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What’s missing in the tariff debate: a strategy to manufacture more in the US

By Bart Taylor, GHMA

If the goal of a national industrial policy is to manufacture more in the US, the desired policy outcomes are straightforward:

As economists Ian Fletcher and Marc Fasteau explain, “Our trade deficit is mostly in durable goods, which is just over half of US manufacturing. Nondurables are mainly sectors that the US should not want (apparel), are tied to natural resources (petroleum), or are where the US runs trade surpluses (chemicals).” The duo adds that, “The major nondurable problem industry is pharmaceuticals.

“We will have to grow production in pharma and the durable goods industries where we now run huge deficits: 

“If US production increases in these sectors, either the US must reduce its imports or increase its exports in them. Either way, our trade deficit in manufactured goods will go down. This will bring down our overall deficit because the US runs roughly balanced trade in raw materials and a surplus in services, and we cannot expect a sharp change in either,” wrote Fletcher and Fasteau.

This list should look familiar to Houston manufacturers and influencers. Machinery, pharmaceuticals, iron and steel products, medical and precision instruments, motor vehicle parts – all are important manufacturing industries already here or on their way.

Among the means to lower the cost of US manufacturing is tariffs, as Reshoring Initiative founder Harry Moser explains. “What Biden did and what Trump is doing are really just ways to level the cost playing field. Trump’s doing it with tariffs that make imports cost more; therefore, we're more competitive. Biden did it with tens of billions of dollars of grants and subsidies,” Moser told me. “In both cases, they're trying to overcome the fact that our manufacturing cost is too high, certainly to compete with imports and even more so to be able to export. I mean, think how many cars are exported from the US (other than Mexico and Canada). We don't ship many cars to Germany or Japan because our manufacturing costs are just not competitive.”

Moser, Fletcher and Fastuea, and others favor one tactic more than others: a deliberate plan to devalue the dollar. One benefit is that a lower dollar makes US products less expensive in foreign markets. 

Yet devaluing the dollar – manipulating currency – is as controversial as it is difficult, as in getting policy makers to agree it’s needed. Consider the outcry over tariffs. Plus, many argue that a strong dollar equates to US strength.

“Every US president for the last 50 years has been saying that we want a strong dollar. I recall Treasury Secretary Paul O’Neill (under George Bush) saying that we’d be better off with a lower dollar, and he was attacked mercilessly,” Moser laughs. “And yet he was right. Trump has occasionally said it, as have others in his administration – until they corrected themselves.”

Moser would change the narrative. “They should be saying we want a stable dollar. We want a dollar that is defendable in the long run. What we have instead is an inflated dollar – one that if we keep for the next five, 10, or 15 years, combined with a big trade deficit, a hollowed-out economy and budget deficit, will collapse.”  

This is the common theme among reindustrialization voices – the connection between currency and America’s trade deficit, and more, how balancing our trade ledger is critical to our fiscal health and economic future. 

“Right now, the US has an average effective tariff (disputable to some extent depending on different ways of calculating it) of about 14%,” F&F writes. “But it also has a dollar overvalued by roughly 17% compared to the price that would balance our trade. So, effectively the US has a net negative tariff,” the pair concludes.

“This small negative tariff, i.e., an export subsidy for our trading partners, is one reason they have not retaliated against our tariffs to the extent predicted. They know perfectly well that the US hasn’t even leveled the playing field yet, let alone tilted it to America’s advantage.”

Can Congress and President Trump muster the will to prioritize manufacturing further by devaluing the dollar? And work together on a comprehensive strategy – one that effectively lowers the cost of US manufacturing, makes our exports more price-competitive, and targets an industry mix that serves our national interests?

You tell me. 

In the interim, spend time with Fletcher and Fastuea’s important work, follow Harry Moser and join the GHMA, as we connect buyers and suppliers in Greater Houston’s nation-leading ecosystem.

Bart Taylor is executive director of the Greater Houston Manufacturing Association. Reach him at [email protected].