Understanding the Misconceptions About Manufacturing Job Loss
For many years, politicians have promised to revive factory jobs in the U.S. A recent paper by two economists from Stanford’s Economic Policy Institute attempts to delve into the essential question: What really impacts manufacturing employment? While the research is informative, attempting to defend traditional views against tariffs may inadvertently support the very policies we aim to challenge, like those implemented by Donald Trump.
In their report published last month, economists Jared Bernstein and Daniel Posthumus examined manufacturing employment trends since 1949. Their analysis is straightforward: job growth equals increased production minus productivity gains. The trend is fairly evident.
From 1949 to 1970, factory jobs grew at an annual rate of 1.4 percent, with output growth outpacing productivity gains. However, from 1970 to 2000, job growth stalled as productivity surged. Since 2000, production growth has slowed, leading to an annual decline in employment by 1.2 percent.
The hardest-hit period was between 2000 and 2010, termed the “China Shock.” During this time, imports from China flooded the U.S. market, resulting in a loss of 5.7 million factory jobs. The trade deficit reached 6.5% of GDP, devastating entire communities.
Bernstein and Posthumus described this era as “devastating,” cautioning that such an event should not recur. Ironically, they oppose the very policy that could prevent this.
Conflicting Dependencies
The authors argue against “overall tariffs,” asserting that “half of our country’s imports are inputs into domestic manufacturing.” They claim taxes on these imports would raise the costs of American products, making them less competitive.
However, this argument seems a bit overstated. If American factories rely heavily on overseas components, then imposing tariffs would cause significant disruptions. But what does that reveal about our overall vulnerability?
Interestingly, Bernstein and Posthumus advocate for subsidies in sectors vulnerable to export restrictions, like semiconductors and critical minerals. These are areas where foreign suppliers could jeopardize our national security or economic stability. But if we are reliant on imported goods to the point that tariffs hinder production, it highlights our precarious position. Their anti-tariff stance seems to unintentionally indicate that we’ve significantly weakened our industrial sector.
You can’t have it both ways. Either the imported materials are vital to manufacturing—which suggests a strategic vulnerability that warrants bringing production back domestically—or they’re not really essential, in which case tariffs shouldn’t cause the predicted disruption.
The authors document the crisis, yet argue that we’re too dependent to resolve it.
What Happened with Tariffs
Now, let’s set aside the theoretical aspects and observe what actually unfolded. President Trump instituted broad tariffs, including the Liberation Day tariffs, starting in April 2025. The paper was released in September, several months after these tariffs took effect.
Critics claimed prices would significantly rise due to higher import costs being passed to consumers. Kamala Harris referred to it as a national sales tax. Many anti-tariff economists argued that Americans would feel the impact of these tariffs.
However, data presents a different story. Harvard Business School’s Tariff Price Tracker, which monitors prices of imported and domestic goods, indicated that prices of domestic products without tariffs actually rose more than those of imported goods facing tariffs. Furthermore, prices of domestic items affected by tariffs decreased since Liberation Day, likely due to reliance on tariffed materials or competition with imports.
The anticipated tariff disaster has not materialized. Importers absorbed the costs via lower profit margins. Foreign suppliers reduced their prices to retain market share, while domestic competitors maintained stable prices to attract consumers away from imports. Thus, the expected price hike did not occur.
This challenges the core economic argument against tariffs. If tariffs don’t lead to higher consumer prices—at least based on current evidence—then what’s the case against them? Will prices rise in the future, making this a breach of free trade theory?
At some point, evidence should take precedence over theory.
Tomorrow: Part II analyzing Bernstein and Posthumus’ thesis.
