Regardless of the wisdom of the Trump tariffs, the Administration’s actions seem motivated by a genuine desire to return manufacturing to the United States. This is a laudable goal and one that NAATBatt fully supports.
But in trying to return manufacturing to the United States through tariffs, the Administration may be confusing a symptom with the disease. The disease is not a lack of manufacturing in the United States. The disease is that the United States is underinvesting in manufacturing infrastructure. That underinvestment has led to the symptom of a declining manufacturing sector in general and to the lack of advanced battery manufacturing in the United States in particular.
Advanced battery manufacturing will not take place in the United States just because we want it to or because the government imposes a tariff on importers. Manufacturing will only take place if investors fund the construction of new battery manufacturing plants and related supply chain infrastructure. Today, building a Gigafactory requires about a billion dollars of investment, two to three years of construction, and at least 10 years of profitable operation in order for investors to get a favorable return on their investment.
Unless an investor can see a pathway to profitability for that Gigafactory over time, no investment will be made, no factory will be built, and no manufacturing will return to America.
Tariffs can in theory help investors see that pathway to profitability by protecting a Gigafactory project from low-price foreign competition. But for tariffs to be effective in promoting investment, they need to be “sticky”. In other words, investors need to have confidence that the tariff regime will remain in place during the entire period that the project needs to operate in order to produce a favorable return on investment.
President Trump’s problem is that while he can impose tariffs at will, he cannot make them stick. Investors know this. Given that major portions of the business community, Wall Street, a large majority of Democrats, and a significant number of Republicans oppose the Trump tariffs, the best that President Trump can do is hold his tariff regime in place for four years. Four years is just not enough time to support the financing of a new battery Gigafactory, or probably any factory that manufactures advanced technology or heavy industry products.
The Trump Administration needs to start over. Before imposing a tariff regime, it needs to build a political consensus in favor of the kind of tariffs the President wants to impose. Only if the tariffs have broad political backing will investors trust that they can survive long enough to benefit their investments.
Building a political consensus supporting tariffs means reaching out to the business community, to Wall Street and even to Democrats to sell the potential benefits of the Trump tariff program. This needs to be done before that program is enacted, not after. If President Trump is unable or unwilling to build such a consensus, his tariff regime will fail in its intended purpose. Unpopular tariffs might raise a few dollars for the federal government in the short term. But they will not return manufacturing investment or manufacturing itself to America.