Trump’s Tariffs Will Shake the Economy and Global Trade Without Kick-Starting Manufacturing
There are better ways to strengthen the middle class
Yesterday, on what he dubbed “Liberation Day,” Donald Trump took his most comprehensive step yet in enacting his favorite economic tool: tariffs. The ostensible goal is to strengthen US manufacturing and to punish unfair trading practices by other countries, which Trump blames for “ripping us off.” To that end, the administration unveiled both broad-based tariffs and “reciprocal” tariffs that vary by country.
The move could rewire global trading relationships and alliances, sparking trade wars and diplomatic spats. It might also wreak havoc on the American economy. The US economy is deeply intertwined with other economies around the globe. And it relies heavily on consumer spending, which stands to take a hit if tariffs – as economists widely anticipate – result in increases in the price of everything from cars to common imported grocery items like avocados, blueberries, and tomatoes. After all, tariffs are a tax, and importers could pass the increased prices to consumers.
A basic principle taught in Econ 101 is that there are positive gains to trade: if countries (and their people) specialize in their comparative advantage and trade for what they need, then world economies are better off. On the flipside, trade creates winners and losers within economies depending on the sector in which any given individual works. Using the gains from trade to subsidize its losers to retrain and work in more advantaged sectors of the economy can help to smooth disruptions and make more people better off.
That doesn’t always happen. Furthermore, international relationships and domestic jobs are about more than economics; they’re also about politics, and even about insurance against risk. One thing that Donald Trump has tapped into in American politics is the deep disruptions and resentment that globalization has wrought over the course of decades, especially in the rural communities and manufacturing towns that turn out in large numbers for him.
There are good reasons to want to keep some amount of American manufacturing capacity and to limit offshoring. The inability to produce enough PPE and supply many other goods during the pandemic is a good example. There are other reasons too, linked to national security, delivery times, and more.
But the notion that we can resuscitate a broad path to the middle class through using tariffs as the main tool to kick-start manufacturing is beyond far-fetched. Manufacturing is now quite a small share of American employment: 12.7 million people, or a little under 9% of the total labor force. That compares to around 30% of the labor force in manufacturing in the 1950s and 1960s. The economy has since created millions of high-paying jobs in tech, finance, science research, and specialized services like health care, and we should want to retain advantages and specialization in those areas within the world economy (which consumes a lot of our products).
At this point, restoring manufacturing would require retraining a lot of people and creating new pathways for others. Given that manufacturing has been in decline for decades, many people who lost manufacturing jobs are now retired. Others took early retirement buy-outs (for instance in the auto industry) or simply retired and weren’t replaced. Their kids work in other growth sectors of the economy, and many of them are doing well. They have new dreams that are lodged in the contemporary economy, not a past one. That’s a common story in the Detroit metro area where I grew up, and it’s true within my own extended family.
Mechanization, globalization, and, in a few years, AI, make mass employment in manufacturing inefficient if not nearly impossible. Mechanization and automation have themselves killed millions of manufacturing jobs, and tweaking trade policy won’t change those forces.
There are also strong counter-currents in the Trump administration to the renovation of a middle class, especially one based on manufacturing. One is the staunch opposition to unions. Techno-billionaires like Elon Musk and Jeff Bezos have long acted to undermine unions and support the gig economy, in which people are siloed as individuals and underprovided benefits. The promise of a manufacturing job in the 1950s and 1960s was in part a ticket into powerful labor unions that could advocate for generous health and pension benefits. That’s only rarely the case now. Even with President Biden backing unions, they made only meager gains during his term.
Restoring manufacturing also requires a strong state that is able to redirect spending, invest in infrastructure, created targeted training programs, and more to make that a reality. But at the behest of DOGE and others, the American bureaucracy is being gutted and hollowed out.
An alternative – and more promising – route to restoring and empowering the middle class is to create more generous and comprehensive policies with respect to things like health care and child support. Cost growth in those areas has far outpaced inflation for years and eats up an increasing share of income, especially for low- and middle-income Americans. It would also be supportive of women, who have doubled their participation in the labor force since the 1950s and who now make up nearly half of the total American workforce.
The coming months will determine a lot for the course of global trade and the possibilities for a major rejiggering of the American economy. It is possible that a number of countries will choose to lower their own tariff barriers in a bid to retain access to the American market. There is also a considerable chance that we are entering a new era of high trade barriers that harks back to prior periods in world history where economies were more decoupled. In either scenario, however, it is hard to imagine a real renaissance of manufacturing, let alone a stronger middle class, that results from the policies that are currently on the table.
Note: Lead image is of Trump with an EO announcing a minimum of 10% tariffs on all imports. From FMT Media, CC license (4/2/2025).