The Wrench In Manufacturing’s Uncertain Future

From Rocky Balboa to the Chicago Cubs, everyone loves a good comeback story. In today’s economy, sustained growth in U.S. manufacturing (once considered a dying industry) is the comeback story everybody loves to tell.

It’s a story President Trump told so well, one might even say it helped him win the 2016 election. Throughout his campaign, he insisted that the decline in manufacturing jobs was emblematic of America’s losing stance in the global economy and that our international trade deals were the worst in history.

He also promised to bring manufacturing jobs back to the States, but the jobs were already starting to return. A quick study of the industry shows that manufacturing has been on the rise since the end of the Great Recession (long before Trump took office), and it has recently shown signs of a strong resurgence.

Will The Comeback Last?

This question is of particular importance today since—in the midst of the industry’s steady growth—the Trump administration levied steep tariffs on steel and aluminum imports. Aside from putting us at risk of a trade war, it’s clear that the tariffs will benefit a few, large manufacturers, while potentially knocking the rest of the industry back on its butt.   

Here’s why.

The intended consequence of the tariffs is to penalize domestic manufacturers for purchasing imported steel and aluminum, forcing them to pay significantly more. This will ostensibly compel them to purchase raw materials from American primary metal manufacturers.

One can quickly see how this will benefit American producers of steel and aluminum. In fact, just after Trump announced the new tariffs, Pittsburgh-based U.S. Steel Corp. said it would reopen its shuttered Illinois facility due to an anticipated increase in demand, creating about 500 new jobs.

This sounds like good news for metal manufacturers and job seekers alike, but the tariffs could have consequences for some businesses.

Primary metal manufacturers are just one relatively small piece of the expansive and diverse manufacturing industry in the U.S. The vast majority of manufacturers (and the majority of jobs in the industry) don’t produce raw materials. Rather, they purchase steel as an intermediate good in order to make their final product. Of the roughly 12.5 million manufacturing jobs in the U.S., only about 400,000 work in primary metal production.

Beware Unintended Consequences

All of these companies will suffer a serious blow to their balance sheets, which they can compensate for in a number of ways: absorbing the higher cost of goods (losing profit), increasing their prices (pass the buck to the consumer), or downsizing. The last option is what has people worried. Businesses don’t like to lose money. Despite low unemployment, wage growth is flat, making it very risky to increase prices for the consumer. In those conditions, increasing automation and cutting the payroll starts to look more and more attractive to companies.

Globalization and automation are the twin threats to the long-run health of U.S. manufacturing jobs. Unfortunately, attempting to solve the effect of globalization by increasing costs for millions of small and medium-sized manufacturing businesses overlooks the unintended consequence of increasing demand for automation.

We’re still rooting for the comeback to continue, but for now, extremely cautious optimism is the only reasonable attitude to take on the future of American manufacturing jobs.  

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