A Trump strategy that will fail

President Trump’s first order of business appears to be to bring back manufacturing jobs. This was a campaign promise, and given his high-profile meetings with the CEOs of major manufacturing companies, including the Big Three automakers, he seems intent on keeping it.

Manufacturing jobs have been on a long slide. There are roughly as many factory workers today as there were coming out of the 1930s Great Depression. Back then, more than one-third of all workers were in manufacturing. Today, it's less than one-tenth.

The loss of manufacturing jobs has undoubtedly hurt the middle class. These were good-paying jobs that went to workers, mostly men, with no more than a high school education. Without other skills, many of the people who lost these jobs had no choice but to take low-paying menial jobs or leave the workforce altogether.

Loss of manufacturing jobs has also contributed to economic blight in many communities, particularly outside the nation’s major urban centers. The local factory was often the primary source of jobs and income, driving much of the activity in the rest of the economy. When the factory shut down, it didn’t take long for storefronts to be boarded up and for-sale signs to be posted.

This has brought financial despair and helped foment a host of social ills, perhaps even the opioid epidemic. It also goes a long way toward explaining Trump’s election victory. Economically ravaged voters wanted change.

Unfortunately, Trump’s ostensible strategy for bringing manufacturing jobs back will fail. There will be fewer manufacturing jobs four years from now than there are today.

Though it is perhaps counterintuitive, the president’s virulent anti-trade policies, including higher tariffs, will cost us manufacturing jobs. It's true that many factory jobs lost in decades past have been lost in trade to China and other emerging economies, such as Mexico. The North American Free Trade Agreement signed in the early 1990s and China’s entry into the World Trade Organization in the early 2000s lowered trade barriers and made these places formidable competitors.

But these lost manufacturing jobs in the textile, apparel, steel, and furniture industries are never coming back, even if we resurrect the trade barriers. Our costs of producing them are simply too high compared with the rest of the world, under any scenario.

Moreover, the manufacturers that will create jobs here in the United States depend on selling what they produce all over the world. The aerospace, food-processing, and sophisticated machinery and materials industries critically depend on exporting what they make. China, Mexico, and the rest of the emerging world are growing rapidly, with lots of customers for our manufacturers.

If we impose tariffs and other barriers on the countries that sell their goods to us, they will surely do the same for the goods we want to sell to them.

Turning back on trade now would be darkly ironic for our manufacturers. They have struggled for years from stiff global competition, and now, just as they are beginning to benefit from access to global markets, they will be cut off.

Browbeating manufacturing CEOs, in televised meetings or through Twitter, to make more of their products here is also a losing strategy for creating more jobs. These ad hoc and capricious interventions effectively raise the cost of doing business in the U.S. CEOs in Trump’s crosshairs may make high-profile announcements of new plants and more jobs, but the reality is that once the spotlight turns elsewhere, and it inevitably will, they will be less likely to expand here.

Even if the president holds their feet to the fire and forces them to expand more in the U.S., it could turn out to be counterproductive. Take the CEOs of the automakers who were in the Oval Office last week, listening to the president tell them to increase their production here. Given that vehicle sales hit at an all-time high last year, it is reasonable to think that they are close to topping out. If the CEOs expand their capacity now and sales do weaken, it could be disastrous for their companies and employees.

Technology also will stymie the president’s ambitions for more manufacturing jobs. Today’s factories are very different from those of times past. They are highly automated and employ fewer and fewer people. For example, the U.S. auto industry is producing a record number of cars, but with one-third the employees it did a couple of decades ago.

And what will happen to factory jobs if the promise of 3-D manufacturing, which will allow us to make everything from sweaters to sunglasses in our own homes, is realized?

The answer for creating lots more middle-class jobs in hard-pressed areas across the country is, thus, not manufacturing. Consider that Philadelphia and Pittsburgh, once major manufacturing centers, are now thriving because of their health-care, higher-education, financial-services, telecommunications, and technology industries. These industries produce lots of all kinds of jobs.

Trump should focus on making sure that our nation has the most highly skilled and educated workers, the best infrastructure, the most efficient tax code, and the most open trade and immigration laws in the world. This may or may not result in more manufacturing jobs, but it would ensure that the economically disenfranchised get back to work.

Mark Zandi is chief economist at Moody's Analytics.
Help@economy.com