Building more roads, modernizing seaports, improving airports and
train stations, and constructing power plants in the country where
construction is most expensive is a huge undertaking that many people fail to grasp.
Made in America is harder than expected
By Molson Hart
[This article posted on April 24, 2025 is translated from the German
on the Internet,
https://makroskop.eu/14-2025/made-in-america-ist-schwieriger-als-gedacht/.]
The US is underestimating the difficulties of relocating production.
And Trump’s approach to tariffs will do anything but help.
The announcement came a day too late to be an April Fool’s joke. On
April 2, 2025, US President Donald Trump announced a series of new
tariffs on imports from abroad ranging from 10 to 49 percent. The
stated goal is to bring manufacturing back to the United States and
“restore American prosperity.”
But these tariffs will not work. In fact, they could even have the
opposite effect of what is intended – namely, preventing the return of
production and making America poorer in the process.
In this article, I list eleven points that explain why this is the
case, how the United States could really bring production back, and
what this misguided course will ultimately achieve.
I have been an entrepreneur in the manufacturing industry for 15
years. I have manufactured in the US and China. I have worked in a
factory in China. I speak and read Chinese. I have purchased millions
of dollars worth of goods from the US and China, but also from
Vietnam, Indonesia, Taiwan, and Cambodia. I have also visited many
factories in Mexico and consider myself someone who is interested in
the rise and fall of countries.
11 reasons why these tariffs will not bring manufacturing back
First, they are not high enough. A tariff is a tax on an imported
product. For example, when Apple imports an iPhone manufactured in
China, it reports to the US government how much it paid to manufacture
that product abroad. Let’s say it’s $100. With a tariff of 54 percent,
Apple pays $100 to the manufacturer in China and $54 to the US
government when it imports the product. In this simplified example, an
iPhone used to cost Apple $100, now it costs $154. For every dollar
Apple spends, Apple has to make a profit. So Apple sells iPhones to
stores for twice what it pays for them. And the stores sell the
iPhones to consumers like you and me for twice the price as well.
Before the tariffs, the prices were as follows: Apple bought the
iPhones it developed for $100. Apple sold the iPhones to stores for
$200. The stores sold the iPhones to you and me for $400.
After the tariffs, the prices are as follows: Apple buys iPhones for
$154 ($100 + $54 import duties). Apple sells these iPhones for $308
(twice the purchase price). The stores sell these iPhones to you and
me for $616 (twice the purchase price).
Why aren’t the tariffs high enough to bring production back to the
United States?
Production in the United States is so expensive and supply chains are
so poor that manufacturing this iPhone in the United States would
still be more expensive than in China with a 54 percent tariff. Since
manufacturing the iPhone in China is still cheaper, both Apple and
consumers would prefer that it be manufactured there. So it is
manufactured there and not in the United States.
Second, the US industrial supply chain is vulnerable for many
products. Think of a supply chain as a company’s ability to get the
components it needs to make a final product. Let’s say you want to
make and sell wooden furniture. You’ll need wood, nails, or glue. If
you want to build an iPhone, you need to source a glass screen, molded
metal, and numerous internal electronic components.
At first glance, this doesn’t seem like a problem because the US has
an amazing consumer supply chain, one of the best, if not the best, in
the world. But that’s very different from an industrial supply chain.
A furniture factory needs industrial quantities of wood, more wood
than any hardware store in your neighborhood has in stock. And you
need it fast and cheap. It turns out that the United States has a good
supply chain for wood, which is why it exports chopsticks to China
despite higher wages.
As for the iPhone, all the factories that manufacture the necessary
components are located in Asia. That’s one reason why, despite a 54
percent tariff, it’s cheaper to assemble the iPhone in China than in
the United States. It’s cheaper and faster to source these components
from nearby factories in Asia than to import them from the US, which
has to buy these components from Asia anyway.
Supply chains sound complicated, but they’re not. If you can’t get the
components you need at a reasonable price and within a reasonable time
frame to manufacture a final product, it doesn’t matter how high the
tariffs are – you have to import them because you can’t manufacture
them locally.
Third, the US doesn’t have the know-how. Apple knows how to build an
iPhone, but it may not know how to make the individual components. It
may seem trivial to make the glass that separates your finger from the
electronics that give you access to the internet, but it’s difficult.
The world buys semiconductors from Taiwan, not just because of the
relatively cheap labor and excellent supply chain, but because they
know how to make the best semiconductors in the world. Even with
unlimited financial resources, the US couldn’t replicate that because
it simply lacks the know-how.
A 54 percent tariff does not solve this problem. The US must continue
to buy semiconductors from Taiwan, which is perhaps why the government
has made an exception in this case.
But this problem does not only affect semiconductors. Americans have
also forgotten how to manufacture products that are mistakenly taken
for granted.
My company manufactures educational toys made of plastic called “Brain
Flakes.” To make Brain Flakes, plastic is melted and pressed into
metal molds. If we imported the machines and molds needed to do this,
it would work for a while, but as soon as one of these molds broke, we
would have a problem because there are almost no mold makers left in
the United States. The people who knew how to build and repair molds
have either passed away or retired long ago. If we had a problem, we
would have to order a new mold from China or send ours back, which
would halt production for months.
People trivialize the complexity and difficulty of manufacturing. But
without the necessary know-how, it doesn’t matter how high the tariffs
are. The product will not be manufactured in America.
Fourth, the effective cost of labor in the United States is higher
than it appears. A common belief is that the US manufactures products
in China instead of at home because labor is cheaper there. While this
is true, it is only half the story. Chinese workers are not just cheaper.
They are also better.
Chinese workers work longer hours, are happier, and are physically
faster; they can do things that American workers cannot. These are
skills acquired over many years, but also a culture based on hard work
and education that no longer exists in the United States.
Yes, wages in China are lower, but there are many countries where
wages are even lower than in China. It is the work ethic, know-how,
and commitment, combined with a first-class infrastructure, that make
China the most powerful manufacturing country in the world today.
Fifth, the US lacks infrastructure. The inputs for production are not
just materials, labor, and know-how. You also need infrastructure such
as electricity and good roads for transportation.
Per capita electricity generation in the US has remained unchanged
since 2000. In China, it has risen by 400 percent over the same
period. China now generates more than twice as much electricity per
capita as the United States. Why? Because of manufacturing.
To operate the machines that make the products, you need electricity,
and lots of it. The United States is already struggling with power
fluctuations. Without the construction of huge new energy
infrastructures, production capacity cannot be increased in a
meaningful way. For production, every single component has to be
transported from factory to factory, which increases the number of
trucks on the roads many times over.
Building more roads, modernizing seaports, improving airports and
train stations, and constructing power plants in the country where
construction is most expensive is a huge undertaking that many people
fail to grasp when they say, “Well, we’ll just manufacture it in
America.”
Sixth, Made in America takes time. We placed a $50,000 order with our
overseas supplier before the November 2024 elections. At the time of
the order, there were no import duties on the goods. When the shipment
arrived, a 20 percent tariff was imposed, and we received an
unexpected bill for $10,000. For many products, it can easily take 180
days from order to your doorstep, and this customs policy doesn’t seem
to understand that.
Even under the most favorable legal framework, it takes at least two
years (if you get the permits) to build a factory in the United
States. I know this because I’ve done it myself. From there, it can
take six months to a year to get it running efficiently. It can take
months for products to roll off the assembly line. All of this ignores
the entire infrastructure that needs to be built for the new factory
(new roads, new power plants, etc.).
In other words, by the time “Made in America” becomes a reality,
Americans will have elected a new president.
Seventh: uncertainty and complexity surrounding tariffs. To start
manufacturing in the United States, a company has to make a large
investment. It has to buy new machinery and, if there is no suitable
building available, construct a new one. That costs a lot of money,
and significantly more in the US than in other countries. There has to
be a profit in return for taking that risk. If that profit is
uncertain, no one will take that step.
Last month, the president imposed a 25 percent tariff on Mexico, then
withdrew it, only to impose it again and finally suspend it a second
time. Last week, he was expected to impose new tariffs on Mexico, but
nothing happened.
When a new factory is built in the United States, depending on how
tariffs and the general situation develop, the investment can range
from a potential success to a catastrophic loss. Right now, no one is
building factories and no one is renting them because there is no
certainty that these tariffs will remain in place. How do I know this?
I built a factory in an industrial park in Austin, Texas. Two weeks
ago, I reduced the rent by 40 percent, but I can’t find a single
commercial tenant.
The tariffs have brought business to a standstill because no one wants
to take a big risk that depends on a policy that could change again
next week.
What’s more, the tariffs are confusing, poorly communicated, and
complex. Anyone who wants to import something from China today has to
add the original import duty plus a 20 percent “fentanyl tariff,” a 34
percent “reciprocity tariff,” and an additional 25 percent “Venezuelan
oil tariff” if it is determined that China is buying Venezuelan oil.
The problem is that there is no list of countries that import
Venezuelan oil provided by the White House. No one knows whether or
not to add this 25 percent. And due to the unclear wording, it is also
unclear when these tariffs will come into effect.
Since the costs cannot be calculated with any certainty or accuracy,
all business activities will be affected, which could lead to a
recession or even worse.
Eighth: There is no workforce to manufacture good products. In China,
over a billion people manufacture a wide variety of goods. Currently,
12 million people are looking for work in the United States
(unemployment: 4 percent). Leaving aside the comparatively low
efficiency of the workforce and the billions of people manufacturing
products outside China, where are the people who are supposed to do
these jobs?
And where are the managers who are supposed to supervise these people?
One of the reasons for the decline in manufacturing in the United
States is the migration of skilled workers to better-paying
industries. Will people who make money on the stock market, in real
estate, venture capital, and start-ups suddenly start sewing shirts?
It is completely unrealistic to assume that people from industries
with superficially high productivity that benefit from the strong US
dollar will switch to low-value-added sectors.
The United States is trying to bring back jobs that China doesn’t even
want. Beijing has taken measures to reduce low-wage production, but
the US is imposing tariffs to bring it back. That’s hard to
understand.
Ninth, automation will not save the US. Most people believe that
American manufacturing companies are not competitive because of labor
costs. And that automation can solve this problem. They are wrong.
First, China installs seven times as many industrial robots as the
United States every year. Second, Chinese robots are cheaper. Third,
most of today’s manufacturing that is done by humans cannot be
automated. If it could, China would have already done so, given that
its labor costs are increasingly high compared to the rest of the
world.
It is unlikely that American ingenuity will be able to withstand the
flood of Chinese industrial robots. The first commercial electric
vehicle was designed and built in the United States, but today China
dominates global production of electric vehicles. It will likely be
the same with industrial robots.
Tenth: Enforcement of tariffs will be uneven and manipulated. Imagine
two companies importing goods into the United States. One is based in
China, the other in the United States. Both misrepresent the value of
their goods to pay less tariffs.
What happens to the Chinese company? It may lose a shipment because it
is seized by the US government for fraud, but it does not have to pay
any additional penalties because it is based in China and is therefore
not subject to the US legal system.
What happens to the US company? The owners go to prison. Who do you
think will cheat more on customs duties, the Chinese or the US
company? Exactly.
In other words, paradoxically, the measures intended to help Americans
are hurting them more than the competition they are supposed to
punish.
Eleventh: The tariff policy is poorly structured. When the United
States imposed tariffs on China in 2018, the country shifted much of
its production to Vietnam, where there were no tariffs. Vietnam, whose
workforce is much more similar to China’s than to that of the United
States, was able to leverage its proximity to China for its supply
chain and slowly develop its own over the past seven years or so.
Since Vietnamese wages are even lower than Chinese wages, the jobs did
not go to the United States, but simply to Vietnam.
Today, the US is repeating the same mistake in a different way. The US
government has imposed tariffs on finished goods and components alike.
More specifically, it has imposed the same taxes on components needed
in America to manufacture products as it does on finished products
manufactured outside America.
Manufacturing works with a certain delay. In order to produce and sell
in America, you first have to procure the raw materials and
components. But these tariffs will drive manufacturers out of
business.
And it gets worse. The Trump administration has also imposed tariffs
on machinery. All machinery needed for a factory that is not
manufactured in the US is now significantly more expensive. There is a
chronic shortage of transformers for power transmission in the United
States. Tariffs have also been imposed on these.
The tariffs are based on the prices of the goods. The way the Trump
administration has structured these tariffs, factories in China that
export to the United States pay lower tariffs than American importers,
because the Chinese factory can declare the value of the goods at its
own cost, while the American importer pays the costs charged by the
factory.
Forecast: How the tariffs will affect
Conclusion: This policy will not bring manufacturing back to the
United States and “make America great again.” On the contrary, it will
make the country poorer.
Many predict that this tariff policy will mean the “end of
globalization.” I don’t believe that. Unless this policy is changed
quickly, it will be the end of America’s participation in
globalization. If the US had introduced this policy in 2017 or 2018,
it would have had a much better chance of success. That was before
Covid. At that time, China was much weaker economically. Now the
Chinese have had eight years to prepare for this moment.
The share of trade with the United States in China’s total exports is
much lower today than it was eight years ago. This means that China is
much less vulnerable to punitive tariffs from the United States today
than it was then.
Chinese cars, especially electric vehicles, are taking the world by
storm – even without the United States. In Mexico, Thailand, and
Germany, Chinese electric vehicles are increasingly visible on the
roads. And they are good, sometimes even better than US cars, not just
in terms of price, but simply in terms of quality.
Read also:
How China is sealing the fate of the big car companies
Roger Boyd | January 29, 2025
Globalization will continue without the United States if this policy
remains unchanged.
Three reasons to actually bring production back
However, this does not mean that there are no good reasons to bring
production in various sectors back to the US.
Firstly, for reasons of national security: if another country can
interrupt the supply of essential goods such as food, semiconductors
or antibiotics, dependence arises. The United States must have large,
flexible capacities in these areas.
Secondly, this facilitates innovation. When the factory floor is just
down the hall instead of 30 hours away, the conditions for improvement
and innovation are much more favorable. The US needs to produce
high-quality goods for its economic future. It will be difficult to
use artificial intelligence in manufacturing if this does not happen
locally.
Thirdly, without a vibrant manufacturing industry, the potential of
the workforce lies dormant. Not everyone is cut out for an office job,
but many would excel in manufacturing. However, these jobs either do
not exist or are poorly paid.
Tariffs are not bad per se, but they need to be raised slowly. Instead
of suddenly imposing 100 percent tariffs on products by presidential
decree, there needs to be a well-thought-out, gradual increase of
around 25 percent, then 50 percent, and then 75 percent per year.
Above all, however, tariffs must be legally secure and reliable in the
long term. They must be enshrined in law, not imposed by decree. Only
then will companies be able to plan and be willing to take the
necessary risks to manufacture in the United States.
This article has been shortened and originally appeared on Molson Hart’s blog.
Molson Hart is the founder and CEO of Viahart, a US educational toy company.