Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body. His column appears in Indiana newspapers.

Whenever President Trump’s tariff fiasco comes to an end, we will turn attention to the lasting impacts. It is not a pretty picture. One of the many contradictory explanations of the Trump tariffs is that this will bring manufacturing jobs back to the U.S. That is asinine.

The dominant effect of the Trump tariffs will be to raise production costs on almost every American manufacturing firm. This includes many that don’t even know it yet.

One way to predict consequences for factories is to consider how families will adapt. The Yale Budget lab estimates the average family will see costs rise between $1,900 and $7,600 this year, depending on income and consumption (see https://budgetlab.yale.edu/research/fiscal-macroeconomic-and-price-estimates-tariff-under-both-non-retaliation-and-retaliation).

As a result, families will delay some purchases and choose lower-cost substitutes for others. They will shift toward services, which are not subject to a tariff. This will reverse the pandemic-era move toward goods consumption, which benefited domestic manufacturers. I expect a 2-3% decrease in long-term demand for goods.

That will be very bad for manufacturing firms.

On the production side, American factories will scramble to regain consumer demand. That means cutting costs. Trump hopes that this means onshoring factories. But, why would an American business onshore a factory when the tariffs are likely to disappear, then reappear and disappear, by the end of next week? They won’t.

The biggest target of cost-cutting will be the American manufacturing workforce. American manufacturing workers are the best in the world, and it isn’t even a close call. But a $25-an-hour American worker actually costs the business more like $37 or $38 per hour in labor costs, including health care, FICA taxes and more.

The simplest way to cut supply chain costs, without worrying about Trump’s melodramatic decision-making, is to automate. The workforce accounts for about 40% of the cost of production, and there’s no presidential whimsy associated with cutting it.

Automation happens in fits and starts as technology and borrowing costs change. Labor cost also plays a role, as do import costs, tariffs and taxes. All signs point toward a rush of automation.

I once asked a seasoned manufacturing executive how often his business recalculated the decision to fully automate his factory and warehouse. His answer stunned me—he said quarterly.

We Midwesterners ought to expect this. America’s densest use of robotics (see https://shapingwork.mit.edu/wp-content/uploads/2023/10/Robots-and-Jobs-Evidence-from-US-Labor-Markets.p.pdf) is in Toledo, Detroit, Grand Rapids and Louisville--the latter mostly on the Indiana side. Last year saw more than 10% growth in robotics. I expect 2025 and 2026 to be the two biggest years in workforce automation in U.S. history.
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It is worth noting that U.S. manufacturing production peaked in 2024. It will peak again in a few years; we’ll just be doing it with fewer workers.

Of course, there is more than just U.S. tariffs. We are in a trade war with the world, while the rest of the world is just in a trade war with us. Most countries will offer retaliatory tariffs. That is an economic mistake, yet politically useful. As recent elections in Canada and Australia have demonstrated, standing up to Trump brings huge political benefits abroad.

Most of our trading partners will suffer a bit of pain to hurt us a little. The U.S. is a huge exporter of services—tourism, education, financial services, professional services and movies. These will be targeted by tariffs, as well as boycotts.

The 2018 Trump tariff experience illustrates much of the long-term damages of tariffs. From roughly 1650 until 2017, the U.S. was a net exporter of agricultural goods. Trump ended that in 2018, as China invested in Brazilian soybean farms. We are now a net importer of food.

It is not an emergency or national crisis that we import more food than we export. We aren’t going to starve. But, it demonstrates how shockingly little the Trump administration understands about high school economics. And how little he really cares about the places he claims to care about.

We are a resilient nation. Sanity, congressional action and thoughtful diplomacy can restore much of the damage done to our economy. Still, these effects will be felt for decades. On average, we will all be worse off for it.

The effects won’t be evenly distributed. The biggest losers in this turmoil will be rural communities and small cities, particularly those with a large share of manufacturing and agricultural production. Importers and exporters will be clobbered, and so will communities that produce energy, particularly oil and coal.

 

Those that will be hurt less are urban places, with large concentrations of knowledge workers in service sectors. That geographic divide will make the lasting impacts of Trump tariffs the biggest electoral self-own in American history.

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