Why US manufacturing can’t be tariffed back

[WORLD] Donald Trump’s proposed return to sweeping tariffs may sound like a muscular defense of American manufacturing, but it misunderstands the deeper economic engine behind the trade imbalance. Chinese exports did contribute to the hollowing out of US industry—but tariffs alone can’t rewind that clock. The real culprit is structural: a demographic and consumption mismatch that locked the US and China into a decade-long codependency. While US overconsumption filled the vacuum of Chinese demand, China’s low fertility and shrinking household income fueled a relentless export machine. Restoring US manufacturing competitiveness requires more than shielding it from imports—it demands that China fix what really broke: its people’s ability to consume.

The Historical Arc of American Manufacturing Decline

The decline of US manufacturing is not a myth—it is a documented, decades-long erosion shaped by monetary policy, trade pacts, and international asymmetries. After World War II, the US produced over half the world’s manufactured goods. But the fixed exchange rate regime established at Bretton Woods, while stabilizing global trade, gradually chipped away at this dominance.

By the early 1970s, Nixon’s abandonment of the gold standard stemmed the bleeding, but sowed the seeds of the US becoming the world’s largest trade deficit nation. Then came a series of sharp turns: the Plaza Accord in 1985 tried to correct trade imbalances by weakening the dollar, NAFTA in 1994 liberalized continental trade, and China’s 2001 WTO accession opened the door to what would become the defining imbalance of the century.

Between 2001 and 2021, the US manufacturing export-import ratio collapsed from 65% to 45%, while America’s share of global manufacturing value-added fell from 25% to just 16%. Trump’s critique—that China’s export surge devastated US factories—is not wrong on the facts. But it’s incomplete on the mechanism.

Chimerica’s Broken Feedback Loop

The core misunderstanding in Trump-era trade policy is treating trade imbalance as a bilateral failing, rather than a systemic misalignment. Economist Moritz Schularick and historian Niall Ferguson coined the term “Chimerica” to describe the unnatural coupling of China’s production surplus with America’s consumption excess.

At first glance, this seemed symbiotic. But the deeper structure was parasitic. China’s demographic collapse—a byproduct of decades of restrictive fertility policies—meant fewer children, smaller households, and a long-term decline in domestic consumption. From 1983 to today, Chinese household consumption fell from 53% to just 39% of GDP, while US consumption has stayed near 70%.

With fewer children and falling wages, China couldn’t generate internal demand. Its solution: overbuild for export. Manufacturing now accounts for a staggering $1.86 trillion surplus—more than 10% of China’s GDP. And where did that surplus flow? Straight into the American consumer market, backed by the dollar’s status as the global reserve currency.

This isn’t just a trade story—it’s a demographic trap. China has tried to reverse-engineer demand by lifting the one-child policy, first to two, then three children. None of it worked. Fertility didn’t rise because incomes didn’t rise. Without stronger household incomes, no amount of government exhortation will produce a baby boom—or a self-sustaining consumer economy.

Why Tariffs Miss the Real Leverage Point

Here’s where Trump’s strategy fails the risk-reward test. Tariffs are blunt instruments. They might slow imports, but they won’t restart domestic supply chains, rebuild industrial capacity, or create sustainable demand. Worse, sweeping tariffs threaten to destabilize the very global trading system that underpins US economic leadership.

In geopolitical terms, it’s a self-defeating gamble. China’s overcapacity isn’t the product of cunning industrial policy alone—it’s the downstream effect of stagnant wages, shrinking households, and a weak consumer base. US overconsumption, in turn, became the crutch that kept China’s factories humming. Disrupting this balance without addressing the demographic causes is like rearranging furniture on a sinking ship.

Even China’s touted “engineer dividend”—its glut of engineering graduates—won’t fix things. With only 46% of Chinese jobs in services (versus 70-80% in other advanced economies), youth unemployment is rising, and new marriages—key to any fertility revival—are falling. No export strategy, and certainly no American tariff, can reverse those trends.

Our Viewpoint

Trump is right to argue that America needs a manufacturing revival. But tariffs won’t deliver it. The real chokepoint is not Chinese steel or semiconductors—it’s the economic and demographic spiral inside China itself. Until China finds a way to raise household incomes and support family formation, it will remain addicted to exporting its surplus to countries like the US. And unless American policymakers understand that dynamic, they will keep mistaking the symptom for the cause. Industrial revival in the US will require strategic patience, not trade war theatrics. The smart move isn’t punishing Chinese exports—it’s pushing for a world where China no longer needs them.