Higher Prices is Essential for Trump's Strategy to Boost Domestic Production and Decrease Imports

Revitalizing the US manufacturing industry is a key economic objective of the Trump administration. To accomplish this, the Trump team intends to employ tariffs on imports as an incentive for companies to relocate production back to the US or to motivate others to invest and manufacture domestically. Achieving this goal will require a sustained rise in the prices of imported goods due to the significant cost disparity between domestic and overseas production.

US Manufacturing & Foreign Trade

Based on published data, the total gross real dollar value of US manufacturing, encompassing all three stages of production—finished, primary, and crude—is projected to be $6.7 trillion in 2024. This figure is essentially the same as the real gross domestic manufacturing output from 2005, 20 years prior.

Over that twenty-year span, US imports of goods have risen significantly. For instance, in 2024, the real dollar value of US goods imports is projected to reach $3 trillion, which is $1.3 trillion more than in 2005.

US companies play a role in the increase of US imports. Data on the operations of US multinational companies show that about 45% of US imports come from their foreign affiliates. The primary reason is that manufacturing abroad is cheaper (i.e., enhancing profit margins) compared to producing or purchasing the same products domestically.

The Bureau of Labor Statistics reports that over the past twenty years, producer prices for US manufacturing have risen at twice the rate of commodity imports. US companies depend on less expensive imports to enhance their profitability and competitiveness.

The Trump team faces a difficult choice: either revitalize US manufacturing, which would lead to higher prices, or preserve the current situation with lower consumer prices.

The bet here is Trump's game plan will lead to higher product prices.