Trump wants a manufacturing boom. The industry is buckling.

Yahoo

12 hours ago

President Donald Trump is vowing to spark a manufacturing boom with tariffs to protect American workers and industry. So far, it's manufacturers that have borne the brunt of the pain.
The president's surprise decision to raise tariffs on imported steel and aluminum to 50 percent will hit domestic manufacturing just as a new report shows the industry is already contracting. Uncertainty about where tariff rates will ultimately land — or where they'll be applied — has forced businesses to make hard decisions that could cut into both profits and hiring. And a leading trade group on Thursday called on Trump to give the companies a break on the tariffs.
'For a president who is intent on building U.S. manufacturing, the tariff strategy he's laid out is remarkably short-sighted,' said Gordon Hanson, a Harvard Kennedy School professor whose groundbreaking 2016 research work, 'The China Shock,' was among the first to sound the alarm about the threat to American industry. 'It fails to recognize what modern supply chains look like.'
'Even if you're intent on reshoring parts of manufacturing, you can't do it all,' he said. 'Steel and aluminum are part of that.'
If Trump's tariffs fail to result in a manufacturing renaissance — a central focus of his presidential campaign — it could weaken the prospects of a GOP coalition that's increasingly reliant on working-class voters who supported his protectionist trade policies. But as unanticipated tariffs continue to drive up input costs for companies that need steel and aluminum for production, the warning signs emanating from manufacturers are getting louder.
An index published this week by the Institute for Supply Management, which tracks manufacturing, slipped for the third straight month in May as companies made plans to scale back production. A quarterly survey conducted by the National Association of Manufacturers reported the steepest drop in optimism since the height of the Covid-19 pandemic, with trade uncertainty and raw material costs cited as top concerns. Federal Reserve data this month reported weaker manufacturing output.
The manufacturers' association on Thursday urged Trump to develop a 'speed pass' that would allow companies to avoid costly new duties on imported raw materials and components that are essential to U.S. producers.
'The steel and aluminum tariffs are almost custom-made to hurt American manufacturing,' said Ernie Tedeschi, a former top Biden administration economist who's now with the Yale Budget Lab.
Trump and top administration officials argue that tariffs will encourage investment in domestic manufacturers, which should lead to better-paying jobs, a more resilient economy and more secure supply chains. Exports climbed in April as the president's tariffs took hold, which contributed to an eye-popping decline in the U.S. trade deficit.
Indeed, the overall economy remains solid, and businesses are continuing to hire, according to Friday's jobs report for May. Despite the trade headwinds, employment in the manufacturing sector has remained steady since Trump took office.
'As the president says, if you don't make steel, you can't fight a war. He's protecting that industry and bringing it back,' Commerce Secretary Howard Lutnick told Senate lawmakers this week. 'You're going to see more steel and aluminum furnaces and mills in the history of this country get built over the next three years.'
The White House did not respond to a request for comment.
Trump welcomed the monthly jobs report, posting on Truth Social:'AMERICA IS HOT! SIX MONTHS AGO IT WAS COLD AS ICE! BORDER IS CLOSED, PRICES ARE DOWN. WAGES ARE UP!'
Still, domestic manufacturers who rely on international supply chains for critical steel and aluminum inputs will face tough choices if they want to maintain their profits while keeping output steady.
'Higher costs are expected. Higher input prices. The question is, what do you do with those costs? How much can you pass along to the consumer? How much can you negotiate with your suppliers?' said Andrew Siciliano, a partner at KPMG who leads the consulting firm's trade and customs practice.
The challenges posed by the increase in steel and aluminum tariffs are particularly acute because it's far from clear whether domestic suppliers will be able to meet the demands of domestic manufacturers. Almost half the aluminum used in the U.S. last year came from foreign sources, according to federal data, and roughly a quarter of all steel is imported.
Either way, 'input costs are going to be higher,' Siciliano said. 'If they pass it on, it could affect demand. If they don't pass it on, it could affect profitability.'
That isn't to say manufacturers won't benefit from tariffs in the long term. To the extent that Trump's overall tariff regime limits imports, U.S.-based industrial production could expand to address unmet demand. The Budget Lab's analysis of Trump's tariff regime — which includes the 50 percent tariffs on steel and aluminum — projects that manufacturing output could grow by 1.3 percent over the next five years if existing import duties are left in place.
But Tedeschi cautioned that growth may exclude segments like electronic and semiconductor production — which tend to generate higher incomes for workers. Meanwhile, output in other sectors like construction or agriculture would likely contract.
Julia Coronado, founder of MacroPolicy Perspectives, also said the flurry of new import duties may prompt some manufacturers to actually move their manufacturing facilities offshore rather than subject their supply chains and production processes to multiple tariffs.
'If I have to assemble a bunch of parts and inputs, why don't I just don't do that on the Canadian or Mexican side of the border and then pay the tariff on the final good?' she said.
An even bigger challenge may involve finding and training workers who can staff up any facilities that reshore. Most Americans work in the service sector and, to the extent tariffs lead to reshoring, those facilities will likely rely heavily on automation, according to economists at the Bank of America Institute. Finding qualified workers in the U.S. is either too difficult or too expensive.
'Whatever manufacturing production comes back to the U.S. will require far fewer jobs than 30 or 40 years ago,' Hanson said. 'It's just the way the world has gone."