Fully eight years ago, I put up a RealityChek post debunking a major claim surrounding the virtues of free trade …Continue reading →
Fully eight years ago, I put up a RealityChek post debunking a major claim surrounding the virtues of free trade and related globalization policies: Rather than improving the productivity of a heavily traded, globalized sector of the U.S. economy like manufacturing, the data clearly showed that the U.S. government’s headlong rush to remove most restraints on international commerce and in particular to open America to imports had slowed growth in this crucial measure of efficiency, but for many industries, thrown it into reverse.
And I’ve followed up monitoring this trend several times since – finding similar results each time. (See, e.g., here.)
So it’s great to report that in the last two days alone, strong support for this finding has come from a leading mainstream American economist, and from the U.S. government itself.
As Breitbart.com’s John Carney wrote yesterday, a new paper published by the prestigious National Bureau of Economic Research (NBER) concluded that the nation experienced an industrial import “invasion” starting in 2000 (not so coincidentally, the year before Washington granted China “permanent normal” trade status and in effect welcomed it into the World Trade Organization).
The main result for domestic manufacturing? As Carney summarizes, this flood tide of purchases from abroad “did not just replace American goods with foreign goods. It “hollowed out the system that produced American productivity.”
The paper’s authors explained why. The cessation of manufacturing output growth that stemmed from that import invasion “closed domestic plants, destroyed jobs, and squeezed profits. Then followed a chain of causation that ultimately undermined productivity growth – from falling capacity utilization, to lower investment in fixed capital and R&D, and to an erosion of innovation.”
Imports weren’t the only culprits. The paper also
“identifies a set of handicaps ranging from self-inflicted wounds by private manufacturing firms to a marked reduction in government-funded R&D spending. Corporate funds were diverted from productive investment to share buybacks. Investment was distorted by environmental, health, safety, and fuel economy regulations.”
In addition, private sector R&D shifted “from basic science and process improvements to product refinements and brand extensions.” And skilled worker shortages “have plagued manufacturing for decades in the absence of sufficient public and private investment in vocational training.”
But its focus was clearly on the import invasion, which not only plainly backfired on U.S.-based industry on net, but never came close to offsetting those “self-inflicted” domestic wounds.
And some indirect confirmation of free trade’s damaging effects on domestic manufacturing came today from the Labor Department.
According to the department’s latest release on the subject, “Labor productivity increased in 39 of the 80 covered four-digit NAICS manufacturing industries in 2025….” – that is, the first year of major new Trump 2.0 tariffs.
It’s true that that total is slightly less than half. But let’s compare these results with those before President Trump’s return to the White House.
The department told us that “In 2024 Labor productivity decreased in 52 of the 86 four-digit NAICS manufacturing industries
In 2023, “Labor productivity declines were widespread among manufacturing industries in 2023, with decreases in 60 of the 86 four-digit NAICS manufacturing industries….”
In 2022, Labor productivity declines were widespread among manufacturing industries in 2022, with decreases in 66 of the 86 four-digit NAICS manufacturing industries,
In 2021, “Labor productivity rose in 47 of the 86 four-digit NAICS* manufacturing industries….” That’s of course considerably more than half, but remember: That was the first year of the post-pandemic recovery. Pretty much everything got better after the deep but short recession caused by Covid.
As known by RealityChek regulars, though, labor productivity is only one of two economic efficiency gauges tracked by Washington. The other – total factor productivity – measures efficiency generated by a broader series of inputs, and therefore provides a more comprehensive picture of productivity trends. Unfortunately, the greater measurement challenge results in these Labor Department releases coming out with a greater time lag.
All the same, even though they take the story only up to 2023, they reveal the same lousy pre-Trump 2.0 tariff manufacturing productivity performance as their narrower counterparts.
That year, as Labor just told us, “Total factor productivity…fell in 70 of the 86 four-digit NAICS manufacturing industries….”
In 2022, “Total factor productivity…fell in 66 of the 86 4-digit NAICS manufacturing industries….”
In 2021, “Total factor productivity…rose in 78 of the 86 4-digit NAICS manufacturing industries….” So again, that performance reflected the early post-Covid rebound.
Moreover, the latest official quarterly data show that the nice upswing in manufacturing’s labor productivity growth continued into the first three months of this year.
As I’ve documented on RealityChek and elsewhere, so far during Trump 2.0, U.S.-based industry’s output has reversed a late Biden-era decline. Its core capital expenditure has greatly accelerated since that previous administration left office. (See, e.g., here.). Its inflation-adjusted hourly wages are up by more under the current administration (1.56 percent) than during those final comparable Biden months (1.21 percent). (See the interactive tables available at BLS.gov.). The rate of manufacturing job loss has been cut by more than 50 percent during the period. And now its productivity performance – which is so central to achieving durable prosperity and sustainably rising living standards – has surged back into the black.
The only possible downside has concerned inflation, and here the evidence is mixed at best (worst)? That’s mainly because the pricing trends of so many heavily tariffed goods have aries so widely.
Just as the NBER paper made clear that pre-Trump trade policies weren’t the only reasons for U.S. manufacturing’s productivity slump, there’s no doubt that the president’s recent tariffs aren’t the only reasons for its resurgence. Surely regulatory and tax relief have helped considerably, too.
But it makes you wonder. To paraphrase the 1970 tearjerker Love Story, does being a tariff critic who predicted industrial disaster from the Trump 2.0 trade restrictions ever mean having to say you’re sorry?
*NAICS stands for North American Industry Classification System. It’s the U.S. government’s main classification arrangement for slicing and dicing economic activity.
