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President Donald Trump has vowed to build a wall along the border with Mexico, which he blames for manufacturing-sector job losses in the U.S.
Economy

Manufacturing tops Trump's agenda for growth

New president ready to get tough with business, trade partners to create jobs

SETSUO OTSUKA, Nikkei senior staff writer | North America

WASHINGTON -- U.S. President Donald Trump's planned economic policy pivot centers on boosting growth by luring back manufacturing-sector jobs, an approach that may prove outdated in a changing world.

Carrot and stick

Trump has pledged to create 25 million jobs over a decade and boost potential economic growth to around 4%. He aims to buck the slow-growth trend through potent fiscal stimulus and steps to support American manufacturing.

Though the U.S. has remained in a recovery since hitting bottom in the wake of the 2008 economic crisis, potential growth is believed to have sunk below 2%. The administration of Trump's predecessor Barack Obama, unable to strike out in a new direction on tax and fiscal policy amid congressional opposition, instead relied on monetary policy to drive growth. Secular stagnation, or a prolonged period of minimal to no growth -- an idea advanced by such economists as former Treasury Secretary Larry Summers -- increasingly looked like a real possibility.

The pro-business Republican Party now holds the White House as well as majorities in both houses of Congress, improving prospects for getting new policies out the door. Market enthusiasm since Trump's November victory owes much to hopes for an end to the deadlock under Obama and the sense of stagnation that came with it.

Trump and his brain trust are most concerned about the hollowing out of the manufacturing sector. A key point of his plans to reverse the trend is a combination of inward- and outward-oriented measures.

The administration aims to create a friendlier business environment in the U.S. via big tax cuts, deregulation and infrastructure investment. At the same time, it plans to remove incentives to shift operations abroad by renegotiating the North American Free Trade Agreement as well as American trade with China. Businesses still considering offshoring will be threatened with punitive measures.

Not so great

The problem is that a strategy focused on restoring the manufacturing sector does no more than hark back to America's past. Tactically, it runs the risk of friction over protectionist policies. But regardless of whether Trump's drastic measures succeed, or even whether they are implemented, policy based on mere nostalgia will not strengthen America's economic clout -- it will do little more than cause turmoil in the global economy.

Progress by China and other emerging economies means that the U.S. not only cannot compete on labor costs, but is also losing its technological edge. To survive, American companies have reorganized their production networks to span the globe, focusing on highly specialized or automated facilities back home.

The value added by the U.S. manufacturing sector grew nearly 60% between 1997 and 2015, gross domestic product data shows, even as employment shrank roughly 30%. This indicates not a simple case of hollowing out, but efforts by companies to gain an edge through efficiency.

Even if tax cuts and pressure on businesses and trade partners get results, the trend toward growing sophistication in the manufacturing sector will not stop. Increasing adoption of artificial intelligence will likely only accelerate it.

A long-term strategy for deregulation based on trends in industrial advancement, as well as training talent to handle these new advances, will be crucial. Information technology flourished in the U.S. thanks in part to government strategy aimed at putting it to military use.

Trump's words may stir nostalgia for past strength but do not look likely to lead to a stronger America in the future.

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About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

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