Earlier this year, the Trump administration started imposing tariffs—taxes paid by domestic consumers and businesses—on a wide range of imported goods. One of the rationales for the U.S. tariffs is to “reprioritize domestic manufacturing,” with the White House arguing that “increasing domestic manufacturing is critical to U.S. national security,” according to an official statement accompanying an executive order on tariffs.

The idea is simple: Increasing the cost of manufactured goods that are imported could stimulate growth of domestic manufacturing capacity to replace those now higher-priced imported goods. 

It’s not the first time the strategy has been tried. Back in the 1950s and 1960s, many countries in Latin America imposed high tariffs on manufactured goods from richer countries in North America and Europe, hoping to encourage the development of domestic manufacturing. Some East Asian countries, like Japan and South Korea, did the same then and in following decades.

How likely is such a strategy to work? Tufts Now reached out to Douglas Gollin, Jason P. and Chloe Epstein Professor of Economics and an expert in economic development and growth, to learn more. 

What was the thinking behind raising tariffs to spur domestic manufacturing in the mid-20th century? 

A lot of countries in the global South sought to create a manufacturing sector using tariff protection and other elements of industrial policy. The objective was to move from low-tech production of things like textiles and shoes to more ambitious targets like automobile manufacturing. 

Tariff protection did encourage domestic manufacturing sectors to emerge. But they were so heavily protected by the high tariffs that they were not disciplined by any kind of competition with international products on either price or quality. The general consensus among economists has been that most of those experiments turned out to be terrible failures. The policies led those countries to become very inefficient producers of manufactured goods. 

A political bargain often emerged between elites who owned those protected industries and the political leadership, to the detriment of consumers in those countries. The consumers had no choice but to pay very high prices for poor quality, domestically produced goods. 

So the tariff strategy was uniformly unsuccessful?

No, there were exceptions. Some East Asian countries in the same time period—Japan and Korea in particular—prospered. They had very deliberate, concerted, and careful state intervention and time-limited protection for domestic industry.

I remember people laughing in the 1980s because Brazil had targeted the development of an aircraft industry. Yet if you look today, Brazil is an extremely competitive producer of aircraft. So these policies can work sometimes, if devised and used strategically.

What were the keys to their success?

Those countries chose tariffs on a limited set of industries that they felt were strategically important and where they believed they had the infrastructure in place to be competitive in the long run. There were fairly long-term commitments with consistent state levels of support, and it was clear that support would eventually be taken away and that these industries would need to be globally competitive on price and quality.

As we look at the current U.S. administration’s policies, it’s worth asking whether those ingredients are in place. 

What is the value of bringing manufacturing capacity back to the U.S.?

I think it’s a question of what it means to reshore manufacturing today, especially in terms of jobs and employment. Several ideas get confused here. One is about bringing the manufacturing industry back to the U.S. and the second is about bringing back manufacturing jobs. 

Manufacturing is increasingly capital intensive and automated, so it’s hard to imagine labor-intensive manufacturing sectors coming back and creating lots of good jobs, as they did in the post-World War II period. That was a time when manufacturing was much more labor-intensive than it is today. That’s something that gets lost in the conversation. 

There’s also the assumption that manufacturing jobs are intrinsically better than jobs in the service sector—but it’s not clear that’s the case. Neither wages nor benefits are necessarily better in the manufacturing sector than in services today, and so we shouldn’t assume that manufacturing jobs are synonymous with high-skill or high-wage jobs.

Even within manufacturing, there are differences. If you have a manufacturing job with one of the big automakers, that’s going to be better in terms of pay and benefits than working for a replacement window factory or a mattress factory.