The share of manufacturing employment keeps declining. What role did NAFTA play?
Contrary to popular myth, neither NAFTA nor China entering the WTO impacted long-term trends in manufacturing employment in place since 1953.
Services vs Manufacturing
Automation Irony
Commerce Secretary Howard Lutnick said on CBS News that an “army of millions and millions of human beings screwing in little, little screws to make iPhones, that kind of thing is going to come to America.”
If that kind of automation came to the US, then it would be without the “army of millions and millions of human beings screwing in little, little screws.”
In reality, “millions and millions [thousands] of human beings screwing in little, little screws” is a requirement because no one has figured out how to automate this. Otherwise, this would be automated already.
Services at Risk
The US trade gap, caused by American consumers and businesses importing more goods than they’re exporting, has gotten all the attention in the debate over tariffs
But we sell far more services than we purchase from other countries. This means the US service sector enjoys a trade surplus with almost every trading partner around the globe, including those at the center of the trade battle: China, the European Union member states, Canada and Mexico.
America’s trade surplus in services rose to $293 billion in 2024, up 5% from 2023 and up 25% from 2022, according to Commerce Department data.
Service sector businesses “are all industries that power American economic growth. They’re the US economy’s secret sauce,” said Mark Zandi, chief economist for Moody’s Analytics. “We sell a lot of services into the rest of the world and these countries know that and they’ll use it against us that if push comes to shove. They can put up trade barriers and enforce new standards before you come into the country.”
The service sector includes just about anything that doesn’t come out of a factory, farm, mine, or oil well.
It’s normal for manufacturing jobs to shrink as a percentage of employment as a country gets wealthier and more technologically advanced, according to Cardiff Garcia, editorial director of the Economic Innovation Group, a bipartisan public policy organization.
“If you want to employ a big share American workers in manufacturing, you almost have to drag the economy back into the past.”
Even within the auto industry, the center of much of the tariff dispute, service sector jobs outpace manufacturing jobs. About 1.3 million workers are employed at America’s car dealers, and only 1 million work at US auto plants and parts makers. And number of dealer jobs may fall if tariffs reduce the supply of cars and the price of cars increase, as is expected to happen.
If other countries retaliate in response to the US tariffs, that could also take aim at Americans services abroad.
There are about 1.1 million international students, making up about 7% of students on all campuses, according to Institute of International Education. The tuition, room and board that they pay is not only crucial to many schools, it also reduces the nation’s trade deficit. But the Trump administration has been revoking hundreds of student visas, and even some students who are not at risk of losing their visas are becoming reluctant to attend American schools in the current environment.
International tourist visits are also expected to drop, potentially costing billions for hotels, restaurants and attractions such as theme parks.
Tourism Economics, a firm that tracks the hospitality industry, forecasts a 9.4% decline in international visitor in the US for 2025, led by a 20.2% decline in visitation from Canada. The firm also estimates that international visitor spending in the US is expected to decline 5%, which would mean a loss of $9 billion this year alone.
This is a stark contrast from the end of last year, when Tourism Economics estimated a nearly 9% increase in international visitors, with a 16% increase in spending by foreign travelers.
“Trump’s policies and pronouncements have produced a negative sentiment shift toward the US among international travelers,” said a statement from Tourism Economics.
Trump’s Trade Math Ignores Services
The Wall Street Journal reports Trump’s Trade Math Ignores a Major Export: American Services
President Trump is wielding tariffs to try to close the massive U.S. trade deficit in goods, which he sees as a sign of economic weakness.
It is only part of the trade story.
While the U.S. buys more goods from abroad than it sells, the opposite is true for services, which include everything from streaming subscriptions to financial advice. Trump left these service exports out of his tariff math, but they are being pulled into his trade wars.
Countries can’t easily impose tariffs on services, but they can tax, fine or even ban U.S. companies. The European Union has floated going after big U.S. tech companies in response to Trump’s sweeping tariff threats. Trump also put U.S. service exports at risk by irking foreign consumers, many of whom might choose to avoid U.S. banks, asset managers and other firms. An economic slowdown that curbs demand as markets grapple with the president’s extreme trade makeover won’t help either.
As the U.S. imported more goods from abroad and domestic factories closed, its goods trade deficit swelled to a record $1.21 trillion by 2024. At the same time, the U.S. services trade surplus grew to $295 billion last year, up from $77 billion in 2000. This is a stark reversal from the mid-20th century, when the U.S. was a manufacturing giant and had a goods export surplus, but had a services trade deficit.
Services gradually came to dominate the U.S. economy as the country grew wealthier. It was no longer Ford Motor and General Motors that mattered most, but companies such as Microsoft, Alphabet and JPMorgan Chase. Software and financial products became major U.S. exports. For some of the biggest services firms, foreign markets now matter more than the U.S.
Countries and their consumers can lash out against U.S. services in a variety of ways. Foreign tourists booking American hotel rooms and airline tickets count as U.S. exports, but Trump’s actions have stoked rising anti-American sentiment that is turning off would-be travelers. In another blow, China on Wednesday issued a travel warning for the U.S.
There is also the risk of foreign customers’ turning against U.S. brands. Trade tensions with China during the first Trump administration ended up hurting U.S. services firms that do business in the country, said David Weinstein, a professor of economics at Columbia University.
“When you generate bad will, it’s harder to sell stuff,” he said.
Think about that last statement, then think of Tesla Car Sales. Tesla sales were down 76% in Germany, 45% in France, and 55% in Italy.
How Much Would a Made in the US iPhone Cost?
I discussed automation on April 7, 2025 in Sticker Shock: How Much Will an iPhone Cost with Trump’s Tariffs?
To avoid China tariffs, Apple Plans to Source More iPhones From India
“If consumers want a $3,500 iPhone we should make them in New Jersey or Texas or another state,” research firm Wedbush said in a recent note.
Clothes Silliness
Manufacturing Greatness in Pictures
In addition to tiny screws requiring an army of millions, it has also proven difficult to automate some clothing goods.
Tom Peng
The above image is from the following You-Tube video.
I encourage you to watch that.
More importantly, I encourage you to think. How much would clothes cost if we had an army of millions making clothes?
After thinking about the answer to the above question, please ponder this image.
Whose Dream Is This?
Globalization National Survey
Please consider the CATO 2024 Globalization National Survey
When you ask people if we should bring manufacturing back to the US, without asking about costs, you get one set of answers.
When you bring costs into the picture you get different answers.
CATO Summary Table 13
The average person knows more about trade than top-level Trump trade administrators.
Purposely Rigged Formula
Noticed the crossed out variables in the denominator, image from Axios.
As applied by the Trump administration, the variables cancel out.
The AEI reports President Trump’s Tariff Formula Makes No Economic Sense. It’s Also Based on an Error.
Correcting the Trump Administration’s error would reduce the tariffs assumed to be applied by each country to the United States to about a fourth of their stated level, and as a result, cut the tariffs announced by President Trump on Wednesday by the same fraction, subject to the 10 percent tariff floor.
For discussion, please see Tariff Clown Show Continues, Tech Tariffs Back On, Separately
What a revolving door circus Trump’s tariff policy has become.
Applied mathematically correctly, the Reciprocal tariff on Vietnam should be 12.2 percent not 46 percent.
See the above link for details.
Great Video on Good Manufacturing Jobs
Here’s another great video on “Good Manufacturing Jobs” are coming back from Vietnam.
It’s only 32 seconds long.
Solar Companies Behind Tariff Increases are Foreign-Owned
Here’s a January 23, 2018 hoot: Solar Companies Behind Tariff Increases are Foreign-Owned
Yesterday, Trump announced tariffs on solar panels and washing machines as part of his “America First” program.
The solar industry itself says the tariffs will cost about 23,000 jobs.
Here’s the ultimate irony: The bankrupt companies petitioning for the solar panel tariffs are foreign-owned.
A Lose-Lose Proposition
In response to my November 24, 2024 article Trump’s Proposed Tariffs Are a Tax on Consumers, Primarily the Poor I received sever reader comments that are worth discussing.
One of my readers commented: “So its ok for other countries to put tariffs on us, but not ok for us to put tariffs on them? Got it.”
For starters I never proposed I agreed with tariffs other countries place on the US. So right off the bat it’s a ridiculous straw man comment.
Moreover, the logic translates to “But mom, Susie did it too.”
To which my mom would reply: “If Susie jumped off a bridge, would you do it too?”
The fact is, China’s export subsidies are a direct benefit to US consumers at the expense of Chinese consumers.
Trump and Biden effectively say “I insist we pay more.” It’s like candlemakers trying to tax the sun for the free sunlight it provides.
If China wanted to give us free solar panels, the correct response would be, please send us more. We would create thousands of jobs installing solar panels everywhere.
Instead, Biden hiked tariffs to protect US solar panel production, costs soared, and three US companies went bankrupt. And few want US-made solar panels because they cost too much.
Should Anyone Care Whether Underwear Is Produced in the US or China?
On November 22, 2014 I asked Should Anyone Care Whether Underwear Is Produced in the US or China?
This ridiculous-looking question gets to the heart of tariff discussions.
Revenue vs Made-in-America Jobs
If we raise revenue via tariffs, then we are still buying foreign-made goods. Made-in-America doesn’t happen, nor is there an increase in US jobs.
If we bring the manufacturing home, mostly to robots, then where are the jobs and where is the revenue?
In the case of steel and aluminum, costs soar but hundreds more people are employed, thousands more if it makes you feel better. But the losers are over 100 million people (everyone who uses steel and aluminum).
In the case of clothes and iPhones, we could employ thousands, assuming we paid the workers enough and magically found the workers.
Thousands (thousands and thousands) of people employed would be happy (really?) but everyone paying triple for clothes and iPhones and everyone else will not.
The US (and the world) benefits from cheap clothes.
Creative Destruction
The hollowing out story is a myth.
What’s really happening is a combination of improved productivity and “Creative Destruction” in which new innovations replace and make obsolete older innovations.
In Capitalism, Socialism and Democracy (1942), Joseph Schumpeter developed the concept out of a careful reading of Marx’s thought. In contrast with Marx – who argued that the creative-destructive forces unleashed by capitalism would eventually lead to its demise as a system – Schumpeter reinforced the evolutionary nature of capitalist economies. In his words, “This process of Creative Destruction is the essential fact about capitalism.”
Companies that once revolutionized and dominated new industries – for example, Xerox in copiers or Polaroid in instant photography – have seen their profits fall and their dominance vanish as rivals launched improved designs or cut manufacturing costs. In technology, the cassette tape replaced the 8-track, only to be replaced in turn by the compact disc, which was undercut by downloads to MP3 players, which is now being usurped by web-based streaming services.
We have new products and new methods that have not yet hit iPhone assembly but will.
Trump wants to bring these jobs back to the US while Lutnick mockingly suggests there won’t be many jobs to bring back.
Of course there will be some jobs but also higher costs making exports more difficult and android phones more price-friendly.
What’s the point other than Trump’s nonsensical vision that there is a winner and a loser in every trade deal.
You cannot get trade right if you think trade is bilateral and there are bilateral winners and losers.
Unfortunately, that is what Trump truly believes.
How to Make Manufacturing Great Again
Employment in manufacturing stopped sinking at a dramatic rate in 2009.
To make manufacturing great again, we can eliminate the machines and do more stuff by hand in clothes manufacturing and iPhone assembly.
We can also make manufacturing great again by declaring war on the world. That would dramatically increase the need more weapons and planes as happened in 1943.
Otherwise, manufacturing share of employment will continue to fall.
Meanwhile, Trump is howling at the moon, with millions of Trumpian parrots echoing those howls.