By John Austin
President Trump recently 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. The administration appears to want to keep using tariffs as a favored tool of economic and political coercion against other nations. This stands in stark contrast to the historic rationale by which the president and other tariff advocates trumpeted their benefits: as a panacea for the US’s supposed ailing manufacturing industry.
The president had long peddled to voters in manufacturing-heavy states like 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 “American Manufacturing: The Real Story” published by The Milken Institute, in fact, US manufacturing has never been more productive, nor has output ever been 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 and the 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 a 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 that are part of 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 more than 40 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 six or more 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 like the US operate in environments in which 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’s 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 with technological change can keep the manufacturing industry thriving. This progress has been especially concentrated in the Midwest region, where so much of our manufacturing is based.
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” slogan 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 the 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 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 protects intellectual property; efficient environmental regulation, like taxes on pollutants that minimize direct intervention; and support for the open, rules-based international trade.
Then get out of the way, and let the market do its thing. This is a pretty 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, and a Senior Fellow with the Eisenhower Institute, the Brookings Institution and Associate Fellow with the Academy of International Affairs – NRW. This article was adapted from a piece originally published in the Milken Institute Review.
Since we are so efficient, I wonder why our products are also the most expensive in the world. The reason Americans buy so much imported stuff is the price! And if manufacturing can be so efficient, why not the Pentagon and all other govt. agencies? When Musk whined about "waste, fraud, and abuse" he never mentioned the military, but I would bet my pension that they waste and misappropriate at least 40% of all the money we lavish on them!
John, I checked the core numbers here against independent sources, and they hold up cleanly: the 16-17% share of global manufacturing output second to China, the $141,000 value-added per worker figure roughly 45% ahead of South Korea and multiples ahead of China, the record export totals. None of that is invented. It's real, verifiable data.
But it's also a carefully chosen slice of the real data. What the piece leaves out is the other equally true story sitting right next to it: manufacturing's share of US GDP has been falling for decades, from around 16% in the late 1990s to roughly 10% now, and America's overall share of global manufacturing output has been sliding steadily against China for twenty straight years, with some projections putting it under 12% by 2030. "We're doing it better and smarter" and "we're a shrinking slice of a rapidly growing pie, losing ground to China every single year" are both accurate descriptions of the exact same underlying numbers. The piece tells you the first story and simply never mentions the second.
It's also worth noting that in one sense the phrase "we didn't lose manufacturing" is technically right, because the country decided, deliberately, to let other nations do it instead. And the price of that decision keeps compounding. America has already lost the lead in electronics to Japan, in steel and shipbuilding and now batteries to China, and cars, the industry that once defined American manufacturing more than any other, are heading the same way. The beat goes on. "We're more productive per worker" is true and worth saying. It's also the kind of true thing a country says right before it notices the lead in one industry after another has quietly changed hands.
That's a subtler problem than getting the facts wrong, and arguably a more common one. Selective framing built entirely on real statistics is much harder to catch than an outright fabrication, because every individual number checks out under scrutiny. The manufacturing renaissance Austin describes is genuinely real at the level of productivity and value added. Whether it adds up to "America never lost anything" depends entirely on which half of the ledger, and which industries already gone, you're willing to read out loud.