Rethinking Reindustrialization for Real National Security

As both the 45th and newly elected 47th President, Donald Trump has displayed a penchant for economic nationalism. One element of this is reindustrialization, which has enjoyed an almost bipartisan embrace in recent years. Advocates for moving manufacturing back to American shores range from those with targeted goals, such as the Biden administration’s focus on certain strategic industries, to champions of a broader revival for the manufacturing middle class. In towns like Youngstown, Ohio, the hum of steel mills has given way to boarded-up windows and a silence that reflects the lost hope of an era gone by. The elephant in the room is China — not only the U.S.’s major strategic rival, but a nation that has achieved enormous socioeconomic and technological leaps through export-oriented manufacturing since 1978, partially backed by the very kind of industrial policy that the U.S. is only now starting to experiment with.

Among the motivations for America’s “industrial renaissance,” it is critical to identify which hold water. Namely, the national security rationale for insulating a limited number of critical supply chains is well-founded. Policymakers should avoid letting this bleed into economic nostalgia, however, or some wholesale transformation toward an economically unfeasible autarky. While targeted industrial policy is useful as long as policymakers acknowledge the macroeconomic downsides, broader goals like tackling inequality are better served with direct measures, not imagined ones.

The compelling argument for limited reindustrialization is national security. After all, the war in Ukraine has underscored the vulnerability of U.S. defense supply chains, from 155mm artillery ammunition to Javelin anti-tank missiles. Most of these critical industries are already based in the U.S. or allied countries, and policymakers should continue to ensure their supply chains are beyond the reach of potential adversaries such as Russia or China.

An example of a notable industry that is indispensable but not yet secure is semiconductors, with production highly concentrated in Taiwan. Here, the Biden administration has rightly supported its domestic development through efforts such as the $280 billion CHIPS Act. Indispensability to national security, or paying for a kind of insurance policy, is also why the U.S. maintains a 700 million barrel petroleum reserve and heavily subsidizes agriculture — all at a cost.

Reindustrialization may make the nation safer, but it is unlikely to make the nation wealthier or to make our economy more efficient. This is not only true in the theoretical world of comparative advantage. For example, despite tariffs on imported solar technology and investment from the Inflation Reduction Act, at least four solar plants — Enel SpA in Oklahoma, Mission Solar in Texas, CubicPV in Massachusetts, Heleine in Minnesota — have stopped or slowed development due to competition from lower-cost Southeast Asian alternatives. It is simply expensive to produce in the U.S.: regulatory constraints and high costs that initially drove companies offshore still prevail. Chipmaker TSMC, again with IRA support, has estimated U.S. costs at 50% higher than in Taiwan.

Significant tariffs on imports are another topic of contention. Trump’s focus on the goods deficit completely ignores the increasingly important services trade, but more importantly is a misguided attempt at reviving American industry. Replacing taxes with tariffs would be a macroeconomic disaster: swelling inflation, likely causing a recession, and shifting the tax burden toward lower-income brackets. After all, tariffs raise prices for consumers and input costs for firms, inefficiently benefiting only small subsets of constituents such as protected soybean farms and steelmakers.

There is certainly a political explanation for reindustrialization, especially for politicians seeking the manufacturing vote. It’s no coincidence that many of the states that voted Republican in 2016 were former industrial strongholds disillusioned by globalization and the consequent economic competition from lower-cost foreign manufacturing hubs, ultimately gravitating toward Trump’s “America First” messaging. If reindustrialization can serve as a political means, though, policymakers at a national level should be wary of equating it with the ends of economic development. The ultimate goal should shape the approach. Economic growth requires investment in technology, education, and the productivity they contribute to, not blanket protectionism. Social welfare for those bearing the brunt of globalization calls for more targeted resource redistribution. And national security demands reshoring supply chains for shells and ships, not consumer goods.

It is worth reevaluating the manufacturing economy overall, in what is essentially walking backwards. China itself is trying its utmost to escape a manufacturing focus, with Xi Jinping recently emphasizing “high quality development” at China’s critical Two Sessions. Furthermore, the majority of Americans today — four out of five — work in the service sector, with employment in goods-producing sectors at a stagnant 20 million since the 1960s. As the “China Shock” showed, displaced workers often struggle to transition to new forms of employment — moreover, when they do, it tends to be to other areas also vulnerable to disruption from trade. How, rather, can the country transition dislocated workers to newer, more resilient sectors? That is certainly a question officials in Beijing are scratching their heads over.

Solutions do exist that balance economic efficiency with geopolitical concerns. “China-Plus” is an increasingly common phenomenon, where a shoe- or toymaker might now produce not only in China but also a more geopolitically friendly location, such as Vietnam or Mexico. Creating redundancies in supply chains can serve the same purpose. While national security and political appeal are understandable motivations to advocate for reindustrialization, policymakers should not expect reindustrialization to contribute to broad-based economic growth. Selling a mirage in a desert, after all, does not mean that one can drink from it.

Astor Lu is a research assistant under the U.S. Army’s Advanced Strategic Planning and Policy Program and leadership associate of the Julis-Rabinowitz Center for Public Policy and Finance. He studies economics and Russian at Princeton University.