Will tariffs spur a resurgence of US Manufacturing jobs?
Summary
The goals of the administration's trade regime changes are varied, but a resurgence of American manufacturing jobs is certainly a priority. By raising the cost of imported goods, tariffs encourage the consumption and production of domestically produced goods. Could higher trade barriers spur a rebound in U.S. manufacturing employment?
Status quo: Interest in bolstering manufacturing employment is not new. The sector is associated with lifting droves of American workers into the middle class following WWII, but employment in the industry peaked in 1979 at just under 20 million workers.
- Manufacturing employment totals 12.8 million today, or 6.7 million fewer jobs than its 1979 peak. The share of workers employed in the sector has subsequently shrunk to 8% from 22%.
- While payrolls are down from their 1970s heyday, anemic labor productivity growth in the manufacturing sector has underpinned a rise in employment recently. Today, there are 1.2 million more manufacturing jobs than there were 2010.
Near term: An aim of tariffs is to spur a durable rebound in U.S. manufacturing employment. However, a meaningful increase in factory jobs does not appear likely in the foreseeable future, in our view. Higher prices and policy uncertainty may weigh on firms' ability and willingness to expand payrolls.
- As downstream industries face higher costs, they must decide whether to absorb them and accept lower margins, pass them onto customers via higher selling prices or a combination of the two. Neither avenue is supportive of employment growth.
Medium to long term: A meaningful increase in the share of factory jobs, while possible, would likely unfold over many years and come at high cost.
- U.S. labor costs are a hurdle. Labor cost differentials with the rest of the world require U.S. manufacturing firms to be highly capital intensive to compete in a global marketplace. Thus, an expansion in manufacturing employment would require significant capital investment.
- In order for manufacturing employment to return to its historic peak, we estimate at a minimum $2.9 trillion in net new capital investment is required. While sizable, we view this estimate as a lower-bound. The build out of new of capacity would likely unfold over multiple years, with further increases in capital intensity and inflation requiring a higher amount.
- Assuming businesses are willing and able to invest such ample sums, questions over staffing remain. An already tight labor market for production workers coincides with slower labor force growth more broadly as lower fertility rates and, more recently, a reduction in immigration weigh on working-age population growth.
- Increased take up of manufacturing-specific training programs will go a long way toward filling existing vacancies, but these training programs must keep up with the evolving nature of manufacturing. New jobs will require different skills than those previously lost.
Author
Wells Fargo Research Team
Wells Fargo
