Will Donald Trump’s protectionist trade policies deliver the objectives his voters hope? The answer is: no.
The most important objective of all has been to create a great number of new manufacturing jobs. This is the promise held out to former industrial workers and the ruined places in which many of them live. Unfortunately, it is fraudulent. Trump is governing in the interests of himself, but also of the plutocracy whom many of these people blame, not altogether wrongly, for their plight.
Robert Lawrence of Harvard’s Kennedy School and the Peterson Institute for International Economics has done the numbers for an article headlined “Closing the trade deficit would barely raise the share of US manufacturing employment”, published in June. He asks how much additional employment would be generated if the trade deficit in manufacturing were eliminated by Trump’s protectionism. Since deficits are Trump’s obsession, this is the right question.
The starting point in the calculations is to separate the value added from the gross sales value, because it is producing the former that creates jobs. Thus, if a motor vehicle built in the US replaced an imported one worth $30,000 (€25,800), the US value added (apart from non-manufactured inputs, such as raw materials) would be about $15,000.
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In 2019, gross US exports of manufactured goods were $820.1 billion and gross imports $1,605.4 billion, leaving a deficit of $785.3 billion. But the value added in the US exports was only $456.7 billion, while the foreign value added in US imports was $860.5 billion.
Thus, the deficit in value added was $403.8 billion or just over half the size of the gross deficit. That ratio seems to be quite stable.
In sum, Lawrence notes, the net value added in the trade deficit in manufactured goods in 2024 was 21.5 per cent of US output. This would be the increase in US value if the trade deficit were eliminated.
How much employment would this produce? It would amount to 2.8 million jobs, which would be a rise of only 1.7 percentage points in the share of manufacturing in US employment, to 9.7 per cent of overall jobs.
But the share of production workers in US manufacturing in this case is just 4.7 per cent, the other five percentage points consisting of managers, accountants, engineers, drivers, sales people and so forth. The rise in employment of “horny-handed sons of toil” would be just 1.3 million, or just 0.9 per cent of US employment.
So the mountain of Trump’s tariffs may labour. But it will produce a mouse.
Such estimates are rough and ready. But they are also optimistic. Unless the balance between output and spending changes, the trade deficit would not shrink at all.
The principal domestic source of the demand that supports the external deficits is the fiscal deficit. So, a necessary condition for a smaller external deficit, especially in an economy that is close to full employment (and driving workers out of the country while stopping new ones from entering) would be a tighter federal budget. At present, however, the net effect of the tariffs and the One Big Beautiful Bill Act on the fiscal deficit seems close to zero.
Moreover if the external deficit were eliminated, the US would spend less and feel poorer.
Worse, tariffs are a tax on goods. In general, poorer people spend relatively more heavily on goods than richer ones: so, tariffs are regressive. The One Big Beautiful Bill Act is also regressive, both on taxes and spending. As Paul Krugman emphasises, the cuts in support for health insurance that triggered the US government shutdown are going to hit the very people Trump’s tariffs are supposed to help. This is populism for plutocrats.
Another expert on trade, Richard Baldwin of IMD in Lausanne, adds that what Trump is trying to do is precisely the across-the-board import substitution industrialisation that many developing countries, notably India and much of Latin America, tried and then abandoned decades ago.
They did so because it failed. The protected industries did not catch up with those exposed to global competition and better able to exploit global markets: they fell farther behind. In time, much the same will happen even to the US, especially given its rejection of science and abandonment of clean energy. Trump’s protectionism is a crime and a folly.
As the ancient philosopher Heraclitus said, you cannot step into the same river twice. Nostalgia is not a strategy: the past cannot return.
As I noted last November, it will be impossible to bring back the lost industrial jobs. Shares of employment in industry have fallen even in countries with huge trade surpluses. In rich countries, the demand for manufactured goods grows relatively slowly, because people desire services, while technology reduces the need for production workers. In the long run, the latter will surely almost all be robots.
We cannot doubt that deindustrialisation has created big social and political problems. Indeed, if we contrast the decline in opportunities in industry for less-educated men with the rise in the share of the population with tertiary education, we can see a driver of today’s right-wing populism. Trump and others like him are among the consequences. They have been quite brilliant at exploiting the resentments of the “left behind” against those whom Thomas Piketty and others label the “Brahmin” left.
The tragedy is that populists offer no solutions. They merely exploit the anger and frustration of the declining working classes for their own benefit and that of selfish plutocrats. Trump’s foolish protectionism is the perfect illustration of this approach.
As HL Mencken noted, “there is always a ... solution to every human problem – neat, plausible and wrong”. Tariffs are a supreme example of such a false solution. Sane people must now find a far better one. – Copyright The Financial Times Limited 2025
