Manufacturing Productivity Rises Amid Record Tariffs, Challenging Common Beliefs
There’s something worth noting: the long-held beliefs about trade tariffs and their effects on the economy might be facing some serious scrutiny. Perhaps it’s time for a cultural shift, one that could lead to a new understanding of economic realities. Maybe museums should start thinking about documenting these outdated ideas before they’re completely forgotten.
A common notion that tariffs hinder economic growth—by making the industries they aim to protect less efficient, or something like that—has been around for quite a long time. This belief has gained traction among economists and media alike over the decades. It’s a story that many have accepted without much critical thought.
Take, for instance, the Yale Budget Institute’s take on former President Trump’s trade policies. They claimed that tariffs reduce productivity and lower real income, citing a misallocation of resources. I could easily pull together statements from various economists who echo similar sentiments, but perhaps that’s more fitting for historians to handle.
A Look Back at Trade Theories
Recent government data seems to signal a shift away from this long-standing belief, specifically regarding labor productivity in manufacturing. Before diving into the new figures, it’s useful to examine past trends. The Bureau of Labor Statistics showed that from 1949 to 1987, manufacturing productivity grew around 2.6% annually, with spikes during significant economic periods like the late 1990s. However, after 2003, things slowed down considerably. Following the financial crisis, productivity growth plummeted, hitting almost zero from 2007 to 2019, and even seeing negative growth in U.S. factory production recently.
The consistent decline in productivity didn’t just challenge anti-tariff beliefs; it coincided with years of low tariffs and trade liberalization. Many of America’s manufacturing jobs shifted overseas, particularly to China, seemingly validating the idea that efficiency comes from specialization through free trade. But the reality unfolded differently.
Looking at overall productivity, it followed a similar path. Annual growth rates fell from 2.7% between 1947 and 1974 to just 1.5% for the next two decades, with only a brief rise during the tech boom. The decrease continued, reaching lows of 1.3% from 2005 to 2018 and merely 0.8% from 2010 to 2018.
Interestingly, last year marked a resurgence in manufacturing productivity, aligning with the highest tariff increases seen in decades. Productivity bounced back, with a rise of 1.8% in 2025, sharply led by durable goods. In the first quarter alone, it surged at an annual rate of 3.2%. This growth stands in stark contrast to previous claims that tariffs hurt productivity.
What Went Wrong with the Anti-Tariff Belief?
The underlying issue with the traditional view appears to stem from a flawed assumption: that the global distribution of production was efficient before the implementation of tariffs. Many analyses relied heavily on that idea, often ignoring the wide-ranging distortions like foreign subsidies and mercantilist policies that skewed the market. By shifting the underlying premise, it’s hard to draw legitimate conclusions about tariffs’ impact.
Despite protests to the contrary, the prevailing academic circles remained almost stubbornly resistant to alternative viewpoints. We pointed out how other nations practiced trade barriers, which could potentially benefit them without retaliation. Yet, the established narrative prevailed.
Moreover, the current administration’s tariffs drew comparisons to previous protectionist policies, which missed the crucial distinction: these new tariffs weren’t designed to benefit particular corporate interests that typically lobby against them. Instead, they offered a means for American firms to invest domestically without the looming threat of competition from overseas.
Historically, tariffs have often been misunderstood through the lens of past economic conditions—experiences that may not necessarily translate to today. Tariffs during the Gilded Age didn’t inherently reduce productivity as many claim. In fact, they seemed to expand manufacturing, contrary to current interpretations that focus solely on efficiency.
The persistent belief that “free trade” is universally beneficial has faltered, especially when considering tariffs’ impacts over multiple decades. Economists have maintained that globalization’s costs were widely distributed, benefiting a select few instead. Yet, they’ve often overlooked how the trading landscape has pivoted away from true “free trade” and towards systems influenced by foreign interests.
Emerging from Trade Myths
What has transpired in productivity recently offers evidence suggesting that the longstanding anti-tariff narrative may no longer hold up. Numerous economists cling to their conventional wisdom, believing that as long as a few continue to listen, their forecasts will inevitably prove correct, despite the evidence to the contrary. The shift in productivity displays a clear divergence from the claims made by those who adhere to traditional beliefs.
To sum it up, the idea that tariffs will automatically undermine manufacturing productivity has been significantly challenged. It’s time to rethink these old narratives—keep them preserved as historical curiosities, alongside other disproven myths.
Meanwhile, American production continues to rise, and productivity among manufacturing workers is climbing, all during a time of unprecedented tariffs.
