Trump’s aim to revitalize manufacturing is unlikely to help economy much in long run

Goldman Sachs sees few benefits to GDP from Trump strategy
Getty Images President Trump want to restore a bygone golden age for Americans manufacturers.

President Trump is fighting prevailing trade winds to restore a seemingly bygone golden era for American manufacturers and give the U.S. economy a long-term boost. But he’s probably tilting at windmills, new research suggests. The White House in the past month has ratcheted up the pressure on what it views as unfair trade practices of China, Europe, Mexico and even Canada in an effort to protect American steel and spur more production of autos in the United States.

“If you don’t have steel, you don’t have a country,” the president has said repeatedly, a view that he appears to extend to other traditional areas of manufacturing.

The manufacturing industry is not what it once was, but it’s still an important part of the economy. Manufacturers employ about 10% of all American workers, account for nearly half of U.S. imports and almost 70% of domestic research and development, a key to future prosperity. It’s also a good source of well-paying jobs for men who lack a college education, paying about a 16% premium vs. comparable jobs outside of manufacturing, according to an estimate from Goldman Sachs. Yet even if the rejuvenation of U.S. manufacturing becomes the centerpiece of Trump’s economic strategy, “it may not necessarily lead to must faster” growth in gross domestic product, Goldman economists contend. For one thing, manufacturing no longer leads the way in productivity, one of the two main engines of an economy’s long-term performance (the other is population growth). Until 2005 productivity in the manufacturing sector outgrew productivity in the overall economy by an average of 1.5 percentage points a year — a huge difference. Since then it’s trailed the overall economy. Another pitfall for the White House strategy is the changing nature of manufacturing in the U.S.

The biggest increases in productivity as well as research and development are taking place in relatively newer fields such as computers, electronics and biotech instead of older manufacturing segments such as apparel, mining and metals.

By and large, the president has been focused on traditional manufacturers and not the ones that are leading the industry in the 21st century. “Manufacturing has played a special role in broader productivity growth and still pays relatively high wages,” wrote Goldman economists Blake Taylor and Daan Struyven. “However, policies intending to boost the relative importance of manufacturing may not necessarily lead to faster GDP growth, because its productivity growth advantage appears to have faded, and because identifying manufacturing is becoming increasingly difficult.” Don’t expect Trump to recalibrate his approach, though. The 71-year-old president often waxes nostalgic about American manufacturing prowess and he has for years. His strategy is not without political benefits, either. The states with the highest percentage of manufacturing jobs — Iowa, Indiana, Michigan and Wisconsin — are all swing states that Trump won and were key to his victory in 2016.