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    Trump’s promise of a US manufacturing renaissance leaves experts scratching their heads

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    Donald Trump’s hugely disruptive trade war is setting the stage for a manufacturing renaissance in the US, administration officials say. Outside the White House, many economists are skeptical.Global trade experts point to many reasons they believe the president’s tariffs will fail to bring about a major resurgence of manufacturing, among them: Trump’s erratic, constantly changing policies, his unfocused, across-the-board tariffs, and his replacing Joe Biden’s carrot-and-sticks approach to brandish sticks at the world.“I think [Trump’s tariffs] will reduce the competitiveness of US manufacturing, and will reduce manufacturing employment,” said Michael Strain, an economist at the conservative American Enterprise Institute (AEI). “They’re raising the costs of production to US manufacturing companies, and that makes manufacturers less competitive. There will be some winners and some losers, but the losers will outnumber the winners.”‘Trump keeps changing his mind’The president and his aides insist that higher tariffs on more than 100 countries – making goods imported from overseas more expensive – will spur domestic manufacturing. “The ‘Made in USA’ label is set to resume its global dominance under President Trump,” White House spokesperson Kush Desai claimed recently.But few economists see that happening. Ann E Harrison, an economics professor and former dean of the Haas School of Business at the University of California, Berkeley, said the erratic, on-again-off-again rollout of Trump’s tariffs has already gone far to doom the president’s hopes of inspiring a huge wave of manufacturing investment.“For the policy to be successful, it has to be consistent over a long period,” she told the Guardian. “People need to believe it’s going to last. Some factories take five years to plan and build. You’re talking a long-term play. But Trump keeps changing his mind. Even over the last six months, we’ve had very little consistency.“The other problem is that he’s old, and no one is sure he’s going to be around that long. These policies need to be consistent, and that’s not happening.”Economists point to another question mark that is causing corporate executives to think twice about building factories in the US. In May, the US Court of International Trade ruled that Trump’s blanket tariffs are illegal – a decision that is under appeal.Strain, at the AEI, said: “When you add into the equation the erratic nature of president Trump’s tariff regime, when you add the question of its questionable illegality, when you add that none of this is going through Congress, when you add that even when the US secures a ‘deal’ with another country, it’s not really a deal, there are major outstanding questions.”France doesn’t think its alcohol exports will be hit by tariffs as part of the European Union’s agreement to pay 15% tariffs, noted Strain. “That’s a big question mark that would never go unresolved in any regular, traditional trade deal,” he said. “That’s all part of the massive uncertainty we’re seeing.”The Biden administration used deliberate industrial policies to boost several strategic industries, most notably semiconductors and electric vehicles, including a 100% tariff on EVs from China and 25% on lithium-ion EV batteries, as well as subsidies to buy EVs and build EV-related factories. The policies resulted in a surge in new factories to build semiconductors, electric vehicles and EV components.Biden “said we care about semiconductors and national security, and what he’d try to do is get actual investors to invest in it”, said Dani Rodrik, an economist specializing in trade and industrial policy at Harvard’s Kennedy School of Government, who predicted Trump’s blanket tariffs will prove less successful in inspiring investment. “If you really want to increase manufacturing and employment in the US, you’d go about it in a very different way, through industrial policies that first identify specific segments you care about.”When China, Japan and South Korea adopted policies to build their electronics and auto industries, they insisted that the corporations that benefited from those policies compete with foreign companies to help make them globally competitive. “For industrial policy to succeed, it has to work to promote more competition,” said Harrison, at the Haas School of Business. “The problem with tariffs is they do just the opposite. They restrict competition.”Susan Helper, an economist at Case Western Reserve University who worked on industrial policy in the Biden and Obama administrations, said Trump’s tariff rates on some countries and markets – like 15% on the EU, Japan and South Korea – are too low to spur much investment, questioning why a company would build a major factory to circumvent such a duty.“A [semiconductor fabrication] plant, that’s a billion dollars. You need to get a payback and that takes several years,” Helper said. “If the tariffs are 145% [as Trump once imposed on China], that’s attractive for building a plant. But if they fall back to 15%, then it’s really hard to get a return on your investment.”The administration boasts that several of its trade deals have specific commitments to spur huge manufacturing investment. It says its deal with the EU includes a $600bn investment pledge; with Japan, a $550bn investment pledge; and with South Korea, $350bn. Jamieson Greer, US trade representative, wrote in the New York Times: “These investments – 10 times larger than the inflation-adjusted value of the Marshall Plan that rebuilt Europe after World War II – will accelerate US reindustrialization.”But these supposed pledges have attracted skepticism. After all, this president claimed during his first term that “the eighth wonder of the world” was being built in Wisconsin after FoxConn pledged to invest $10bn and create 13,000 jobs at an electronics plant. But that promise fell embarrassingly short.Many economists question whether the EU, Japan or South Korea can force corporations to make a specific investment in the US. Indeed, an EU Commission spokesperson said the bloc had expressed “aggregate intentions” that are “in no way” binding. “These large numbers really sound like window dressing, some round numbers they’re throwing around,” said Harvard’s Rodrik.“Some include investments you were already going to make, and some are aspirational,” said Todd Tucker, a trade and industrial policy expert at the Roosevelt Institute. “Once we’ve had time to evaluate whether the investment happens or not, Trump will be on to the next press cycle.”In recent years, manufacturing employment has been trending downward – not just in advanced industrial countries, but also in China, as new technologies enable factories to churn out goods more efficiently, with fewer workers. That trend raises questions whether Trump’s trade policies can increase factory jobs in the US.‘An island of backwardness’The US is past its manufacturing peak, Berkeley’s Harrison noted. “That was actually during World War Two, and it has been declining ever since,” she said. “I don’t see manufacturing’s share of the economy or manufacturing employment reversing.”She added: “If the question is, are you going to bring about a major resurgence in manufacturing employment, it’s not just unlikely, the answer is no. More and more manufacturing is robot-driven and not done by people.”Auto industry officials in the US complain that Trump’s 50% tariffs on steel and aluminum have increased their costs and injured their competitiveness. “In manufacturing, for every one job in steel production, there are 80 jobs that use steel,” the AEI’s Strain said. “So putting tariffs on imported steel might help that one guy, but you’re hurting the other 80 people.”A study by Federal Reserve economists found that the tariffs Trump imposed in his first term were actually associated with a reduction in factory jobs nationwide, because increased input costs and retaliatory tariffs outweighed import protection from tariffs.Helper, at Case Western Reserve University, warned that the US auto industry will be hurt badly by Trump’s mishmash of tariffs coupled with his slashing subsidies for EVs. “Trump’s policies are setting the auto industry up to be an island of backwardness,” she said. “The rest of the world is going to be making EVs, but we’re going to be focused on making really high profits on pickup trucks that will be bad for the climate and won’t sell in the rest of the world.“We’ll have a great, competitive position in large, gas-guzzling pickups, but we’ll fall further behind in EVs. That’s a very risky and dangerous path.” More

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      The case for American reindustrialisation | Dustin Guastella

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      A poll from the conservative Cato Institute recently went viral. It found that 80% of Americans think the country would be better off if more people worked in manufacturing. At the same time, only 25% of respondents said they themselves would be better off working in a factory. What should we make of the results?First, there’s nothing contradictory between these figures. It’s easy to see how it would be good for the country to reshore manufacturing jobs, even if it’s not good for you, personally, to work in a factory. Imagine a local pharmacist in an industrial town. He can see how his business would benefit from the expansion of a nearby plant. Yet he could also see that he would personally lose out on a lot of income if he gave up his trade and marched into the factory himself. The same can be said for any number of other workers. The reason so many people find appeals to reindustrialization attractive is because life was undoubtedly better when the old factories in their town were buzzing with activity than it is today, where they sit idle.Second, that 25% figure represents a lot of people. Across the political spectrum, libertarians at Reason Magazine, liberals at the Financial Times, mainstream conservatives, and even some on the far left have misread this figure. They think 25% indicates a woefully low ceiling for appeals to reindustrialization. Yet currently only 8% of Americans are directly employed in manufacturing. If we gave the people what they wanted, we would more than triple the amount of manufacturing jobs in the United States, an increase from about 12.7 million workers to more than 40 million. That is not small, it’s seismic. That a quarter of Americans think they would be personally better off with a factory job – jobs that are often dangerous and difficult – represents a scathing indictment of the so-called “knowledge economy” that promised prosperity but has often delivered devastation instead.Back in 1987, the economists Stephen Cohen and John Zysman warned:“Lose manufacturing and you will lose – not develop – high-wage service jobs.” How prescient they were. Everywhere factories have fled, social rot has followed. Since then, wage growth for most Americans has been stagnant. For those without a college degree it has declined. The promise of a “service economy” was built on the myth that jobs in services could simply replace jobs in manufacturing, without any real trade-off. But, as experience has shown, many service jobs have proved to be stubbornly low-waged. And there is good evidence that, all things being equal, jobs in manufacturing still offer pay advantages over jobs in services. Moreover, as developmental economists have long acknowledged, the health of a nation is tied to the health of its industrial heartlands. Just look at China’s explosive rise to see how important manufacturing is to a nation’s economic strength. Or, alternatively, look at the deindustrialization of the United States, and now Germany, for examples of the equal and opposite effect. A decline, especially a rapid one, in manufacturing is linked to a decline in the social and economic health of the country as a whole.Still, some argue that the only thing special about manufacturing jobs in the US was that the sector was highly unionized and that in a more pro-labor environment, service jobs would make just as much money as factory jobs. For instance, Matt Bruenig notes: “McDonald’s workers in Denmark make more than Honda workers in Alabama.” He’s right. Yet, as he knows, the Danish example doesn’t just show the power of unions, it actually helps make the case for a strong manufacturing sector. For one thing, Danish manufacturing workers make nearly twice the amount that Danish McDonald’s workers do. For another, Denmark employs nearly twice as many (15.7%) workers in manufacturing than does the United States (8%). And, according to the World Bank, manufacturing counts for a significantly larger portion of Denmark’s GDP (about 16%) than it does in the United States (about 10%). Ultimately, a major reason Danish McDonald’s workers can earn high wages is that, thanks to intelligent industrial policy, Denmark has retained its manufacturing sector. It is because blue-collar Danes earn high wages that McDonald’s can afford to pay high wages. The same can’t be said of the United States.While unionized service workers at say, Starbucks, may be able to win significant wage increases through union bargaining, they won’t be able to make anything close to the wages made by union auto workers. And that is not due to a lack of effort or heroism on the part of the baristas. It’s structural. Manufacturing jobs simply have greater wage potential than many jobs in services because they have more room for productivity growth and a higher degree of leverage to win wage demands.Increases in productivity, the amount of work accomplished by each worker in a set period of time, make firms more efficient and more profitable. As productivity increases, so do profits, which can translate to higher wages through bargaining. But service firms and factories have very different productivity curves. A Starbucks store can introduce more efficient espresso machines but ultimately the potential for increased productivity is limited by the nature of the business itself. Starbucks is selling a service, a consumer experience, and it’s hard to increase the per-worker output of an experience. This is a problem across the service sector where the rate of productivity growth remains low. By contrast, manufacturing firms can rapidly increase the output of each worker by introducing new techniques and technologies.As a result, these workers have a regular claim to corresponding wage increases – each year they get more productive, they make the company more money, and therefore the company can afford to pay their wage demands. Still, whether they can win those demands depends on leverage. Here too manufacturing workers have the advantage. A strike in a key auto plant can shut down all downstream operations, resulting in windfall losses quickly. Yet no strike at any given Starbucks store could have the same effect. Productivity and worker-leverage give manufacturing its unique high-wage potential, and for these reasons, a strong manufacturing sector has a salutary effect on the entire economy.Even for union baristas, manufacturing matters.Besides the pay advantages, there are other good reasons for reshoring manufacturing. As John Maynard Keynes argued, national self-sufficiency, the ability of a nation to provide its own industrial necessities, has all sorts of benefits. Including increased leverage in trade negotiations, more sovereignty over economic policy, and greater potential for robust social programs (remember, none of the famously generous Nordic states allowed their major industries to shrivel and die the way that Britain and the United States have). Put simply, if we want more social equality, we need a better economic balance. Consider that in 1960 almost 95% of the clothing worn by Americans was made in the US – today it is 2%. And unionized American garment workers made more then than Bangladeshi garment workers make now.Finally, reindustrialization is great politics. With the left struggling to reach working-class voters, an economic appeal that reaches some 80% of the country is a good way to win back favor. Donald Trump’s chaotic and contradictory policies won’t yield an industrial renaissance, and his fumbling of the economy could make it yet harder to do so, but while we are in the political wilderness the left should figure out the right mix of industrial policies that can bring back manufacturing jobs. We need to figure out an exit path from neoliberal globalization and that involves a wholesale rethinking of trade and industrial policy; immigration and labor market policies; monetary and fiscal policies.The good news is there is hope. As UAW’s president, Shawn Fain, notes, even a modest reorganization of economic policy can result in an instant boost in new manufacturing employment. By the union’s calculations more than 50,000 new jobs could be reshored simply by filling out the capacity of existing plants. That may not sound like a lot, and it’s far short of the 25% figure, but if you’re among those newly employed it could mean the difference between scraping by in a post-industrial town and having a living wage with union rights.Beyond the short term, US deindustrialization, ironically, could be an advantage for its industrial rebirth. After the second world war, Europe saw the most fantastic industrial turnaround ever recorded. Decimated economies such as France and Germany, where industrial towns were bombed to smithereens, suddenly emerged as manufacturing powerhouses. How? The destruction of their old factories gave them a fresh start. Industrial policy-makers didn’t have to deal with stubborn institutional inertia or outmoded infrastructure. While British firms struggled after the war, unwilling to build new plants, French and German manufacturers, with a clean slate upon which to build, surged ahead.Walking through America’s deindustrialized zones is a bit like walking through Dresden after 1945. Maybe then, with a clean slate, we can rebuild better than before.

      Dustin Guastella is a research associate at the Center for Working Class Politics and the director of operations for Teamsters Local 623 More

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      US begins inquiry into pharmaceutical and chip imports in bid to impose tariffs

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      The Trump administration is kicking off investigations into imports of pharmaceuticals and semiconductors into the US as part of an attempt to impose tariffs on both sectors on national security grounds, notices posted to the Federal Register on Monday showed.The filings scheduled to be published on Wednesday set a 21-day deadline from that date for the submission of public comment on the issue and indicate the administration intends to pursue the levies under authority granted by the Trade Expansion Act of 1962. Such inquiries need to be completed within 270 days after being announced.The Trump administration has started 232 investigations into imports of copper and lumber, and inquiries completed in the US president’s first term formed the basis for tariffs rolled out since his return to the White House in January on steel and aluminum and on the auto industry.The US began collecting 10% tariffs on imports on 5 April. Pharmaceuticals and semiconductors are exempt from those duties, but Trump has said they will face separate tariffs.Trump said on Sunday he would be announcing a tariff rate on imported semiconductors over the next week, adding there would be flexibility with some companies in the sector.The US relies heavily on chips imported from Taiwan, something the then president, Joe Biden, sought to reverse by granting billions in Chips Act awards to lure chipmakers to expand production in the US.Taiwan’s economy minister, Kuo Jyh-huei, said its government would run simulations for various levels of tariffs on semiconductors and seek talks with the US.Taiwan is home to TSMC, the world’s leading producer of the most advanced chips and a main contributor to the island’s GDP. Speaking to reporters outside parliament, Kuo said he would seek to ensure “fair competition” for the Taiwanese industry.The Taiwanese and US chip sectors are complementary, he added.The investigation announced on Monday will include pharmaceuticals and pharmaceutical ingredients as well as other derivative products, the notice showed.Drugmakers have argued that tariffs could increase the chance of shortages and reduce access for patients. Still, Trump has pushed for the fees, arguing that the US needs more drug manufacturing so it does not have to rely on other countries for its supply of medicines.Companies in the industry have lobbied Trump to phase in tariffs on imported pharmaceutical products in hopes of reducing the sting from the charges and to allow time to shift manufacturing.Large drugmakers have global manufacturing footprints, mainly in the US, Europe and Asia, and moving more production to the US involves a major commitment of resources and could take years. More

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      Look on the bright side of Trump’s global tariffs | Letters

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      Although environmental considerations will not have been a motivation for Donald Trump, it is worth examining whether a comprehensive revision of global trade tariffs – notwithstanding the significant transitional economic and human costs – could generate substantial environmental benefits (Here’s one key thing you should know about Trump’s shock to the world economy: it could work, 7 April).The prevailing model of liberalised global trade facilitates the transoceanic movement of consumer goods, often to countries that possess the capacity to manufacture equivalent products domestically. The associated carbon emissions from maritime and air transport are considerable, particularly given the volume of low-cost, frequently low-durability goods entering developed markets.Restricting free trade to essential imports – goods that cannot be manufactured or grown locally – would materially reduce transport-related emissions. Additional benefits might include enhanced food system resilience, improved biosecurity and increased regulatory autonomy over quality and safety standards.Thus, albeit unintentionally, President Trump’s trade policies could contribute to environmental objectives that are traditionally pursued by other means.Patrick CosgroveChapel Lawn, Shropshire Donald Trump’s tariffs – why the fuss? As an ordinary UK citizen I see only upsides. First, it’s the Americans paying the tariffs, not us. The resulting fall in the price of oil and the value of the dollar should reduce the cost of my petrol. As Americans switch to bourbon and Californian wine, the price of my scotch whisky and French wine should come down. If other countries send more of their goods to the UK to avoid the tariffs, this will force UK producers to become more competitive to the benefit of ordinary people like me.I believe that US citizens rich enough to buy Range Rovers and the like will not balk at paying a bit more, especially as the US equivalents are so clunky. If the steel tariff forces us to nationalise British Steel, good. As for the global economic system, this is structured for the benefit of big corporations and shareholders. Perhaps it is overdue for a change.Christopher WoodageCamberley, Surrey I have long believed that the way we choose to spend our money is a political act. With an overcautious Labour government in power, spending power remains an important act of resistance. Now more than ever, I urge readers to think carefully about what they purchase and, in particular, to boycott American goods. I have lived happily without an Amazon product for over 15 years, for instance, and with the added pleasure of knowing that my spending in local shops is benefiting the local economy. If we can’t rely on our government to stand firm, let’s do it for ourselves.Prof Mark DoelSheffield “I am telling you, these countries are calling us up, kissing my ass,” Trump said during a speech at the National Republican Congressional Committee dinner in Washington on Tuesday evening. Please let the UK not be one of the countries. Surely we have more self-respect than that.Ann ClewerCanterbury Looking at recent events, it seems Donald Trump is the most successful anti-capitalist since Lenin.Keith FlettTottenham, London More

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      Labour: changes to EV rules will have ‘negligible’ impact on UK emissions

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      Labour’s changes to electric vehicle (EV) rules in response to Donald Trump’s tariffs will have a negligible impact on emissions, the transport secretary has said.Keir Starmer has confirmed plans to boost manufacturers, including reinstating the 2030 ban on the sale of new petrol and diesel cars.But regulations around manufacturing targets on electric cars and vans will also be altered, to help companies in the transition, and new hybrids will be on the market for a further five years.Heidi Alexander said the taxes on imports announced by the US president last week, which spurred reciprocal action by some affected countries, “are bad news for the global economy, because it’s bad for global demand, it’s bad for prices and it’s bad for consumers”.Speaking on BBC Breakfast about the impact on carbon emissions of the government’s changes to electric vehicle rules, she said: “The changes we are making have been very carefully calibrated so as not to have a big impact upon the carbon emissions savings that are baked into this policy. In fact, the impact on carbon emissions as a result of these changes is negligible.”Under the measures, luxury supercar companies such as Aston Martin and McLaren will be allowed to keep producing petrol cars beyond 2030 because they manufacture only a small number of vehicles a year. New hybrids and plug-in hybrid cars will be allowed to be sold until 2035. Petrol and diesel vans will be able to be sold until 2035, as well as all hybrid models.Alexander said the government had “struck the right balance” between protecting British businesses and cutting carbon emissions.Asked whether the retention of a 2030 target for the phasing out of all pure petrol and diesel cars would restrict free markets at a time when the car industry was on its knees, she said: “It is an opportunity for the car industry to remain at the cutting edge of the transition to EVs, but it’s right that we’re pragmatic.“It’s right that we are looking at how we can be flexible in the way in which car manufacturers make this transition, because we want cheaper EVs to be available for consumers. We want people to be able to benefit from those lower running costs as well.“And so it’s important that, as a government, we do everything that we can – not only to support British businesses and manufacturing to grow the economy, but also to cut those carbon emissions, and I think we’ve struck the right balance in the package that we’re announcing today.”Asked on BBC Radio 4’s Today programme if Starmer was prepared to use the relationship he has built with Trump to ask him to change course, she said: “Obviously when the prime minister has discussions internationally with allies he will be honest about what is in the best interests of the British people.”Challenged that the EV measures were planned before the announcement of the tariffs and were a tweak to policy rather than dramatic change, she told Today: “These are significant changes to the car industry. You are right to say we started the consultation on Christmas Eve and that we closed the consultation in the middle of February.”skip past newsletter promotionafter newsletter promotionShe said Trump’s imposition of tariffs meant the UK government had to look at its EV plans with “renewed urgency”.The Green party MP Siân Berry said: “The government is wrong to apply the brakes on the sale of EV cars. This is just the latest in a series of boosts the Labour government has given fossil fuel industries. We’ve also seen the green light being given to airport expansion and a new road tunnel under the Thames. This suggests Labour is weakening its climate commitments, and its health-related policy goals because all these moves will have a detrimental impact on air quality.“Slowing down the move away from fossil-fuelled transport makes no economic sense either, since green sectors of the economy are growing three times faster than the overall UK economy.”Colin Walker, the head of transport at the Energy and Climate Intelligence Unit, said: “In weakening the mandate elsewhere by extending flexibilities and allowing the sale of standard hybrids between 2030 and 2035, the government risks reducing the competition it has stimulated between manufacturers, meaning prices for families seeking an EV might not fall as fast, and sales could slow.“The growth of the secondhand EV market, where most of us buy our cars, would in turn be stunted, leaving millions of families stuck in petrol and hybrid cars paying a petrol premium of hundreds, and even thousands, of pounds a year.” More

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      The Guardian view on the EU-Mercosur trade deal: another farmer flashpoint approaches | Letters

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      Anticipating the strong protectionist winds that will blow from Donald Trump’s White House, the president of the European Commission, Ursula von der Leyen, has been responding by making her own economic weather. Last week, Ms von der Leyen flew to Montevideo, 5,000 miles south of Washington DC, to controversially conclude negotiations in one of the biggest free trade agreements in history. Twenty-five years in the making, the Mercosur trade deal opens up trade between the EU and a Latin American bloc of partners comprising Argentina, Brazil, Paraguay and Uruguay.In theory, the agreement promises a more open market of 700 million people for products ranging from Argentine beef to German cars. For European manufacturers, it would eliminate tariffs on a majority of goods. As Mr Trump threatens to impose heavy tariffs on Chinese and European exports, here was evidence, asserted Ms von der Leyen, “that openness and cooperation are the true engines of progress and prosperity”.This sunny analysis does not, however, tell the whole story. From an economic perspective, the Mercosur deal makes sense for Europe, offering an alternative market in the event of US tariffs and amid the continuing Chinese slowdown. It also deepens European connections with the global south, at a time when Beijing is doing the same in systematic fashion. But the political realities are treacherous: opposing Mercosur is a common cause celebre among European farmers, who fear being undercut by Latin American producers who are not subject to the same environmental standards.At the end of a year in which farmers’ protests have made headlines across the continent, and far-right parties have exploited rural resentment to attack the EU’s green transition, this is territory to be navigated with extreme care. The deal has yet to be ratified, and EU member states are split. Germany, desperate to shore up its export industry, is strongly in favour. France, whose farmers famously carry immense political clout, is implacably opposed. Serious reservations have been expressed by the Netherlands, Poland, Austria, Italy and Ireland.Less than a month after officially beginning her second term in office, Ms von der Leyen is taking a risk by pushing ahead at pace when such divisions exist. Approval of the trade part of the overall deal may be subject to a qualified majority vote, meaning that France would not be able to exercise its veto. That would be grist to Marine Le Pen’s mill, given that, in one recent poll, almost two-thirds of French citizens said they no longer had confidence in the EU. Meanwhile, the prospect of a disunited European front – with France and Germany at loggerheads – as Mr Trump enters the White House, is not an uplifting one.In the quarter of a century since the Mercosur negotiations began, the negative impacts of globalisation on particular European regions and economic sectors have driven a backlash that has benefited the far right. Trade deals are about politics as well as economics. To avoid the fallout of this deal overshadowing the economic gains, Brussels should make it a priority that losers from it are adequately compensated. Bypassing a necessary battle for hearts and minds, as the EU confronts new geopolitical challenges without and the rise of Eurosceptic nationalism within, is not a viable option.

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