For more than 60 years, my family owned a small paint factory in Long Island City, Queens, in the shadow of the neon Pepsi-Cola sign just across the East River from Manhattan. That factory and the Pepsi-Cola bottling plant are long gone — two of the hundreds of industrial facilities that once existed throughout the city.
What has replaced some of them are gleaming towers of condominiums, many with seven-figure price tags. Trendy restaurants have supplanted blue-collar diners. In a few decades, New York’s industrial base was extinguished, yet today, the city has never been more populous or more prosperous, a winner in the process that the economist Joseph Schumpeter called “creative destruction.”
President Trump — who is persisting with his incoherent effort to increase American manufacturing — shows little sign of grasping this key concept. Just as New York prospered as a postindustrial economy, so can the United States flourish without attempting a wholesale rebuilding of lost industrial prowess.
I understand that the relaxation of trade barriers, particularly since China was admitted to the World Trade Organization in 2001, helped accelerate the disappearance of manufacturing jobs. In retrospect, we should have been less lackadaisical about the loss of an estimated one million manufacturing jobs to China in the 2000s. At a minimum, we should have done more to help displaced workers adjust.
But that doesn’t mean we should try to bring those jobs back. In the heyday of American manufacturing, such workers enjoyed far higher wages than those in services. No longer. That advantage has been shriveling for decades and, by some measures, has disappeared entirely.
And manufacturing work is often unpleasant. Assembling iPhones is the definition of tedium — long hours performing repetitive tasks, like inserting the same small component over and over, for pay well below our minimum wage. Little wonder many Americans — particularly younger ones — view classic factory work as unappealing. Today, there are nearly 500,000 unfilled manufacturing jobs.
The United States remains a world leader in certain areas of precision manufacturing, such as airplanes and medical instruments. All told, we produce more of everything than Japan, Germany and South Korea combined. And measured by the quantity we produce, our output is only 5.5 percent below its 2007 high.
That’s because our manufacturing became highly efficient, which highlights an important tension in the quest to enhance American industry. Because American wages remain relatively high, improving American manufacturing competitiveness would require ever more efficient factories, meaning fewer and fewer jobs to produce the same output.
As the head of President Barack Obama’s auto task force, I saw firsthand the challenges that our automotive sector faces in the global marketplace.
Over several decades, Mexico, for example, has become increasingly capable at producing cars at wages a fraction of those paid in the United States. Even General Motors and Ford now assemble large numbers of cars there. And the most resilient part of our domestic auto industry has been in the South, where foreign companies from Mercedes to Hyundai have been expanding their presence using less expensive, nonunion labor.
We derive enormous benefits from importing goods at far less cost than we could make them for here. Part of why we had such low inflation from 2009, after the financial crisis, until the pandemic struck in 2020 was the increase in imports from lower cost countries.
In that context, what is the point of having 37 percent tariffs on imports from Bangladesh, purchases that largely consist of apparel and footwear? The minimum wage for garment workers in Bangladesh is about $113 a month. It’s hard to imagine that American workers want to be sewing Nike sneakers together at such very modest wages.
First, Mr. Trump should undo the tariffs on aluminum and steel, a particularly counterproductive set of levies that he just inexplicably doubled, to 50 percent. As steel and aluminum are used to manufacture finished goods made here ranging from cars to canned goods, tariffs on them simply raise the cost of those items and make them less competitive versus those produced abroad. In fact, a study of the steel tariffs that Mr. Trump imposed in 2018 found that one year later they had saved 1,000 steel-making jobs — and cost 75,000 others.
He should also stop attacking, and instead support, the bipartisan CHIPS and Science Act, which provides loans and subsidies to chip-making firms. We have legitimate economic security reasons that argue for creating or protecting certain domestic capabilities. Semiconductors may well be the best example of that, given that 92 percent of the world’s most advanced chips are currently made in Taiwan. Without those chips, our economy would be significantly impaired, almost as if our oil supply were cut off.
And when countries engage in significant demonstrable unfair trade practices, some form of retaliation is justifiable. But not a 50 percent tariff on Lesotho, a poor African nation hardly in a position to be a major buyer of American goods.
If the concern about manufacturing is around our balance of payments (the relationship between how much we import and how much we export), we should recognize that services can constitute an export. Mr. Trump’s attacks on elite universities fail to acknowledge that when foreign students come to America to attend (24 percent at Yale), the money they spend on tuition and other expenses counts as an export. Ditto when a resident of another country comes here to be treated at one of our elite hospitals. And ditto for foreign tourists.
Here’s another historical analogy. Beginning in the late-19th century, Americans began to leave farms for cities because of a combination of increased mechanization on farms, which lowered the number of jobs, and the attractiveness of jobs in factories being built in cities. Trying to drag them back to the farm would have been as counterproductive as trying to restore our textile or furniture-making businesses.
We led the Industrial Revolution, and we can be leaders again in new sectors. With our substantial advantage in technology in general, and in artificial intelligence in particular, we are well positioned to remain the world’s most dynamic economy. Our challenge is to ensure that Americans are educated, trained and positioned to take advantage of the jobs of our future.
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Steven Rattner is a contributing Opinion writer and was a counselor to the Treasury secretary in the Obama administration. @SteveRattner • Facebook
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