American Manufacturing
The Real Story
President Trump just resurrected tariffs on dozens of countries under a new authority, after his initial round of across-the-board tariffs were invalidated by the US Supreme Court. Whether or not this new round will stick remains to be seen, but the rationale for tariffs seems to have shifted. Trump appears to want to keep using his favored tool of economic and political coercion against other nations—versus the historic rationale by which he and other tariff advocates trumpeted their benefits—as a panacea for the US’ supposed ailing manufacturing industry.
The President had long peddled to voters in manufacturing-heavy swing states, such as my own state of Michigan, a conventional wisdom: that American manufacturing had been laid low by a combination of globalization, indifference to the plight of workers, and unfair foreign competition. But as I illustrate in my new article published by The Milken Institute, “American Manufacturing: The Real Story,” US manufacturing has in fact never been more productive or output higher.
Truth is, America never really “lost” manufacturing; it has just radically changed. The value added by manufacturing output has actually tripled since the mid-1970s peak in manufacturing sector employment. The US remains a manufacturing powerhouse, second only to China in its share of global output at 16 percent—a number greater than Japan, Germany, and South Korea combined. Moreover, second place is in many ways better than first: China’s industrial workforce is much less productive than its US counterpart. With value-added of over $141,000 per worker, the United States boasts the world’s most productive manufacturing industry, beating second-place South Korea by over $44,000, and China by a whopping $120,000!
A key enabler of this wildly productive and globally competitive manufacturing sector came from the increase in economic interdependence based on materials and parts through an increasingly tightly knit global network. Rather than retreat from globalized production, US manufacturers adapted to increased competition by tapping the massive efficiencies of cross-border supply chains.
Today it is virtually impossible—and as we are seeing under Trump’s tariffs, also unprofitable for business and calamitous for consumers—to sever US manufacturing from the world. For example, smartphones (a US innovation) draw on some 45 countries for components and materials. By the same token, there is no longer any such thing as a US-made automobile—parts often cross in and out of the US some 6-8 times before coming together as vehicles ready to drive off the lot.
As a result, tariffs initially touted by the White House as a means of protecting US manufacturing from competition have the opposite effect. Much of the cross-border commercial traffic hit by tariffs are materials, parts, and components rather than finished products. Indeed, 2025 data shows that intermediate goods constitute an even larger portion of US trade than a decade ago, with approximately half of all goods imported into the United States so classified. These imported components are essential for much of so-called “domestic” production. Advanced economies such as the US function in environments where manufacturers operate an integrated global “co-production” system, with small competitive edges determining whether individual components are in, say, Mexico, Vietnam, or the US.
The US and Midwest regions’ impressive productivity gains in recent decades—the massive amount of wealth per manufacturing worker (wealth that employs more people in other sectors)—reflect the fact that constant competition combined by technological change can keep the manufacturing industry thriving.
Today there is a lot of political posturing around the need for a “rebirth” of manufacturing in America. Tariffs and a new protectionism embodied in the Trump Administration’s “America First” are but one manifestation. But a real pro-America, pro-manufacturing, pro-growth agenda needs to be fashioned from elements that have worked very well for America in the past.
First, give the private sector leeway to compete on quality and cost in an increasingly interdependent world—and don’t try to put globalization back in the bottle. Meanwhile, accept that there is a legitimate, but limited, role for government—in particular, government needs to provide “public goods” that in turn fuel innovation and economic growth. For example,
basic research;
high-quality universal education, which today means access to higher education for all along with upskilling for workers in transition;
infrastructure that includes high-quality transportation and communication;
rules of the road that fairly police competition and protect intellectual property;
efficient environmental regulation, such as taxes on pollutants that minimize direct intervention;
support for open, rules-based international trade.
Then get out of the way and let the market do its thing! This is a familiar agenda, but one that has sadly been given short shrift in the teeth of interest group politics, myopic populism, and geopolitical competition. More than any nation we have excelled at creating disruptive innovations and technologies that transform the economy periodically, creating whole new business sectors and good-paying jobs in the process. Henry Ford did it when he pioneered mass production, which was copied around the world. We’ve done it many times since—think smartphones, GPS, and mRNA technology. And we are doing it again, now as leaders in AI.
This is the real recipe for a striving America, and a thriving manufacturing sector.
John Austin is the former President of the Michigan State Board of Education. He is a Senior Fellow with the Eisenhower Institute and the Brookings Institution, and an Associate Fellow with the Academy of International Affairs – NRW.