While US keeps trying to revive manufacturing, economy has already moved on

The long-delayed fourth-quarter GDP release arrives wrapped in a familiar political story: America must rebuild its industrial base. It’s a message that has echoed for decades, from Ross Perot’s warning about the “giant sucking sound” of jobs heading to Mexico, through Donald Trump’s promise to bring factories back, to Joe Biden’s pledge to restore “manufacturing, unions and the middle class.” In the 2024 campaign, Trump returned to the same line, that “jobs and factories will come roaring back into our country.”

The imagery is powerful and easy to sell: hard hats, assembly lines, the dignity of physical production. But the economic structure beneath that nostalgia has shifted so far that the promise no longer matches reality.

Manufacturing today accounts for less than 8 percent of US employment. Trying to return it to its former central role is about as plausible as rebuilding the 19th-century economy around agriculture, a sector that now employs under 2 percent of Americans. The country has moved into services, finance, healthcare and other high-value activities, in the same way most advanced economies have as they climbed the development ladder.

Politically, the strategy has not delivered consistent results. Research suggests that manufacturing job losses did not, on average, push counties toward Trump in 2016. In more diverse areas, support actually declined. And in 2024, even regions that benefited heavily from Biden’s industrial incentives ended up voting for Trump.

Economically, the main policy tools have struggled to produce a revival. Tariffs, Trump’s preferred instrument, raise the cost of imported components that US manufacturers themselves rely on. More than half of US imports are capital goods and intermediate inputs, and about 91 percent of manufacturers use foreign components. When those inputs become more expensive, American firms become less competitive. Steel prices in the United States, for example, are higher than in most other countries, increasing costs across the entire production chain.

Biden’s approach, large-scale subsidies through the Inflation Reduction Act, the CHIPS and Science Act and the infrastructure programme, avoided some of those direct distortions but created others. By increasing demand for labour, materials and capital, the spending pushed up costs, strengthened the dollar and contributed to higher interest rates. Factory construction surged, but investment in equipment did not follow at the same pace. Manufacturing output still has not returned to its pre-pandemic level and remains close to where it stood two decades ago.

Meanwhile, some of the promised infrastructure gains have not materialised in real terms. According to an analysis by Jason Furman, spending on core projects such as bridges and highways actually contracted after adjusting for inflation despite the influx of federal funding. The initial boom in plant construction has also faded under Trump.

The deeper trend is structural rather than cyclical. Between 2002 and 2022, the number of US manufacturing firms fell by 21 percent even as the total number of companies in the economy grew by 10 percent. The only industrial segment that saw a meaningful increase in firms and employment was beverages and tobacco.