goods.
If you’re a died in the wool
traditionalist like President Biden, manufacturing employment is the only true
measure of honest labor. Manufacturing employment peaked in 1979 when 19.6M
people worked at making goods. It’s been a long time since manufacturing has
been the actual core of our economy. Service industries now account for 80.3%
of total employment. Hoping to reinvent yesterday won’t happen even if you’re
the president.
When considering the state of US
manufacturing, it’s important to distinguish between manufacturing output
and manufacturing employment. In April 2024, only 8.2% of US workers
were employed in manufacturing. Manufacturing employment has steadily declined during
the 7 decades since 1953, when it hit its peak 32% share of total non-farm
employment. The Bureau of Labor Statistics forecasts US manufacturing
employment will continue declining to merely 7.5% of all workers by 2032.
Manufacturing output however has
defied economic gravity and held steady principally due to impressive increases
in automation with consequent improvements in the sector’s productivity,
relative to the overall economy. Domestic manufacturing output has kept a
roughly 10% share of our real (price-adjusted) GDP. This increased use of
automation/robotics in manufacturing means a substantial majority of
manufacturing workers now are highly-skilled and well-trained.
I’d like to believe the president’s
much-elevated tariffs will not result in weighty economic harm. I also wish these
misguided actions might serve to strengthen his election prospects, but doubt
they will. Even though the media does its best to make it seem like November 5
is the day after tomorrow, it remains 156 days away at this point.
Tariff policy per se never
captures more than an ever so slender sliver of voters’ attention. Higher consumer
prices due to these tariffs however will gain attention of far more people. Finally, misdirected actions like the president’s higher tariffs pale in comparison to what’s ahead
if a now-convicted felon succeeds him after election day. So it goes…
[1] I won’t quibble with the president, although it’s more accurate to say 589K manufacturing jobs were recovered from the thankfully-brief Covid recession, and 175K new jobs were created. However you slice it, a great many manufacturing jobs have been gained during the president’s time in office.
