It seems increasingly likely that, for a third consecutive term, we’ll have a president who strongly identifies with American manufacturing while believing it needs his help to thrive. Since President Donald Trump’s 2016 arrival and continuing through the Biden administration, we’ve been reminded again and again that America has lost its industrial muscle, that their efforts can recover this might, and that tariffs and subsidies will help “build back better” or “make America great again.”
Let’s have a little perspective during this next election cycle. Not only is the downfall of American manufacturing mostly a myth, but it’s a harmful one.
Trump and Biden have systematically imposed taxes or tariffs on American citizens for broad categories of imported goods and borrowed billions in world credit markets to subsidize the domestic manufacture of such things as computer chips, electric vehicles and batteries. Assuring us that protectionism will even up the nation’s trade balance, they never tell us what these policies will do to America’s real GDP growth, which over the long term ensures a widely shared standard of living.
Where’s the recognition that Americans benefit when people elsewhere provide us with goods and services in exchange for the green pieces of paper that we print? Perhaps these politicians should be reminded that, thanks partly to their deficit spending, we the people consume more than we produce. This means we have to import goods, mostly from countries which consume less than they produce.
Let’s say we did want to close that trade imbalance, which Trump–who has happily labelled himself a “tariff man”–pledged to do in 2016. Since then, the U.S. current-account deficit has enlarged from $99 billion to $110 billion in 2019 and $242 billion in 2022. What was erroneously supposed to make us better off ended up making the trade deficit great again.
Meanwhile, tariffs imposed on imports from China, which rose from 3% of the value of these goods in 2016 to 19% now, have expanded to include almost 60% of Chinese products that cross U.S. borders. You, me and American businesses are paying for this. As might be expected, China has reciprocated. Neither government wants lower cost goods reaching their citizens. We in the United States refer to the process that delivers a state-managed economy as crony capitalism. The Chinese call their more extreme version of the idea communism.
But what about that talk of deteriorating economic muscle?
If you were to look at a plot of U.S. manufacturing’s share of real GDP across the last 75 years, you’d see a wiggly line that barely heads south: Around 12% in the late 1940s to 13% in the 1970s and then to the current 10.9% in 2023’s third quarter. That’s not much of a decline.
America still ranks second in the world share of all manufactured goods (after China, with over four times our population). We rank first for chemical products, petroleum products, fabricated metal products, pharmaceuticals and timber products; second for automobiles and tires; third for electrical equipment; and fourth for semiconductors, steel and cement. The U.S. economy is not a 90-pound weakling when it comes to manufacturing muscle.
So why the “Chicken Little” song about America’s declining might? Why do candidates call for more taxes imposed on American consumers and deny us the gains from trade? Politicians like to fix things, and more to the point, the strategy works for the canny politician. It’s not all that rational for an individual voter, who holds so little sway over an election’s outcome, to run down the data and check out the facts. The special interests served by U.S. trade policies, on the other hand, are organized, deep-pocketed and more than ready to support the promising candidate.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson University College of Business & Behavioral Science, and a former executive director of the Federal Trade Commission.