Michael Hicks: Our efficiency killed factory employment

“Are tariffs an effective way to bring manufacturing back to the U.S.?”

Any discussion about the ability of tariffs to onshore Hoosier jobs must attend to a few illuminating facts. First of these is that manufacturing production (inflation-adjusted) peaked in the fourth quarter of 2024, both nationally and in Indiana. Calling this “de-industrialization” is an assault on the English language and common sense.

At the same time, manufacturing employment peaked in the United States in 1979 and in Indiana in 1973. This happened despite us running trade deficits frequently since the end of the second World War.

How can it be that factory employment has been in decline for a half century, but factory production has risen for half a century? We didn’t lose those jobs to imports. We lost almost all of them to our own efficiency.

And even if we could “bring back factory jobs” as President Trump suggests, they’ll need to be paid like Chinese workers to remain competitive. That would be about one-eighth that of current Hoosier factory workers.

Today’s unemployment rate is 4.1%, capping three years of near-record labor market health. Is anyone so naïve as to suppose large drafts of Hoosier youngsters are going to exit their current, better-paying jobs to do work Chinese teens do for $450 a week?

This notion is so absurd that it was widely mocked by Chinese propogandists using AI fakes of Americans assembling cell phones and sewing sneakers. No one who respects the American worker and their family can wish this.

The manufacturing and trade debate shares an interesting historical parallel. U.S. factory employment as a share of total employment dropped steadily from the end of WW II to the present. From 1960 to 2010, U.S. manufacturing share of employment dropped from 30% to 10%.

But U.S. farm employment did almost exactly the same thing a generation earlier, shrinking from 25% of jobs in 1930 to about 3% by 1980. Ironically, the United States was a net exporter of agricultural goods throughout that 50-year stretch, and we are currently near our peak gross domestic product in agriculture.

Again, it wasn’t foreign competition that killed manufacturing jobs, nor was it foreign competition that killed agricultural jobs. We killed those jobs by being extraordinarily efficient. Our factories are eight times more efficient than Chinese factories, and our farms 22 times more efficient than Chinese farms.

The fact that we are even having a public debate on the ability of tariffs to onshore factory jobs is a damning condemnation of the U.S. education system. The fundamental theory of trade was worked out more than two centuries ago and has been taught in Hoosier high schools for a century.

Still, the empirics against trade are more damning than the theory.

In March 2018, in the midst of the longest manufacturing recovery in U.S. history, Trump hiked tariffs on Chinese goods. That recovery stopped immediately, and by fall 2018, Hoosier factory employment faltered, pushing us into a manufacturing recession by 2019. We haven’t recovered, and things are poised to worsen considerably.• 

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Hicks is a professor of economics and the director of the Center for Business and Economic Research at Ball State University. Send comments to [email protected].

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