China has signalled it sees a trade war as a weapon of war with its embassy saying, “If war is what the US wants, be it a tariff war, a trade war or any other type of war, we're ready to fight till the end”. Donald Trump’s aggressive tariff policies are shaking the foundations of the global economic order, as the president pushes for what he frames as a shift from free trade to fair trade, rebalancing long-standing US trade deficits. By threatening and imposing escalating tariffs on countries around the world, Trump aims to pressure trading partners into more favourable terms for the U.S., an approach that has roiled global supply chains and introduced significant uncertainty into global financial markets. The president has repeatedly claimed that these measures will catalyse a “new golden age” of American reindustrialization, bringing back manufacturing jobs and driving prosperity. While most the tariffs threatened by the president are currently on hold as countries scramble to negotiate bilateral trade deals, the US continues to impose 30% tariffs on Chinese goods as part of a 90-truce with the world’s largest exporter. With little to no progress announced since the truce began, the prospect of a prolonged trade war is looming.
Tariffs as a weapon seem to be a double-edged sword. Following the April 2 tariff announcement, US equity market cap plunged by roughly US$5 trillion within two days, bottoming out at a nearly US$6 trillion cumulative loss over four days; by late May, tariffs started to be put on hold or reversed and the US market cap started to recover.1 Further, research emerged estimating that If the overall U.S. tariff rate were raised by about 10.5 percentage points, S&P 500 earnings per share would fall by 2–3%, and the index’s value would drop roughly 5%.2
This month’s Sign of the Times looks at the economic realities of a potential US-Chinese trade war, and America’s underlying objective of reindustrialization, explored through the lens of seven datapoints.
Liberation Day and the Trap of On-off Aggression
Since assuming his second term, Donald Trump’s renewed focus on aggressive tariff policies has created an unprecedented political, economic, and market roller coaster. The various escalations, retaliations, de-escalations, and reversals on tariffs since the so-called ‘Liberation Day’ on April 2nd have left both supporters and critics confused and at odds, with the former claiming to see a masterful grand strategy unfolding and the latter seeing only chaos and capriciousness. While the global reciprocal tariff regime designed to re-industrialize America paused for 90 days after the 10-year Treasury yields spiked 40bp within four trading days, (threatening a Federal Reserve intervention for Trump), Moody’s cut America’s credit rating. Nevertheless, the president kicked off a full-blown trade war with China, with tariffs on Chinese goods soaring to 145%, and China imposing a retaliatory 125% tariff on US goods, threatening to cause a global recession and deepening the rift between the world’s two largest economies and political rivals. While both have countries announced a 90-day truce including a mutually agreed rollback of tariffs“American steel workers, auto workers, farmers and skilled craftsmen… They watched in anguish as foreign leaders have stolen our jobs; foreign cheaters have ransacked our factories.” to 30%, a temporary lifting of China’s retaliatory curbs on rare earth exports, the trade relationship remains structurally impaired and vulnerable to renewed escalation at any time, should negotiations falter. This trade war has become a source of continued uncertainty that hangs over the global economy and a source of significant market volatility, with economic forecasting becoming almost impossible in the current environment.
While the true intentions behind the president’s actions and statements are often opaque, there are two increasingly clear constants that thread through Trump’s words and actions. The first is the apparent desire to fundamentally reorder the trade relationship with China, a desire that appears to be both genuine and“Jobs in factories will come roaring back into our country. We will supercharge our domestic industrial base." long-standing, with Trump first publicly criticizing China on trade and alleged currency manipulation in the early 2010s and making the US trade deficit a central theme of his 2016 presidential campaign. The second is the reversal of US industrial decline, which Trump has attributed to globalized trade and outsourcing. Tariffs are the president’s preferred tool for pursuing both these interrelated goals, and China as the world’s largest manufacturer is seen as the main culprit in the US deindustrialization story in Trump’s eyes. At one level one could argue that since China joined the WTO in 2021, the US has lost c.2 million manufacturing jobs, while China has created 47 million jobs over the same period. The reasons are of course multi-layered.
However, against this backdrop, the current trade war appears to be a cornerstone of the president’s economic/industrial policy. The immediate question being asked now is what the odds are of a deal being struck between the US and China. Most observers believe that there is significant scope for a deal, albeit one that is “fragile, limited in scope, and vulnerable to collapse.”3 However, the deeper question is what the chances are that the US administration can achieve its goals, whether through the conduct of a trade war or the negotiation of trade deals favourable to the US. So, what are the prospects for reindustrialising the US and ‘bringing back’ millions of jobs to the United States?
There are several critical facts relevant to this question, which cumulatively point to the likelihood of success or failure of the president’s reindustrialization ambition.
While China remains the largest exporter in the world, and the US remains its most important market, the relative importance of US exports to the Chinese economy has been declining steadily since Trump’s first presidency. This has been due to both the increasing diversification of China’s own economy, where increasing domestic consumption has reduced the impact of exports in China’s GDP mix, as well as to a moderate decoupling of US-China trade, with China increasingly prioritizing non-US markets for its manufacturing output, with America’s share of Chinese exports contracting by nearly 1/4th. As a result, the relative importance of the bilateral trade relationship for each of the countries has largely converged. Two decades ago, US exports made up nearly 8% of China’s GDP – today this number has come down to just over 2%, only slightly higher than the impact of Chinese imports on US GDP.
Potential Implication. At the headline level, China and the US are similarly vulnerable (or resilient) to the macro-economic disruptions that a bilateral trade war would trigger, making a prolonged conflict in the interest of neither party.
While the U.S. economy appears strong on the surface, outpacing developed peers in GDP growth, the foundations of this performance are increasingly fragile. A closer analysis4 reveals that much of America’s recent growth is driven not by innovation or private-sector productivity, but by unsustainable government spending and spiralling healthcare costs. Since 2023, over 25% of U.S. job creation has come from government spending alone, while healthcare accounts for 18% of GDP, both of which are the key drivers of growth, despite healthcare outcomes lagging those of peer nations. This government and debt-fuelled expansion masks deeper structural vulnerabilities. Consumer spending, which makes up nearly 68% of GDP, is increasingly supported by household borrowing. In 2025, U.S. credit card delinquency rates surpassed pre-2008 crisis levels. Meanwhile, federal interest payments, already the third-largest budget item at $882 billion in 2024, are projected to nearly double by 2035, further crowding out essential investments. Wealth and income inequality compound these challenges. Since 1979, the top 1% of earners saw a 326% income increase versus 73% for the middle 60%. The bottom 50% of Americans now own less than 1% of financial assets. Nearly 100 million people live in or near poverty, and the U.S. faces over $96 trillion in unfunded entitlement liabilities.
These underlying weaknesses, rising debt, unsustainable spending, inequality, and economic insecurity, make the U.S. increasingly vulnerable in a trade war. Aggressive tariff policies may exacerbate these issues, threaten economic stability, and accelerate the erosion of U.S. global economic leadership.
Potential Implication. While the U.S. continues to report robust headline growth, its reliance on government spending, healthcare outlays, and consumer debt raises questions about the sustainability of that growth. Addressing the fragility of these foundations will likely require a rebalancing of the economy away from debt-fuelled consumption and towards more productive, inclusive investment. Without such a shift, policies like aggressive tariffs may amplify underlying vulnerabilities, rising inequality, mounting liabilities, and stagnant living standards, rather than deliver the renewal they intend.
While commodities like mineral fuels, oilseeds, and grains form a large part of US exports to China, Chinese exports to America are overwhelmingly manufacturing-based.5 The largest single product categories include electronic and IT products like smartphones and computers, as well as electrical products like batteries and lighting. Importantly, for these products, China is currently the primary supplier to the US, providing e.g. c.40% of all US smartphones, 29% of all computers, 50% of batteries and nearly 90% of lighting, pointing to significant supplier dependency on the part of America. Tellingly, in many cases the options for diversifying procurement and supply chains away from China are limited due its manufacturing dominance across key product categories. For example, China accounts for half of global computer manufacturing, 70-80% of global smartphones, and c.85% of global batteries.
Potential Implication. While the supply of commodities can be quickly re-routed in the face of trade disruptions, it will take time to unwind US dependency on critical Chinese products, on which it currently relies, if it is even possible given China’s control not just of critical supply chains but of the underlying resource bases too.6
The US push to “reshore” manufacturing has been accompanied by eye-catching headlines of investment commitments and pledges, and a running tally of investments on the White House’s own website that has crossed US$10 trillion,7 between corporate and foreign US investment announcements. If accepted at face value, these investments have the potential to significantly expand US manufacturing capacity overall particularly in pharmaceuticals, electronics and the automative sector. Even then, such investments would take years to translate into commercial product production of any meaningful scale, and so there is a broader question about the competitiveness of US manufacturing. While the US may benefit from higher labour productivity in some sectors, China’s manufacturing costs remain significantly lower, primarily due to lower wages, economies of scale, and subsidised input costs, even after accounting for transportation and logistics this still results in a c.35% cost advantage vis a vis products manufactured in the US.
Potential Implication. In the absence of tariff rates of c.50%, US manufactured products will continue to be cost uncompetitive against Chinese exports across key labour-intensive categories, reducing America’s ability to efficiently reshore critical manufacturing.
Despite the prevailing narrative of US manufacturing decline, gross manufacturing output has continued to increase, nearly doubling over the past two decades to over US$2.9 trillion currently. At the same time, America has struggled with a long-standing deficit of skilled workers, with the number of unfilled manufacturing jobs standing at more than c.400,000 for over a decade, highlighting the truth that these jobs are not seen as attractive by Americans. Even though 80% of Americans surveyed recently agreed the country would benefit if more Americans worked in manufacturing, only 25% said they would personally prefer working in a factory over their current job.8
Manufacturing jobs in the U.S. have steadily declined as a share of total employment since the end of the second world war, particularly as wages in less demanding service-sector roles have converged with those of factory work. By way of illustration in 1975, the three largest employers in the US were Exxon, General Motors, and Ford (all of which produce goods with export potential). In 2025, the biggest employers are Walmart, Amazon, and Home Depot, all of which are retailers catering to domestic consumption.
Potential Implication. The desire to bring back manufacturing jobs to America requires a supply of labour that the country currently does not have domestically, and given the tightening of immigration being pursued by the current administration is unlikely to import as well.
America’s deindustrialization has gone hand in hand with outsized economic growth, making the US the wealthiest country on earth. Moreover, this is a not a US-specific phenomenon, with manufacturing intensity being inversely correlated to national wealth across the G20 group of countries, with the world’s richest nations having transitioned to post-industrial economies driven by services, and as household incomes rise, to consumption-driven growth. US manufacturing value add (c.10.5% of GDP) today is on par with that of the UK, France and Canada. Based on the trendline comparing national wealth and manufacturing though, the US in fact appears to be over-industrialised relative to other G20 countries. Further increasing US manufacturing to the level of Italy’s (c.15%) without reducing consumption implies adding over US$1 trillion of additional manufacturing, while reaching Japan’s level requires adding nearly US$2.5 trillion, nearly doubling US manufacturing output. The impact on American prosperity that this would have is [doubtful], however. While manufacturing is currently the fifth largest sector in America by economic value add, it is the least profitable in this group, with a gross operating surplus margin (the total income earned divided by the sectors economic value add) of only c.20-25%, only 2/3rds of the that of information technology and half that of financial services.
Potential Implication. Reindustrialising the US economy to the levels of other G7 benchmarks would be extremely expensive and come at the cost of drawing capital and resources away from much higher profit and growth sectors such as technology and financial services, which underpin America’s dominant global economic position today.
America’s trade deficits are not market or trade policy driven, they are structural and tied to the dollar’s global reserve status, which keeps the dollar permanently overvalued. The reserve status of the dollar requires the U.S. to supply liquidity to the world, often through trade deficits, which fuels capital inflows into U.S. assets. While trade deficits are an important source of capital for US dollar reserve investments, in practice the demand of dollars far exceeds the net earnings other countries can generate from trade. Over the past decade the US has generated a cumulative trade deficit of US$6.9 trillion, while the value of investment into US assets (net of US investing abroad) increased by nearly US$20 trillion (from US$7.2 trillion to US$26.2 trillion) over the same period. It is this demand for US assets (both real and financial) that pushes up the dollar’s value, making American exports less competitive and imports more attractive. These resulting trade imbalances are an intrinsic feature of the global economic order in which the U.S. plays a central role. US deindustrialisation in the form of economic progression to higher value technology, services and financials is a feature not a bug of the system of US enterprise, and it comes because investments flow to these areas rather than industrials.
Potential Implication. American trade and industrial policy alone are unlikely to address the country’s trade deficit at the root of deindustrialisation, as the dollar’s role as the global reserve currency creates outsized demand for US financial assets, often at the expense of US goods. Addressing these imbalances would require a fundamental reordering of the global monetary system, a consensual process that the current administration has not demonstrated any appetite for to date.
The US has been among the most resilient and fastest growing advanced economies, and it has consistently outperformed the EU and Japan on both growth and productivity gains over the past 35 years. America continues to enjoy a series of structural advantages that has enabled it to attract global talent and capital and turn it into innovation and economic growth. While the quality of US economic growth has deteriorated in recent years, overly reliant on deficit government spending and rising healthcare costs, it is expected to continue to outperform other advanced industrialized economies, achieving approximately twice the annual GDP growth as Western Europe through 2030.9 Further, its structural advantages, if leveraged properly, bear the promise of further economic renewal and growth.
However, American growth has been distributed highly unevenly, leading to increasingly extreme income inequality, with the majority of wealth created accumulating with the top 1% of US income earners, and the middle class benefitting least among all income groups.
Potential Implication. While deindustrialization has certainly contributed to the hollowing out of the middle class in America, the country has continued to generate sufficient growth to underpin prosperity for all. Achieving this however will likely require changes to how the wealth being generated is distributed, in a manner counter to that implied by the Trump Administration’s latest tax cuts, which are expected to further exacerbate inequality.10
Conclusion
The data suggests a need to examine more fundamentally how America should re-invigorate its economy. This also requires a review of economic and national security, given that prosperity is not the only goal driving economic strategy for the country at a headline level. The global COVID-19 pandemic exposed the vulnerability of global supply chains generally, as well as the risk of over relying on specific countries for critical products. Similarly, the global energy price shocks triggered by Russia’s invasion of Ukraine has highlighted the value of energy independence, or at least, of energy security in the form of secure supply chains. In an increasingly volatile geopolitical environment, the national security case for selectively reindustrializing key sectors is strong. This rationale already underpins domestic defence manufacturing of critical products such as missiles and ordinance11. A key non-defence example is semiconductors, central to the digital economy, which the former administration has targeted with the CHIPS Act and Inflation Reduction Act, and the current administration continues to focus on, securing commitments from the world’s largest chip manufacturer TSMC to build facilities in the US.
Interestingly, the Trump Administration’s own actions are further strengthening the case for strategic re-nationalization (both in America and abroad), with deglobalization, nationalism, restrictive trade barriers, political and macro-economic uncertainty, and US-China conflict all on the rise. However, for America, all the limitations facing US manufacturing laid out above (high costs, labour shortages, lower margins, etc.) continue to apply to strategic manufacturing, and so while reindustrialization may make the nation safer, it is unlikely to make the nation wealthier and is therefore a selective tool rather than an all-purpose weapon.
Further while members of the current administration have cited national security as a key issue driving US industrialization, it is clear that its ambition is much wider than a strategic limited reindustrialization strategy.12 The White House currently tracks investments in America which it claims have been announced due to the “Trump Effect”.13 As of mid-May 2005 this list included manufacturing and industry investment commitments of US$3.3 trillion. In the United States, a dollar of capital investment in manufacturing typically generates US$3 to US$5 in annual output over time, implying US$10-15 trillion of manufacturing out, equal to the total annual output of the world’s top ten manufacturing countries! Moreover, the White House list includes investments in sectors that can hardly be considered strategic, including packaging companies, a bicycle manufacturer and a chocolate factory.
If on the hand the president’s overarching economic goal is to lift up middle-class middle America (not coincidentally perhaps his electoral base), the current tariff and trade wars are also doomed to fail. In fact, reindustrialisation may further exacerbate existing inequality. While the symbolism of "bringing back manufacturing" carries political appeal, the economic reality is that modern industry generates far fewer“Remember the army of millions and millions of human beings screwing in little screws to make iPhones? That kind of thing is going to come to America. It’s going to be automated…”
US Commerce Secretary Howard Lutnick jobs than it once did, Modern manufacturing is capital-intensive, not labour-intensive, and new factories tend to employ fewer workers, often requiring specialized skills. Moreover, America’s new emerging industrial hubs are not located in the rustbelt regions where the communities suffering from inequality are, meaning any benefits may accrue disproportionately to already competitive regions. This is evident in the case of the two biggest manufacturing related investments announced to date: TSMC is building its US factory in Phoenix Arizona, while Hyundai is expanding its Savannah, Georgia facility. Members of the Trump administration have actually acknowledged some of these facts, admitting that much of the new industrial capacity being built in America will be based on automation, rather than labour.
Rather than attempting to turn back the clock on structural evolution of the American economy, America may benefit from embracing the direction of change which is generally in the direction of the imperative of a cleaner, more sustainable information age.14 In addition, it could embrace a national imperative to focus on ensuring that the benefits are more equitably shared. Redirecting public investment toward sectors that directly enhance human capital, including public education and training, childcare, and preventative healthcare, among others would yield broader, more sustainable benefits for a larger share of the population. In practice, this means strengthening the social safety net, supporting labour mobility, and encouraging innovation that includes small businesses and underserved communities, most of which are not the priorities of the administration today as promulgated in the executive orders issues to date.15
Re-industrialisation of America is unlikely to be the core plank of the structural changes needed to reinvigorate the American economy; prioritizing innovation and inclusion, not nostalgia for a manufacturing past are likely to be core to the programme needed. The goal of building an economy that lifts more people up, regardless of their ideology, politics, diversity or otherwise, is a tough task that tariffs and trade wars cannot solve for, it requires creating mass opportunities for individuals to participate meaningfully in the country’s economic future and for the world to invest in that because of the attractiveness of America.
The Leader: Endnotes
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Sources: J.P. Morgan Chase & Co. (2025, April). Tariff impacts on U.S. equity market capitalization. Reuters. (2025, April 4). Trading Day: Trump tariffs wipe $5 trillion off Wall Street.
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Source: Goldman Sachs. (2025, February 7). How tariffs are forecast to affect US stocks. https://www.goldmansachs.com/insights/articles/how-tariffs-are-forecast-to-affect-us-stocks/
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Source: Zhang, A. H., & Yang, S. A. (2025, May 12). Is a US-China trade agreement really possible? Project Syndicate. https://www.project-syndicate.org/commentary/us-china-trade-deal-will-not-reverse-trump-tariff-damage-to-global-supply-chains-by-angela-huyue-zhang-and-s-alex-yang-2025-05
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Source: Greater Pacific Capital. (2025, May). The Strength of America’s Economic Foundations. https://www.greaterpacificcapital.com/thought-leadership/the-strength-of-americas-economic-foundations
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Source: U.S. International Trade Administration. (2023, April 7). China - Market Overview. https://www.trade.gov/knowledge-product/exporting-china-market-overview
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Sources: U.S. International Development Finance Corporation. (2025). Strengthening critical mineral supply chains by countering China’s dominance. https://www.dfc.gov/investment-story/strengthening-critical-mineral-supply-chains-countering-chinas-dominance
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Source: The White House. (2025, May 16). TRUMP EFFECT: A running list of new U.S. investment in President Trump’s second term. https://www.whitehouse.gov/articles/2025/05/trump-effect-a-running-list-of-new-u-s-investment-in-president-trumps-second-term/
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Source: Michel, N., & Famularo, J. (2025, April 21). “Bringing back” manufacturing jobs is a fool’s errand – Cato experts. Cato Institute. https://www.cato.org/news-releases/bringing-back-manufacturing-jobs-fools-errand-cato-experts
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Source: International Monetary Fund. (2025, April). World Economic Outlook Database: Real GDP growth – United States. https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/ADVEC/USA/WEQ
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Source: Hughes, J. (2025, March 26). Two ways a 2025 federal tax bill could worsen income and racial inequality. Institute on Taxation and Economic Policy. https://itep.org/two-ways-a-2025-federal-tax-bill-could-worsen-income-and-racial-inequality/inequality/
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Source: Chávez, S., Bott, I., & Samborska, V. (2023, January 31). How arming Ukraine is stretching the US defence industry. Financial Times. https://ig.ft.com/us-defence-industry/
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Source: Oxford Analytica. (2025, April 22). US manufacturing will be more about security than jobs. Oxford Analytica. https://www.oxan.com/insights/us-manufacturing-will-be-more-about-security-than-jobs/
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Source: The White House. (2025, May 16). TRUMP EFFECT: A running list of new U.S. investment in President Trump’s second term. https://www.whitehouse.gov/articles/2025/05/trump-effect-a-running-list-of-new-u-s-investment-in-president-trumps-second-term/
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Source: Greater Pacific Capital. (2024, April). The end of yesterday, the future is well underway. Greater Pacific Capital. https://www.greaterpacificcapital.com/thought-leadership/the-end-of-yesterday-the-future-is-well-underway
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Source: Greater Pacific Capital. (2025, February). The President’s Executive Orders: Reshaping America and its Place in the World. https://www.greaterpacificcapital.com/thought-leadership/the-presidents-executive-orders-reshaping-america-and-its-place-in-the-world
