Populist politicians sell tariffs as a way to bring jobs home. “Jobs in factories will come roaring back into our country,” President Trump said when he announced his “Liberation Day” reciprocal tariffs last April.
And again this past Labor Day: “President Trump’s protectionist trade policies have helped drive more than $8 trillion in new US investment, creating hundreds of thousands of jobs,” the White House posted on social media.
The economic logic here seems straightforward enough: If slashing trade barriers caused American jobs in labor-intensive sectors to be offshored to places where wages were lower, reversing the process will cause them to return. Raise those barriers, reshore production, and revive employment in the industrial heartlands of America and other rich economies.
Reality is far messier, however, than that simple story, which is seemingly driving current US trade policy under Trump. A new analysis from the San Francisco Fed, “Will Trade Uncertainty Boost Automation?,” suggests tariffs may indeed pull some production back onshore, but the real beneficiaries are robots, not carbon-based workers.
The study looks at what happens when trade policy becomes more uncertain, such as with sudden tariff hikes or the constant threat of new levies. Firms that rely heavily on imported inputs, from car parts to electronics, tend to reduce their dependence on foreign suppliers. Reshoring, however, is expensive. US labor costs are far higher than in Mexico or China, the countries that absorbed much of America’s offshored manufacturing over the past three decades.
(While I mentioned the latest Trump tariffs above, they are not the direct point of the essay: “Our industry level data are available through 2022, so our sample includes the period of spikes in TPU in the late 2010s but not the most recent surges.”)
How to keep costs in check, then? Automate. Robot density—the number of industrial robots per thousand workers—rises as trade uncertainty increases. Productivity improves, cushioning the blow of disrupted supply chains. But there’s a hitch when it comes to job creation.
From the paper:
… industries that are more exposed to [trade policy uncertainty] experienced greater reductions in imported intermediate goods and larger increases in automation. Those industries also experienced a boost in productivity, partly reflecting the rise in automation. However, the estimated relationship between an industry’s employment and its exposure to TPU is close to zero, suggesting that the employment effects of TPU for firms in exposed industries are not much different from less-exposed industries. This is likely because automation leads to the elimination of some jobs and the creation of others.
In other words, tariffs and trade wars do not deliver the blue-collar revival their political champions promise. It’s almost as if businesses just switch the places they’re offshoring to, Robotland instead of Asia. It’s a wonderful lesson in the unintended consequences of policy intervention.
Again, from the report:
Looking ahead, the rapid improvements in new technologies such as generative artificial intelligence will likely broaden the ability of businesses to automate and thus facilitate reshoring if the trade environment becomes more uncertain.
So a problem for populists in this paradox: Tariffs, including uncertainty about their direction, may succeed in shortening supply chains and nudging some production back to American soil. But the cost structure for these businesses ensures that factories will be smarter rather than more crowded. Politicians may get ribbon-cuttings for shiny new plants, but inside, the human headcount will disappoint.
The post Welcome to Robotland: The Real Winner of America’s Trade Wars appeared first on American Enterprise Institute – AEI.
