Globalization is easy to blame for all kinds of things, from the disappearance of factory jobs to stagnant wages and social unrest.
With Donald Trump in the White House, it is more popular to believe that the globalization of trade has eroded the middle class.
His aggressive trading policies is a key reason for his aggressive approach.
The current US president said that the election for 2024 will be held a few days before.
On November 5, we’ll save our economy and our middle class [and] reclaim sovereignty.
The reality is much more complex. The new data, historic trends and policy analyses paint a picture which does not fit with the typical political narratives.
Tariffs may not solve the problem for the middle class as many believe.
Does trade actually hollow out US Manufacturing?
Wells Fargo’s analysis shows that US manufacturing jobs have declined from their peak in 1979 of 19,5 million to 12,8 million.
Estimated 2,000,000 jobs were lost in the US as a result of the “China Shock”, i.e. the job loss wave that occurred after China joined the WTO.
This impact was concentrated and severe, but only affected 1.5% of US workers.
The middle class was not wiped out.
The US has a relatively lower level of trade opening compared with most other developed nations. The US imports are smaller as a percentage of the GDP than Germany and even China.
Even with the trade deficits in place, many of the goods that are consumed by Americans still come from domestic production.
Globalization is not responsible for the loss of American manufacturing jobs. First, most job losses occurred before 2000, when global trade peaked. Second, productivity and automation were already reducing factory employment well before then.
What caused wages to stagnate over 20 years?
Even after inflation was adjusted, US wage levels barely changed between 1973 and 1994. This stagnation was not caused by trade agreements. NAFTA signed in 1994 long after slowdown started.
Most likely, the cause of this was the dramatic decline in productivity that started in early 1970s.
During this period, we also witnessed two oil crises, unprecedented inflation, recessions and a decline in union power.
These factors do not usually appear in the popular stories about trade but are more accurate when it comes to the timeline for wage stagnation.
Since the mid-1990s, however, wage growth is back to normal. Since the 1970s, median personal income has increased by about 50%.
According to the Economic Policy Institute, wages for lower-income workers rose by more than 40% between 1996 and 2016.
This doesn’t negate inequality, but does cast doubt on the notion that globalization has caused an overall collapse of worker living standards.
Tariffs can they really help to bring jobs back?
The economic team of President Trump says that tariffs can revive US manufacturing. Wells Fargo doesn’t agree.
According to a bank analysis conducted recently, regaining the employment level of 1979 in manufacturing would require $2.9 trillion worth of capital investments and an additional 6.7 millions workers.
In April 2025, the US had only 7.2 millions unemployed.
The main reason is labor costs. American factory workers make seven times as much money than their Chinese colleagues, 11 times more money than Mexicans and 16 times more income than Vietnamese.
This makes US manufacturing only competitive in sectors with high value and automation, not low margins like textiles or furniture.
Tariffs are not always a good thing. Tariffs can have a negative impact on the value of the dollar by increasing import costs.
The US export market is less competitive and any domestic gains are cancelled out.
Wells Fargo’s analysts note, too, that tariffs increase price uncertainty for firms and reduce their willingness to hire or expand capacity.
What are the reasons for both high and low wages?
US manufacturers are faced with a bizarre contradiction. The wages are just too high for labor intensive goods to be competitive globally. They’re too high to compete globally in labor-intensive goods, but they are also too low for American workers.
The average factory worker earns 90 cents per dollar less than the private sector.
It is difficult for employers to find qualified workers in the skilled trades of welding, machining and other related fields.
Despite this, the consumer does not want to pay a premium for US made products. In one experiment, a company that makes showerheads offered two different versions of the product. One was made in Asia and cost $129 while the other version in America cost $239. One customer out of 584 chose not to buy the American-made version.
The US industrial sector is caught in a double-bind: costs are too high and the industry must rebuild slowly. If you rebuild too quickly, nobody will want the jobs and products.
What actually works, then?
What else could deliver if tariffs fail to deliver?
Domestic is a more effective strategy. The results of higher minimum wages, union protections and policies that promote full employment have been more consistent in increasing worker pay.
The policies above would raise wages for non-college workers more than any other trade policy tool.
Industry policy is also important. CHIPS Act provides subsidies for re-shoring semiconductor production to reduce supply chain risk.
Even here, the US has a shortage of skilled workers.
Global labor standards would be addressed by a progressive agenda in trade. A tariff structure based on the countries’ record of labor rights is one idea.
Tariffs on countries with good labor protection would be zero; for those who have abusive practices, they could reach 15%.
It would encourage fairer economic practices while also encouraging others to improve their standards.
Another frontier is climate policy. Carbon border adjustments are necessary to ensure that cleaner US industry is not at a disadvantage to foreign polluting industries.
CBAM, the EU’s carbon emission-based tariffs could provide a model: Tariffs on imports that are based upon emissions of CO2.
US citizens could also adopt similar measures.
Tax policy is important. US tax policy encourages corporations to shift both production and profits offshore.
The elimination of incentives for shifting income overseas could be achieved by a coordinated international tax floor, and tighter rules at home.
Tariffs will not help the American middle-class either.
The post Globalization and the American Middle Class: Can Trump restore it? This post may be updated as new information unfolds
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