One of the central goals of U.S. trade aggression — rejuvenating domestic manufacturing — is neither an economically sensible or desirable goal for a workforce that has moved beyond the factory floor, a new report from CIBC World Markets Inc. suggests.
In a report published Tuesday, the bank’s economists examine one of the underlying objectives of the U.S. trade war — bringing factory jobs back to the U.S. — and finds that there’s no economic payoff to that goal.
While a trade war — which raises the cost of imported inputs for manufacturers and reduces demand for factory exports — is unlikely to achieve the goal of creating more factory jobs, it doesn’t make much sense for the modern U.S. economy either.
To start, the U.S. economy is already at full employment, so creating new manufacturing jobs wouldn’t be absorbing excess labour supply — instead, these jobs would need to be filled by workers moving from other sectors, which wouldn’t represent an economic gain.
“The evidence suggests that such a reallocation would not, in fact, represent a clear improvement in American living standards,” the report said.
Indeed, it noted that while “there’s a tendency to romanticize the glory days of manufacturing employment from decades ago,” the reality is that these are now undesirable, low-wage jobs.
“Average hourly wages in manufacturing stopped topping average private sector pay a decade ago and that gap has been widening since the pandemic, despite the fact that robots replaced some of the lower paid positions on assembly lines,” it noted.
Factory jobs have been outsourced to emerging markets with lower-paid workers as the sector has shifted to higher-productivity forms of manufacturing, and the U.S. workforce has shifted towards higher-wage, higher-productivity jobs and industries, including services.
“Why put tariffs on foreign-made shoes, t-shirts, low-end toys and the like if making them in the US of A would put Americans to work in low-paid, low-productivity positions?” the report asks.
Moreover, the workers that used to do these kinds of jobs have moved on, it noted — they’ve either retired or shifted to other sectors and “it would be difficult” to find workers to fill these jobs.
“In both the factory sector and the overall economy, there are very few unemployed Americans relative to the number of open positions,” it said.
The workers that are available haven’t been trained in modern manufacturing, unlike the workforce in China, it noted.
“It would be a long road to either train a sufficient number of Americans, or bring in immigrants with these skills, along with the entire nexus of facilities needed to replicate what’s now present in Asia,” the report said.
“Tariffs might fail to bring back manufacturing jobs for a host of reasons, including restraints on U.S. factory labour supply, retaliatory levies by America’s export targets and the impact of tariffs on intermediate goods on American factory cost-competitiveness. But even if they worked, and somehow didn’t also reduce living standards due to higher prices on imports or domestic substitutes, the goal itself might not represent the win that many believe,” the report concluded.