Trump Tariffs Aim to Revive US Manufacturing, But Challenges Remain

U.S. Commerce Secretary Howard Lutnick's pitch in April for the Trump administration’s “Liberation Day” tariffs marked a significant shift in U.S. trade policy, aiming to bring manufacturing back to the U.S. The administration has used various rationales for tariffs, with a primary goal of reviving domestic manufacturing, particularly in the tech sector. However, reversing the status quo for companies like Apple is far more complicated than it seems. The supply chain for tech products, particularly in Asia, is deeply integrated and difficult to replace.

Over the past few decades, manufacturing has steadily declined as a share of U.S. GDP, from around 25% in the 1950s to 10% today. Meanwhile, Asian manufacturing powerhouses like China, Japan, and South Korea have seen their manufacturing sectors grow to over 20% of their GDP. China, in particular, has captured much of the world’s manufacturing due to its massive pool of skilled labor and deeply integrated supply chains. The country has an “order of magnitude” more manufacturing workers (105 million) than the U.S. (13 million) and has installed over half of the world’s industrial robots compared with the U.S.’s share of just 7%.

China’s manufacturing ecosystem is vast, with countless industries relying on Chinese factories. The most popular images of Chinese manufacturing are complexes like “iPhone City,” a 5.6-million-square-meter campus where 300,000 workers assemble most of Apple’s smartphones. However, China is not just an offshoring hub; it has taken the lead from the U.S. in some key technologies, like electric vehicles and batteries. The U.S. is in a strange position of trying to engage in technological catch-up with a lower-wage competitor.

Some final assembly for U.S. Big Tech has moved to “China plus one” destinations like Vietnam, India, and Mexico. This strategy, which involves starting assembly in China and finishing it elsewhere, began under the first Trump administration and accelerated during COVID, when U.S. executives scrambled to find alternative manufacturing hubs after China went into lockdown. Apple, for example, has abruptly switched to sourcing more than half of its U.S.-bound iPhones from India since Trump took office. The obvious incentive for companies, as Apple shows, is to create separate supply chains for different markets.

However, even if the final assembly moves to Vietnam and India, the components must come from somewhere—likely China. And that might suit Beijing just fine, since China dominates many of the industries that produce those components. Chinese officials are instead encouraging domestic production of higher-value items like semiconductors and batteries. The U.S. still makes a lot of high-end products, such as aircraft engines, chipmaking tools, and industrial machinery. But bringing something like the iPhone back to the U.S. would make it exorbitantly expensive. Wedbush Securities analyst Dan Ives, in an April report, estimated that producing an iPhone entirely in the U.S. would triple its price from $1,000 to $3,500.

The Trump administration may have tried to do too much too fast. “You want to start with a small tariff to indicate that you’re serious, and a schedule that ramps it up to track the developing ability of U.S. manufacturers to make this stuff at scale,” says Marc Fasteau, coauthor of Industrial Policy for the United States. From the start, tech companies have tried to curry favor with the Trump administration to influence his policies. In mid-February, in anticipation of the coming import levies, Apple promised to invest $500 billion in the U.S. over the next four years, bringing its suppliers Foxconn and Wistron with it. Then in early March, Taiwan Semiconductor Manufacturing Co., the world’s leading chipmaker, promised to invest an additional $100 billion into its Arizona plant.

If Trump’s tariffs—in whatever form they take—aren’t the best way to encourage U.S. manufacturing, what could? Fasteau thinks the answer is more investment in automation. The U.S., he says, has significantly underinvested in robotics, compared with other manufacturing hubs like China and Germany. “Without investment in robotics, I don’t see large-scale manufacturing being economically workable in the U.S.,” Fasteau says. But perhaps most important, the U.S. needs to decide what kind of manufacturing it really wants. The answer, despite what Lutnick says, likely isn’t a U.S.-based iPhone factory.

“If U.S. policymakers really want iPhone manufacturing in the U.S., they should go visit China,” says Yuqing Xing, at the National Graduate Institute for Policy Studies in Tokyo, implying that it would be eye-opening—in a bad way. “They should see how much workers are paid and what their working conditions are—then report that back to the U.S.”