Re-shoring Tariffs, Globalization & the Limits of U.S. Industrial Policy
1. Globalization: the âMonsterâ the West Created
To tell the full story, we could start at Bretton Woods: the U.S.-led security umbrella, containment of the Soviet Union, spread of global bases, the gold-exchange standard, the cost of Vietnam, the dawn of dollarisation, bond-market creation, and the unprecedented post-war boom that peaked globallyâat least for the non-rogue worldâin 2019.
Add the first U.S.âChina trade war, COVID-era supply-chain shocks, Russiaâs invasion of Ukraine, dollar-weaponisation backfires, Europeâs power-price spiral under sanctions, and todayâs reciprocal âMAGA-tariffâ economics, and you have a sweeping political journey from the fall of one empire to the rise of others.
For brevity, letâs fast-forward to 2000 and examine corporate-driven globalismâthe relentless search for profit, a one-way journey not easily reversed by policy alone.
Since 2000 Western multinationals have chased ever-lower production costs by offshoring to emerging economies that sweeten the deal with:
- Cheaper labour (often magnified by deliberate currency depreciation).
- Light-touch corporate taxâtypically 0â17 %, versus â30 % in the U.S. and â50 % in much of Europe.
- Tax holidays on reinvested profits.
The result is a web of supply chains where production occurs abroad while profits accumulate in low-tax jurisdictions, hollowing out mid- and low-value U.S. manufacturing.
2. Trump-Era Tariff Logic
The Trump strategy tries to offset revenue lost to individual tax cuts with extra tariff receipts and to nudge production back onshore. In practice, the U.S. faces two powerful counter-forces:
Stakeholder | What they gain from the status quo |
---|---|
Globalized host countries | Jobs, FDI, and local tax revenue. |
Multinationals (many U.S.-owned) | Lower unit costs and reduced tax bills, boosting global margins. |
3. Domestic Constraints on âMade in Americaâ
- Industrial mix
Industrial Production Index (base 2000 = 100, nominal dollars):- Overall: 103.8 (+0.15 % CAGR)
- Durables: 124.3 (+0.91 % CAGR)
- Non-durables: 93.2 (â0.27 % CAGR)
The U.S. now specialises in high-value, high-margin goods (â16â18 % profit after tax). Lower-margin segments left long ago.
- Labour market
- 69.6 % of the labour force holds some college or a bachelorâs degree+ (up from 58 % in 2000).
- Unemployment hovers at 4 %. Skilled workers are expensive and scarceâill-suited to low-value assembly.
- Exchange-rate drift (Jan 2008 â Jun 2025)
Currency vs USD | Depreciation | Effect on U.S. cost comparison |
---|---|---|
Mexican peso | +85 % | Wage bill looks almost half in USD terms. |
Indian rupee | +92 % | Similar dynamic. |
Euro | +28 % | Competitive edge versus U.S. plants. |
CAD, GBP, JPY, CNY | (comparable moves) |
4. What the U.S. Imports â and From Where
2015 â 2024 Census/BEA data
Fastest-growing import lines (CAGR):
- Finished metal shapes 12.4 %
- Nuclear fuel 10.3 %
- Pharmaceuticals 9.6 %
- Bakery goods 9.5 %
- Electric apparatus 8.6 %
Highest-value categories (share of 2024 import bill):
Rank | Category | Share |
---|---|---|
1 | Pharmaceuticals | 8.0 % |
2 | Passenger cars (new & used) | 7.0 % |
3 | Crude oil | 5.5 % |
⊠| ⊠| ⊠|
12 | Semiconductors | 2.7 % |
5. Realistic Re-shoring Targets
Candidate sector | Tariff lever | Practical hurdles |
---|---|---|
Automobiles | Raise duties on non-U.S. builds; court re-investment in U.S. plants. | Canada & Mexico are assembly hubs; matching their wage-plus-FX edge at home requires hefty subsidies. |
Generic drugs | Penalise imports from Ireland & India; subsidise domestic API/formulation plants. | Multi-year FDA ramp-up and higher chem-ops labour costs versus Asia. |
Other categories | Limited impact | Electronics, apparel, toys: supply chains and cost gaps are too entrenched. |
6. AEIâs Profit-Repatriation Proposal
Treat foreign-made goods of U.S. firms as if produced at home.
- Import at cost (e.g., iPhone lands at $100, not $120).
- U.S. entity marks up to retail ($120) and pays U.S. tax on the $20 profit.
- Production stays abroad, but the tax base shifts homeward.
Feasibleâyet politically delicate and administratively complex. Implementation would be incremental and face WTO scrutiny.
7. Revenue Reality Check
Early White-House talk of $200â300 bn in extra tariff revenue is implausible. Even aggressive levies can:
- Modestly trim the trade gap (offset by higher consumer prices).
- Slightly lift corporate-tax collections via on-shored margin or AEI-style adjustments.
They cannot fully backfill the revenue lost to sweeping income-tax cuts.
8. Takeaways
- Tariffs can tilt specific industries but cannot reverse two decades of off-shoring economics.
- Durable gains hinge on industrial strategyâsubsidies, skills, energy costsâmore than on blunt tariff weapons.
- The AEI approachâtaxing profits where the consumer residesâcould claw back revenue without forcing impossible cost realities onto U.S. factories.
- Expect incremental wins (autos, selected generics) rather than a rapid, across-the-board manufacturing renaissance.
Bottom line: Tariffs alone are a scalpel, not a sledgehammer. They can score tactical victories, but restoring broad-based industrial capacity demands a wider policy toolkitâtax reform, workforce development, and strategic sector incentivesâbalanced against global supply-chain realities.
The American system has always self-regulated; the real lever is monetary. Operate through the Federal Reserve to curb some of the dollarâs overvaluation and claw back part of other currenciesâ devaluationâa tall order, but crucial, given that U.S. capital markets remain the worldâs most attractive for both stocks and bonds. Still, higher rates are required to keep bond auctions clearingâa vicious circle.
Regulating trade by country misses the mark. Policy should target specific sectors within countries, coupled with incentives to re-shore a manageable slice of importsâcars and pharma are viable; others are not. At best, tariff parity may nudge exports higher. Multinational lobbies will still wield outsized influence; professionals are needed at the helm.
America has massive expertise and brain power waiting to provide solutions, and this is largely ignored or censored out by the media or agencies or is not part of the political agenda and team, but the solutions are there, if the eminent sources of intelligence are tapped-Â in time, they maybe and the market waits for clarity.
For us as traders, understanding the global context of the system and market, the systemic leversâwhy markets oscillate between risk-on and risk-offâis vital, regardless of the daily spectacle in Washington, left or right- it’s irrelevant; Rates the current hurdle, sticky inflation, and chaotic policy makers – certainty and uncertainty are the 2 drivers of the market phase.