The Tariff Gambit: Rhetoric, Reality, and the Road Ahead - Reindustrialisation (4/4)

September 2025 

American Renewal

The idea of American reindustrialisation has moved from a wistful echo of the past to an urgent strategic necessity. For decades, the offshoring of jobs and factories was accepted as the inevitable toll of globalisation. That consensus has now fractured. A collision of factors, geopolitical confrontation with China, the stark exposure of fragile supply chains during the pandemic, and mounting fiscal and social strains at home, has forced a reckoning. Rebuilding America’s industrial base is no longer optional; it has become the bedrock of economic security, technological leadership, and national resilience.

The inflexion point came with Trump’s tariff shock, a rupture that deserves to be mentioned in the same breath as Nixon’s abandonment of the gold standard. Both decisions rewired the economic architecture of the United States. The central question today is how effective tariffs can be as a lever of reindustrialisation, not merely as instruments of protection.

America does not begin this new era empty-handed. It commands a workforce that, while rivalled in productivity per hour by Germany or France, is unmatched in scale, four to six times larger, capable of turning its hand to virtually any industrial challenge once mobilised. Energy is the second decisive strength. Unlike Europe, the United States sits atop abundant reserves of cheap natural gas and oil. Natural gas in particular is not only fuel but feedstock: the foundation of petrochemicals, and with them plastics, electronics, and consumer goods.

Yet any serious strategy of reindustrialisation must rest on three pillars. The first is funding: industrial expansion demands secure and sustainable capital, drawn from tariff revenues and carefully targeted policy, not ever-ballooning deficits. The second is power: America’s electrical grid must be expanded and modernised, with national capacity rising by at least 50 per cent and local hubs doubling to support energy-intensive industries. The third is labour: the workforce challenge must be met with pragmatic solutions, scaling vocational training, revitalising apprenticeships, and adopting a realistic approach to migration.

Here tariffs reveal themselves as a double-edged instrument. Their usefulness is constrained by what might be called a political duration mismatch. Ideally, tariffs should serve as short-term restructuring tools, not as permanent economic engines. They can buy time, but they cannot build factories. Reindustrialisation is, by its nature, a decades-long project, highly vulnerable to policy reversals and to the disruptive forces of artificial intelligence and other emerging technologies. Research suggests that, while the ultimate aim is to rebuild capacity, reduce vulnerabilities, and attract private investment alongside public subsidies, the impact on long-term GDP growth will be modest. Unlike the post-war highway system, which delivered productivity gains for generations, today’s initiatives are more defensive in character: securing supply chains and reinforcing national security.

Two broad trajectories lie ahead. In the first, tariffs succeed in diminishing Chinese capacity, yet America fails to restore its own. The outcome would be shortages, stagflation, and inevitable political backlash. In the second, tariffs are harnessed to fund a managed rebuild: the grid is expanded, labour is scaled, and industrial capacity restored. America then secures higher-value industries, modernises its base, and leaves behind a durable economic legacy.

The present administration appears to have both public backing and the political will to attempt such a transformation. The question is whether it can exercise the necessary discipline: prioritising, sequencing, and focusing on the right interventions. There are many variables at play, and history suggests such multi-decade efforts are fraught with uncertainty. The evolutionary biologist’s Red Queen effect comes to mind: just as the Red Queen warned Alice in Through the Looking-Glass, it often takes “all the running you can do, to keep in the same place.”

Economic Theory vs. Reality

For too long, the erosion of America’s industrial base has been dismissed as a marginal policy concern. It is not. The decline of manufacturing now represents a threat to national security, economic resilience and even the social fabric of the country. Factories are more than places that produce goods. They anchor communities, provide secure employment, and preserve the skills and knowledge that underpin innovation.

The debate is too often presented as a stark choice between free trade and protectionism. That is a false framing. Other nations do not abide by the textbook rules. They intervene directly, through subsidies, currency manipulation or state-backed industrial strategies, to tilt the playing field in their favour. The real question for America is not whether to intervene, but how to do so in a way that safeguards and expands its most critical industries.

Economists have long championed the idea of “comparative advantage”: that countries should specialise in what they are relatively best at, and that trade will make everyone better off. On paper, it is an elegant proposition. In practice, it bears little resemblance to reality. It assumes workers can effortlessly move between sectors, that exchange rates always adjust to maintain balance, and that efficiency today is enough to guarantee prosperity tomorrow. None of these assumptions holds true in the real world.

Consider trade deficits. By definition, when imports exceed exports, the gap must be covered by selling national assets or by issuing debt. In effect, the country is financing today’s consumption with tomorrow’s income. Some argue deficits are mere accounting artefacts, but in reality they signify shuttered factories, the loss of skilled jobs and increasing foreign ownership of American assets.

Currency dynamics compound the problem. China, for instance, has long kept its exports competitive by buying American assets rather than allowing its currency to rise. At the same time, global investors pour money into U.S. markets because the dollar is seen as the world’s ultimate safe haven. For years this arrangement suited everyone—until it didn’t. The result is a chronically overvalued dollar, trade deficits that never close, and relentless pressure on American industry. 

The deeper flaw lies in the way traditional economic models view the world. They take a snapshot of efficiency today, but ignore the strength required for tomorrow. In many sectors, early gains compound into long-term dominance: scale drives down costs, market power entrenches itself, and technological progress accelerates. Once an industry is lost, it is rarely rebuilt. With it goes the network of suppliers, the skilled workforce and the research base that future innovation depends upon.

Classical trade theory may remain a useful intellectual exercise, but as a guide to policy it is dangerously incomplete. Real industrial strategy must confront market distortions, anticipate the tactics of rivals, and recognise the long-term importance of building and retaining strategic capacity. If America fails to do so, it risks sacrificing its future strength and wealth for the fleeting comfort of cheaper imports today.

Anatomy of Decline

To understand what a genuine industrial revival demands, one must first study the anatomy of decline. The erosion of America’s manufacturing base was not the result of a single calamity, but the cumulative effect of decades marked by flawed corporate strategy, incoherent policy, and a wilful neglect of the social costs of deindustrialisation. Any credible path forward must begin with a clear-eyed reckoning with these failures.

John P. Hoerr’s And the Wolf Finally Came captures this process with stark clarity. Writing from the heart of America’s steel belt, Hoerr traces how global competition, misguided government policy, and corporate strategies of retreat combined to push a once-mighty industry into collapse. By the mid-1980s, American steel was in freefall: prices had fallen by nearly ten per cent in just three years, capacity stood far above sustainable levels, and desperate price-cutting only deepened the financial wounds. In 1983 the sector had 150 million tons of plant capacity, yet much of it lay idle; by 1987, capacity had shrunk to just over 110 million tons. Executives such as U.S. Steel’s David Roderick responded with contraction and confrontation, while workers endured mass redundancies, wage concessions, and the unravelling of entire industrial communities. For Hoerr, this was more than an economic failure: it was a social and political tragedy, emblematic of a wider global restructuring in which newer, leaner producers displaced older giants, while American leaders failed to articulate a vision for renewal.

A parallel drama played out in the motor industry, as David Halberstam documents in The Reckoning. For decades, Detroit’s Big Three had enjoyed a cosy oligopoly, insulated from real competition and lulled into complacency. They relied on large, profitable cars and dismissed warnings about changing consumer preferences and the dangers of dependence on cheap oil. When the oil shocks of the 1970s struck, they were catastrophically unprepared. A finance-driven, hierarchical culture had sidelined engineers in favour of accountants, leaving real innovation in fuel efficiency and front-wheel drive to wither while cosmetic styling gimmicks took precedence. Meanwhile, powerful unions had negotiated contracts that locked companies into crippling fixed labour costs. By the early 1980s recession, even painful concessions could not erase these structural weaknesses. Japanese carmakers, Toyota, Honda, Nissan, exposed Detroit’s vulnerabilities with lean production, relentless attention to quality, and long-term strategic vision. Consumers, seeking affordable, efficient, and reliable cars, turned decisively to Japanese imports, leaving Detroit scrambling to catch up with costly new programmes funded by ever-diminishing profits.

In Flying Blind: The 737 MAX Tragedy and the Fall of Boeing, Peter Robison delivers a devastating portrait of how America’s most celebrated aerospace company lost its way. Once the very symbol of engineering excellence, its name linked to moon landings, war-winning bombers, and airliners that carried millions safely across the globe, Boeing became the embodiment of a corporate tragedy. The crashes of two 737 MAX jets in 2018 and 2019, which claimed 346 lives, were not freak accidents. They were the culmination of decades of cultural decay, strategic misjudgement, and the ascendancy of financial engineering over real engineering.

One of the decisive turning points came in the 1990s, when Boeing and other U.S. aerospace giants adopted the strategy of “offloading.” By outsourcing detailed fabrication to sprawling supplier networks, they sidestepped the heavy capital expenditure needed to modernise ageing equipment. On paper, the move cut costs and kept Wall Street happy. In practice, it hollowed out the very skills, numerical control coding, tooling, and advanced materials science, that had once made American aerospace pre-eminent. As skilled workers retired, irreplaceable tacit knowledge vanished with them. Boeing’s notorious $200 million write-off on the 747 programme was not an aberration but a symptom of a deeper malaise: fragmented supply chains, mounting inefficiencies, and, most dangerously, the diffusion of know-how to foreign partners. In teaching overseas firms how to produce complex assemblies such as wings and stabilisers, U.S. primes inadvertently nurtured competitors like Airbus.

The 1997 merger with McDonnell Douglas deepened the rot. Robison shows how a new cadre of managers, veterans of the defence industry schooled in cost-cutting and quarterly results, displaced Boeing’s engineer-led culture. The company became obsessed with shareholder value, funnelling billions into stock buybacks rather than research and production. Regulators, once vigilant guardians of public safety, were gradually drawn into Boeing’s orbit, permitting the company to self-certify much of its work. Engineers who raised concerns about design flaws were ignored, while software like MCAS, poorly tested and scarcely explained to pilots, was grafted onto the 737 MAX to mask deeper aerodynamic compromises.

The result was calamity. After the first crash in Indonesia, Boeing insisted the aircraft was sound, blaming the airline and claiming that any competent pilot could manage the situation with a checklist. Privately, executives knew the problems ran far deeper. When an Ethiopian Airlines MAX went down just months later, the façade collapsed. Internal emails showed employees mocking regulators and deriding the aircraft as “a plane designed by clowns.” Pilots admitted to using “Jedi mind tricks” to downplay training needs.

The grounding of the MAX cost Boeing more than $20 billion, toppled senior executives, and destroyed public trust. Yet Robison makes clear that this story extends beyond a single aircraft or a single company. It is about the larger forces that reshaped American industry: the offload model, the cult of shareholder value, and the retreat of robust regulatory oversight. Boeing once staked its future on audacious feats of engineering like the 747. By the 2010s, it was gambling its reputation on cost-cutting and shortcuts.

The fall of Boeing stands as a cautionary tale, a stark reminder of what happens when balance sheets eclipse blueprints, when industrial craftsmanship is bartered for financial optics. It is not merely the story of two fatal crashes, but of how an industrial crown jewel, hollowed out by decades of short-termism, endangered lives, weakened national resilience, and empowered the very rivals it once eclipsed.

This was no isolated lapse of judgement but the logical outcome of a corporate culture shaped by Wall Street’s logic. Investors rewarded “working-capital-light” models and punished long-term investment. Rather than plough resources into plant, tooling, and process innovation, aerospace firms channelled them into financial engineering. The result was predictable: short-term optics triumphed over long-term competitiveness.

The consequences of such choices cannot be brushed aside as nostalgic lament for lost factories. They are measurable, structural, and strategically grave. The United States now runs a persistent goods trade deficit of over $1 trillion annually, roughly 4% of GDP. Its manufacturing share of GDP has steadily eroded, shifting the economy away from high-multiplier production toward a fragile, service-dominant base. Most alarming, the U.S. runs a large and chronic deficit in Advanced Technology Products, precisely the sectors that underpin national competitiveness and security. As a result of decades of imbalance, America has become the world’s largest net debtor, pledging future earnings and tax revenues to foreign creditors.

Currency dynamics have amplified these vulnerabilities. Many nations have perfected a playbook of undercutting U.S. producers, earning dollars, and then sterilizing the flows by buying U.S. assets rather than allowing their currencies to revalue. This keeps their exports cheap and the dollar overvalued, locking the United States into a cycle of widening deficits and further hollowing of tradable industries. At the same time, the dollar’s reserve status and deep financial markets sustain a structural bid that reinforces overvaluation. The effect is mechanical: domestic production loses competitiveness, external debt rises, and supply chains critical to security drift offshore.

What emerges is a picture not of accidental decline but of strategic failure. Corporate leaders, chasing quarterly optics, allowed engineering depth to be traded for financial lightness. Policymakers, caught between free-trade orthodoxy and reactive protectionism, failed to develop coherent, scaled strategies for industrial resilience. The result is an America that has ceded ground in both legacy and frontier sectors, that runs persistent deficits in the very technologies meant to define the future, and that exposes itself to supply cutoff risks in military and medical domains alike.

The Human and Political Cost

The consequences of deindustrialization cannot be measured in economic data alone. As documented in Farah Stockman's American Made, the disappearance of work represents more than a loss of wages; it is a profound crisis of identity, dignity, and community. For millions, factory work anchored not only family finances but also daily routines, social structures, and self-worth. Its absence created a vacuum filled by despair, addiction, and family breakdown. This rise of precarity has been aptly described as "the planned obsolescence of people," where workers live in constant fear of being replaced by offshoring or automation.

This social unraveling had direct and volatile political consequences. The decay of industrial communities and the erosion of the social contract fueled a powerful wave of populist anger. Dislocated workers, feeling abandoned by elite consensus, became receptive to political leaders who promised, even if falsely, to restore their jobs and the dignity that came with them. This deep-seated resentment reshaped American politics, creating a volatile environment that underscores the urgency of rebuilding a more inclusive economic model. The failures of the past now serve as a powerful catalyst for a strategic reversal.

What to Reindustrialise?

The call for American reindustrialisation is not about bringing back the vast, inefficient factories of the past. It is about creating a modern, resilient, and high-value industrial system, one that is technologically advanced, strategically vital, and often invisible to the everyday consumer. This new wave of industrialism will not simply mimic China’s mass-production model. Instead, it will build on America’s unique strengths in software, automation, and innovation, offering something not only different but potentially superior.

At its heart, a successful industrial strategy is not about propping up every sector. It is about deliberately cultivating the ones that matter most, the industries that generate wider benefits across the economy. These are the sectors with increasing returns, where expertise and know-how form powerful barriers to entry. They thrive on constant research and development, not on resting upon old advantages. Their innovations ripple outward, creating entirely new markets, semiconductors, for example, enabling smartphones, which in turn gave rise to digital platforms. They also produce goods for which demand grows as societies become wealthier, cars, aircraft, electronics. Crucially, they compete not just on price but on quality, reliability, and integration. They attract and productively use large amounts of capital, and they build path-dependence, where today’s breakthroughs unlock tomorrow’s possibilities.

By contrast, so-called “disadvantageous” sectors, commodities, low-skill manufacturing, or routine services, deliver shrinking returns, limited spill-overs, and weaker wages. That is why America’s strategic priorities now include semiconductors, advanced biomanufacturing, and aerospace: industries that embody all the advantageous qualities and underpin both economic strength and national security.

Reshoring, in this model, does not mean recreating Asian-style mega-factories. American plants will look very different, shaped by higher labour costs, tighter regulations, and deep digital integration. They will not be the fabled “lights-out” factories, running without people. Instead, they will represent human-machine partnership at scale, engineers writing code that upgrades thousands of machines at once across global facilities. Tesla already points the way. Automation and product simplification are central: fewer core models produced in highly automated environments, with personalisation delivered largely through software, just as with the smartphone. This is a sharp contrast to legacy industries weighed down by excessive product variety and too little innovation.

History offers a warning. In the 1990s, America’s aerospace giants entered what became known as the “offload era,” outsourcing vital manufacturing in the pursuit of short-term savings. The result was the hollowing out of critical skills, supply chain fragility, and the strengthening of foreign rivals. Today, the lesson is clear: rebuilding must mean selective re-verticalisation. Modern tools such as the digital twin and digital thread make it both feasible and urgent to bring essential production back in-house. Doing so restores control over costs, quality, intellectual property, and delivery risk, an advantage that matters more than ever in a world of geopolitical tension.

Yet a true industrial revival cannot be stitched together piecemeal. It demands a coherent national strategy that joins up trade, currency, taxation, research, and government procurement in the service of productive capacity. The debate is not “free markets versus protectionism,” but how to design targeted policies that strengthen national capability while countering the mercantilist tactics of competitors.

Five principles must guide such a strategy. First, coherence: every policy lever, from exchange rates to skills training, must pull in the same direction. Second, long-term vision: accept short-term inefficiencies to build enduring capability. Third, security and prosperity: civilian manufacturing is the bedrock of both economic resilience and military strength. Fourth, scale and staying power: programmes must be big enough to correct real market failures and last long enough to survive election cycles. Fifth, discipline: public support must reward innovation and upgrading, not protectionism or rent-seeking.

Reindustrialisation will not be achieved with slogans or nostalgia. It requires a disciplined toolkit of policy levers designed to rebuild productive capacity and restore resilience. At its core lies a simple recognition: production itself is the ultimate competitive moat. Designing products may be relatively straightforward, but sustaining world-class, adaptive, and defensible production systems, the kind Elon Musk built into Tesla, is what truly sets nations and firms apart.

Vertical integration is central to this vision. By owning critical steps, hardware, software, factories, foundries, logistics, firms can reduce supply chain risks and respond faster when crises hit. Similarly, reshoring is about far more than labour costs. It is about regaining control, quality, and speed. Proximity brings engineers closer to the shop floor and customers within reach, shortening feedback loops and compressing cycle times.

The factories of the future will not be the smoke-filled sheds of the 20th century. They will be clean, automated, and sensor-rich environments that attract talent and deliver precision. Technology will underpin them, but so too will human ingenuity. Systems that draw on employee ideas, through continuous improvement, contests, or structured challenges, compound into lasting gains in speed, safety, quality, and cost.

But progress must be built on solid foundations. The first priority is to protect and modernise the core: standardise processes, align incentives, and strengthen operations until they are resilient. Only then can scale become sustainable. And this revival must happen in ecosystems, not silos. Industrial renewal will depend on partnerships: niche leaders collaborating across value chains, waste becoming feedstock, robotics and AI blending with traditional engineering, and shared learning driving collective progress.

The dollar itself must be recognised as an instrument of industrial policy. An overvalued currency acts as a subsidy for imports and a tax on exports, undermining every reshoring effort. Active management of capital flows is needed to restore competitive balance.

Alongside this, America must scale its “horizontal capability engines.” Federal science programmes and translational platforms such as Manufacturing USA should bridge the gap between invention and production. Because private markets shy away from long-gestation technologies, the state must also step in with patient capital, via public venture funds, guarantees, and co-investment.

Protection, when used, must be strategic. Tariffs and quotas should be temporary, conditional, and focused on sectors that are security-critical or naturally advantageous. Crucially, they should be tied to performance milestones, falling costs, rising exports, or domestic capability targets, to enforce discipline rather than complacency.

At the technology frontier, a dual approach is required: deny strategic adversaries access through export controls and investment screening, while pulling domestic firms forward with ambitious procurement standards that demand resilience and top-tier performance. Trade itself must be re-aligned with industrial goals. The era of blanket free trade has passed; reciprocity and friend-shoring should guide new agreements.

Tariffs and taxes should also generate revenue for sovereign wealth-style funds dedicated to capital investment in priority sectors. These funds would underwrite plant construction, tooling, and the conversion of existing facilities. We may even see the return of five- and ten-year national plans, guiding investment in a structured way. Early years would target critical supply chains, semiconductors, batteries, strategic materials, steel and aluminium, before expanding into advanced robotics, precision manufacturing, and rare-material processing. By the ten-year horizon, the aim should be globally competitive industrial platforms, capable of leading in exports.

Energy will be decisive. Low-cost power requires nothing short of a grid revolution: transmission and generation capacity must expand by at least 50% overall, with doubling in key hubs such as Texas, the South, and the Rockies. This means breaking regulatory bottlenecks, accelerating permits, funding regional micro-grids, and maintaining a balanced mix of gas, renewables, and industrial-scale storage.

A national workforce strategy is equally vital. Expanded vocational training and apprenticeship-style programs should be matched with a “blue-collar GI Bill” for displaced workers. Targeted visas must plug immediate gaps, while enforcement policies must be balanced with pragmatic legislation to prevent critical shortages in strategic industries.

Demand, too, must be orchestrated. Government procurement can underwrite scale by offering multi-year orders for electric vehicles, industrial equipment, and infrastructure. Regulation must accelerate, with streamlined permitting processes tied to environmental and workforce commitments to preserve legitimacy.

Finally, regional industrial hubs should be seeded, repurposing old sites into modern clusters that integrate capital, energy, supply chains, and training. Federal grants can spur states and localities to work together, creating ecosystems capable of sustaining America’s next industrial age.

The Reality of Tariffs and Reindustrialisation

The notion that tariffs alone can drive American reindustrialisation collides with a deeper structural reality: a mismatch between the short-term duration of political policies and the long-term investments required to rebuild factories, train workers, and reconstruct supply chains.

Tariffs do not equal factories. A 25% tariff may make imports more expensive, but it does not conjure new production lines in Ohio or Michigan. Instead, consumer prices rise, costs cascade through the economy, and the middle class bears the brunt while the wealthiest 10 per cent, cushioned by assets, remain largely unaffected. Inflation bites long before any industrial revival can take root.

Even if tariffs made U.S. production cost-competitive, the practical challenges remain immense. Constructing factories and integrated supply chains would take years and require vast sums of capital. Investors are unlikely to commit billions when a change of administration could scrap tariffs overnight, leaving stranded assets in their wake. Without long-term policy certainty, reshoring is a political gesture rather than an economic plan.

The skills gap deepens the problem. China’s strength rests not on cheap labour but on four decades of accumulated expertise. Generations of workers refined processes that cannot simply be transplanted. Apple’s struggle to shift production beyond China, even into India, shows how difficult it is to replicate this skill base. Beyond people lies the ecosystem: China’s integrated clusters of suppliers, components, and logistics create industrial gravity that the U.S. cannot reproduce without building city-sized hubs from scratch.

Intellectual property compounds the difficulty. Many advanced processes in Chinese factories are patented, meaning any U.S. attempt to replicate them risks licensing the very technologies it seeks independence from. Nor can America easily muster the workforce: unemployment is low, tourism employs more people than manufacturing, and industrial jobs are often repetitive and undesirable. Add the environmental costs of reindustrialisation, and the social trade-offs become even starker.

The one enduring argument for reshoring is national security. In a multipolar world, supply chains and critical components can be weaponised in conflict. Yet the United States has already moved up the value chain, much as China now outsources low-end production to Bangladesh or Vietnam. To chase mass-scale, low-margin manufacturing would be not only uneconomic but strategically backward.

The core insight is clear: tariffs alone cannot reshore manufacturing. America lacks the skilled labour, integrated supply chains, and policy stability required to bring production home at scale. Reindustrialisation, if pursued, will be a grinding and costly process, not a quick political win.

Yet it has become a strategic necessity. Decades of flawed economic orthodoxy have hollowed out America’s productive base, exposed it to geopolitical risk, and weakened the communities that once sustained prosperity. The fragility of the global order and the systemic challenge from China make the status quo untenable. A new consensus is emerging: national security and economic prosperity are inseparable from the ability to make things.

The path forward lies not in reviving commoditised industries of the past, but in creating new ones. Success will depend on a coherent national strategy that outlasts election cycles, embraces dynamic efficiency, and builds public–private partnerships to scale foundational technologies. Above all, it must overhaul infrastructure and confront the skilled-talent crisis head-on. Executed well, such a strategy could revive American dynamism and generate growth robust enough to support its deficits. But if it fails, the United States risks the fate warned by the Red Queen to Alice: “It takes all the running you can do, to keep in the same place.”