Aug
23
Have Trump’s Tariffs Driven a Manufacturing Boom? Not So Fast…
“The new narrative from the pro-tariff crowd — which rarely differentiates correlation from causation — is that the ongoing manufacturing upswing is a clear Trump trade policy success story.” — Scott Lincicome, “Dispatch Markets”
Readers may remember that the pro-tariff policies of the Trump Administration are one of the major differences I have with our current Executive, while still remaining generally supportive. So, when I saw this, I naturally had to make note…
The Institute for Supply Management (ISM) recently declared,
“U.S. manufacturing activity surged in July at the strongest rate in more than four years — driven by soaring demand, record production, and a wave of new hiring.”
It should come as no surprise then that the White House (i.e., Trump, Vance, trade advisor Peter Navarro) are trumpeting a “robust tariff- and tax cut-induced renaissance.” They are certainly inclined to read the numbers that way, and they definitely want American citizens (and our allies, I assume) to believe it, as well. Unfortunately, as Scott Lincicome says at “Dispatch Markets”, “there are several reasons to doubt that spin.” I’ll give a few select quotes from Lincicome’s analysis below…
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Much of the recent tariff triumphalism rests on PMI [purchasing managers index] surveys that are useful for gauging short-term industry sentiment and forecasting future trends but can misrepresent what’s happening nationwide and over the long term. As economist Dave Hebert just detailed, the PMI records the share of purchasing managers in various U.S. manufacturing industries who report an increase, decrease, or no change in their orders, employment, prices, and other categories of business activity. The index documents only the direction of the change, not its magnitude.
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As The Economist reported in March:
“Since Mr. Trump took charge, most of the comments from manufacturers that ISM has published along with its surveys have mentioned tariffs. Not one has been positive. Many of the unpublished ones are more forceful still. “A fair number of comments just say the word ‘tariff’,” says Susan Spence of ISM, who compiles the survey. Or, among some less-polite respondents: “‘Same as last month, it’s just tariffs, stupid.’””
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[R]eal-world data do show an uptick in the U.S. manufacturing sector, especially in 2026. According to the Federal Reserve’s industrial production index, domestic manufacturing output has been on a decent run since Trump took office, outside of that multimonth dip in the second half of last year. That’s good news for the sector, but there’s little reason to think it’s owed to Trump’s tariffs. More likely, the growth is happening despite them.
For starters, three powerful factors coincided with the 2025-26 tariffs and are the most likely drivers of U.S. factory output. On the supply side, the One Big Beautiful Bill Act restored and made permanent provisions that allow U.S. businesses to immediately deduct spending on equipment, machinery, and research and development (R&D), and the law temporarily allowed U.S. manufacturers to do the same for spending on structures, effective January 2026…. On the demand side, the U.S. artificial intelligence buildout — now totaling trillions of dollars in new spending that dwarfs previous U.S. infrastructure booms — has become a big and direct source of orders for American manufacturers…. Third, the Iran war has both boosted domestic output (and prices) of energy and energy-related goods and set off a short-term stockpiling rush among companies looking to get ahead of possible supply crunches later this year.
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[T]he manufacturing sector’s rebound — and the growth of the industries driving that rebound — began months before Trump’s new tariffs took effect in March 2025…. [T]he 2025-26 “boom” is less a “Trump phenomenon” than it is the continuation of a rebound that began months earlier, likely owed to the AI buildout and the business cycle…. Indeed, the hard data show that U.S. tariffs and manufacturing performance have actually run in opposite directions since Trump took office.
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Even an apparent tariff winner — the moderately protected U.S. automotive industry — is less than it seems. Yes, motor vehicles and parts output have expanded since 2024, but overall production capacity and fixed investment are basically flat, while jobs are down — trends possibly reflecting the U.S. industry’s cannibalistic business model and automakers’ cutthroat lobbying (against each other!). Even more damning, however, is the fact that domestic automakers enjoyed a huge tariff-related subsidy….
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Tariffs supposedly work by changing the return on domestic investment versus importing, and new investment would show up in the construction and capacity figures. Neither is telling an optimistic tariff story so far, despite some flashy (and isolated) headlines about promised factory spending….
Unlike the politicians and pundits, I’m not declaring victory today because it’s still too early for definitive conclusions about Trump’s wild — and still ongoing — tariff experiment. But the initial evidence runs strongly against the “tariff boom” narrative and is consistent with both an AI-fueled alternative and the country’s long history of both protectionist stagnation and support for dying legacy industries instead of thriving new ones. (On the last point, consider today’s sky-high tariffs on apparel, furniture, and footwear contrasted with low ones on semiconductors, aerospace, and data-center equipment.) The burden rests on tariff advocates to demonstrate otherwise.
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Given Trump’s famous ego, despite the growing evidence backed by hard data, it is extremely unlikely that he will ever admit the tariffs have been a mistake and then proceed to change policy accordingly. However, as long as Vance does not succeed him in Office, we may see a positive change with the next administration.
If you like digging into this sort of thing and want a few more facts, figures, and graphs, you should definitely read through Lincicome’s entire article.
