Rates will not solve the slow American production

President Trump says he wants more production in America, and he tries to use rates to get it. His most recent target is the furniture industry: last week he threatened To impose rates on ‘every country [sic] That does not make his furniture in the United States. ‘Although this may be music in the ears of production enthusiasts, it is unlikely that his plan will work.

Trump thinks rates can solve all kinds of problems, including the revitalization of American production, of which he thinks is important for national security. The employment for production has been found a bit since the big recession, but it is still lower than it was: today there are 12.7 million employees, higher than the 2010 low point of 11.4 million but still below 13.8 million in September 2007.

A Recent analysis Economists Ricardo Marto and Hoang Le in the St. Louis Federal Reserve shows that the modest recovery of employment from the depths of the large recession was slow. It was largely powered by food production, which was 49% of the employment increase and 19% of the increase in the branches. Transport equipment, drinks and tobacco products and chemicals were the other large drivers (see figure below). Among the States, Florida and Texas have had the biggest profit in both employment and the branches from 2014 to 2024.

As the Trump administration sees it, we cannot defend ourselves against China and other enemies if we no longer make ships, computer chips, pharmaceutical products, steel, batteries and military equipment in America. But apart from transport equipment and chemicals, the fastest growing American production industries are not what most people think of when they think of national security.

Food manufacturers include Tyson Foods, Pepsico and General Mills. These are great companies that make good products, but they don’t make the things that win wars. It is unlikely that rates that protect steel producers and manufactured metal manufacturers against international competition will be sufficient to accelerate the lukewarm growth of these industries.

Of course, given that sufficient time and sufficient rates, rates may accelerate production in Trump’s favorite industries. But at what costs? A New study By Gary Glyde Hufbauer and Ye Zhang published by the American Enterprise Institute estimates exactly that. They note that employment in American production has fallen more than 60 years, long before the rise of China as a production leader. They believe that bringing back more production to America to turn this persistent decline will not be cheap.

Hufbauer and Zhang estimate that the American buyers of manufactured goods would cost $ 605 billion annually to fully eliminate the trading deficiency of production with the help of rates. This is the sum of the higher input costs due to the rates ($ 348 billion) plus the higher costs of the more expensive new domestic production ($ 257 billion). The greater demand for domestic production caused by the rates will generate approximately 2.7 million production paths. Distributing the $ 605 billion higher costs by the 2.7 million new jobs means that every new job costs around $ 225,000 per year for an indefinite period of time, or until the rates are lowered or removed. And this is a lower limit. The costs per job can be as high as $ 550,000 per year, depending on what percentage of the rates is passed on to American buyers instead of absorbed by foreign exporters.

Eliminating the trade deficit at manufacturers is not a realistic goal about Trump’s period. It takes year To build new factories, to train and rent new employees and run production lines. Companies will not make these investments until they know that rates are here to stay, and with various active lawsuits that claim that the rates are illegal, that is far from clear. This uncertainty already has an impact. The September Institute of Supply Management Purchasing Managers Index (ISM PMI) for production was less than 50% for the seventh consecutive month, which indicates contraction, and the respondents said that the rates influence the activities. Investment in production structures is that too rejected For the last three quarters.

Yet, even if companies want to increase production in response to the rates, they are confronted with another obstacle. Production productivity growth has weak Since the end of the 2000s. From 1987 to 2007, labor productivity in production grew by 3.4% per year. From 2010 to 2022 it shrink on average -0.5% per year, as shown in the figure below of the Federal Reserve Bank of New York.

A Recent Study argues that part of this productivity drop is due to the abuse of goods of goods. But even with these adjustments, productivity growth has been weaker since 2009 than before. Weak productivity growth limits America’s ability to increase production production. Rates can reduce the demand for imported manufacturers and the demand for domestic, but they improve the ability of American manufacturers to make things quickly and cheaply.

An area where America is not only lagging behind, but also China, but Korea, Singapore, Germany and other countries is the use of robots Increase the productivity of production. China has a factory that can Make 500,000 iPhones per day. You don’t get much output without much automation. According to to data Collected by the International Federation of Robotics, China has 392 industrial robots per 10,000 employees. Korea has 1,012, while Germany has 415. The United States only have 285.

China’s leadership about America is also increasing. China leads the world in the number of industrial Robots installed per year. From 2020 to 2023 it installed more than 250,000 annually. In the same period, American manufacturers installed around 40,000 robots annually. The future of production is not a bunch of people on a production line that does the same time and again. Those jobs are not great anyway; I did it. If America wants to beat China in important industries such as ships and military equipment, we must concentrate on automation. Robots have to do most of the work, while people design the machines and let them run.

Rates will not only improve the American production industry, at the moment now hurt It. Rates increase the costs of important inputs such as steel and other components, and the unpredictable nature of their implementation has made it difficult for companies to make plans. Some of the other things that the Trump administration tries to do will help, such as allowing reforms that make it easier to build new factories and increase energy production, but so far this useful policy is not sufficient to overcome the resistance of rates.

Rates impose considerable costs to American consumers and companies in the form of higher prices and fewer choices. Problems with national security can justify higher rates, but that debate should take place in the congress, not on the Oval Office. Moreover, there must be indications that rates actually help us produce. At the moment, the proof says the opposite. If the Trump administration is serious to help us manufacturers, this must focus on reforming the regulations that will stimulate productivity, not rates.

*In an earlier version, food production of food was credited for 49% of the increase in the founding and 19% of the employment increase. These figures were reversed and corrected.