The Tariff Debate — Affordability, Jobs, & the Case for Domestic Production

This week’s episode of The Big 3 used CPA senior economist Mihir Torsekar’s recent Ohio State debate on whether tariffs are “just” as a springboard to examine three core arguments in the trade debate: affordability, employment, and production.

First, Mihir and Andrew argued that the cost-of-living crisis is being misdiagnosed. While tariffs are often blamed for inflation, they noted that the biggest drivers of household strain are non-tradable essentials like shelter, healthcare, and energy, not tariff-affected manufactured goods.

They pointed to the recent Minneapolis Fed analysis and category-level inflation data to argue that tariffs cannot explain the broader rise in prices.

Second, the discussion turned to employment and inequality. The hosts argued that free trade did not lift all boats, but instead helped drive factory closures, job displacement, wage stagnation, and wider regional decline, while the biggest gains flowed to capital, top earners, and asset holders.

Finally, the team examined whether tariffs are actually driving reshoring. Here, the hosts pointed to rising durable goods orders, stronger manufacturing PMI readings, improved labor productivity, and gains in domestic market share and output in sectors like primary metals and motor vehicles.

Their larger point was that tariffs, done right and sustained over time, can help redirect the economy away from consumption and toward production.

Transcript

SPEAKER_00 0:15

So I want to start off today's uh podcast with uh by thinking a little bit about uh I want you to think about a question I have posed for you. So in 1985, IBM was America's most valuable company and one of its most profitable and among its largest employers, with a payroll of nearly 400,000. Um and today, Nvidia is nearly 20 times as valuable and five times as profitable as IBM was back then, adjusted for inflation. Yet it employs a tenth as many people. So that simple comparison, I think, says something profound about today's economy. Um, the rewards are largely going to capital instead of labor. So profits have soared since the pandemic, the market value attached to those profits even more. But the result is capital, which includes businesses, shareholders, superstar employees, is triumphant, while the average worker ekes out marginal gains. So I want you to think about that dichotomy there as we go through today's podcast. So welcome uh to the big three uh from the Coalition for Prosperous America, where each week we break down the three biggest stories shaping U.S. trade, industrial policy, and the American economy. My name is Mihir Torsigar, and alongside my fellow senior economist Andrew Reschenberg, uh, we are here to talk to you about uh the big three. So let's get to it. So uh this week I thought, you know, the the background, the kind of context in which we came up with today's show uh is set uh behind the uh backdrop of a debate that I recently did at the Ohio State University uh with the Tax Foundation. Um and we were talking about the question about are tariffs just? Uh so that debate as I saw it kind of usually gets framed around the argument about efficiency. We don't really ever ask the question about like, does tariff policy, you know, is is it a just uh economic outcome? You know, we think about often does tariff policy or trade policy deliver the cheapest goods to Americans? Um but this was a really interesting discussion. And I think the reason I thought, you know, Andrew and I were talking before the show, talking about this might be a good show to have, because you know, out of that discussion came three big points that we want to focus on. So I think first it might make sense to to talk about the affordability crisis because you know, tariffs and trade policy get set against that backdrop. So let's start with affordability because I think it's the through line for everything else. Um you know, the conventional you know frame treats this as a price problem, like there's too much demand, sticky inflation, supply chocks. Uh but the the demand or the the data tells a different story, right? So since 2000, the cost of things that define middle class life, like housing, healthcare, child care, has risen by nearly 170%. But tradable goods, the stuff we actually import has gotten cheaper uh over the same period. So Americans got cheaper TVs and more expensive lives at the same time. And the crisis that people are actually feeling is a wage crisis, and trade policy sits at the center of it. So, Andrew, question for you, right? Um, you know, if essential services are what's outpacing wages, you know, what does trade policy have to do with it? Like are aren't those non-tradeable parts of the economy? I want to hear your thoughts about that.

SPEAKER_01 3:14

Yeah, absolutely. And I think that there's two main issues that are going on here with cost of living, especially for just the cost of goods that Americans are spending. Number one is that the goods that are rising in prices fastest aren't related to tariffs or and aren't related to trade in general. So, for example, shelter is one of the biggest leading causes for inflation. And that's risen about 3% in the past year. This is one of the bigger drivers. And it's also the biggest portion of Americans' spending. So, like the thing you're spending the most on is shelter. That is what drives your spending. And it's also increasing faster than a lot of these traded goods. And same thing with things like medical care services. That's up 3.7% in the past year. That's also really driving these in this inflation. But when you look at areas that are related to trade and are related to tariffs, this really isn't driving the inflation picture. Number one, as you may have pointed out, that these aren't really the things Americans are spending the most amount of money on. So even if you have a cheaper TV, is your TV going to offset a higher cost in rent? Oh, basically never. And so these tradable manufactured goods just aren't a high portion of Americans' expenditure. And they're also not rising quickly. So for example, you take commodities minus food and energy. This is just your basic manufactured goods that you'd get at Walmart or any other store that you'd go get any of these items at. It's only risen 1.2% in the past year, which is about half the amount as the overall inflation numbers. And then you take also different goods that might be a bit higher percentage of the income and where tariffs are actually playing an impact. So, for example, new motor vehicles. We just had a Section 232 tariff on motor vehicles that was started last year. And so this is now tariffed. It's highly related to trade. You would expect this one to be one of the most impacted areas for inflation. But new vehicle prices, inflation was only up half a percentage point in the past year. And so we're really just not seeing this connection. And I think we're actually even seeing this being recognized by the major economists in the US. For example, the Minneapolis Fed just posted a brief study showing that, and that the very title of this word for word was tariffs cannot explain rising goods inflation. And this is really just coming down to a growing realization that when you look at the actual goods that are tariffed and what the corresponding inflation rates, we're not seeing this connect. And a lot of the studies that have come out to this point that are linking tariffs to inflation has been purely hypothetical. Basically, just taking the estimated on paper, on theory tariff rates and measuring a 100% price impact and saying that, oh, in theory, this would result in 3% price gains. But we're not actually seeing those 3% price gains. And so I think that this is a really big realization, especially now coming from the Federal Reserve, on what exactly is happening with inflation? What are the primary drivers? And I think if you're an average American, you can kind of see this in reality. Like where are your biggest costs rising? Where are you actually spending the most money? As if you go to see a lot of these sticker prices at the store, some things might be getting more expensive, but you really have to ask yourself, is this related to trade and is this where most of my money is going? Or is it on higher electricity prices, especially with all the oil disruptions, or higher rents because of housing shortages? These are really the areas that are affecting Americans the most.

SPEAKER_00 6:57

If you're on Wall Street or Silicon Valley, for example, you're doing really well, right? If you're invested in the stock market, you're doing well, you're feeling the wealth effect. And some of these costs might be high, the services costs we mentioned, but you can manage it because your wages are high, for example. Uh but those high wages in those select sectors are drawing up, you know, they're buoing up the cost of those services, those non-tradable services that I mentioned, like the healthcare and things like that. But, you know, those are industries that, you know, are, like I said, non-tradable, but they're also characterized by low productivity gains. Like, so for example, the same time it taught an instructor to teach a violin lesson 30 years ago is the same as it is now, versus like, you know, the time it takes to treat a patient in the healthcare sector is roughly the same as it was before. Yet, nevertheless, those wages are being brought up by, you know, those, those other uh sectors that are performing really well as far as like wage growth. And so, yeah, when when so some folks get out there and they say, well, GDP's doing great, and and all of these, you know, this these stock markets doing so well. That doesn't resonate to the people who aren't invested in the stock market. Like 90% of of the stock market, I think, uh the 90% or 10% of the population is invested in like you know, 90% of the stock market or some some some statistic like that. Basically, the gains of the market are not redounding to the rest of the economy. So I think that that is part of what is is missing in this discussion. And you're right, I think when people see that costs are high, cost of living are high, and then they compare that with what they're hearing about tariffs, raising costs and how it's inflationary and a lot of misinformation, it's hard or it's hard to understand why they feel a little bit of you know resistance to the idea of tariffs. But yeah, I think when when I looked at the numbers even just a couple months ago, tariffs were, or sorry, goods, I should say, which are subject to tariffs, were come responsible for like two-tenths of a percent of overall inflation numbers. So uh, and you know, again, Andrew, you know this well. You did some work on looking at what's causing beef prices to rise. And that's obviously been a big hit on our on our website. Because yeah, I mean, that's not that's not a tariff issue, right? That's a that's a whole separate issue about like the consolidation of meat packers and things like that. So, you know, even when people see costs increase at the grocery store, it's not necessarily a reflection of tariffs, but it's just easy to say, like, oh, you know, this is entirely tariffs. Um so baby, why don't I why don't we turn it to you to have you talk a little bit about the employment trends and and we'll pick up from there.

SPEAKER_01 9:19

Yeah, and I think you started hitting on some of these points already. But the second main point that we wanted to talk about is within this tariff discussion, also the idea that free trade has been a tide that rises all ships. That like as the pie gets bigger, the economic pie, that everyone benefits by this because of lower goods prices and that this is really going to lift the whole economy up. But this is actually the exact opposite of what we've been seeing. It's been really disproportional gains. And as you were getting at, if you're at the very top, you're and you're seeing the stock market continue to increase, you're seeing your salary being able to outpace a lot of even the service inflation that's happening, you might be thinking that things are doing really well. But if you talk to the average American who is really bearing the cost of this cost of living crisis, that everything is not okay. The rising tide has not been lifting all ship ships. And there's two main issues here. Number one has been the employment aspect. And if you look at studies of what trade liberalization with China has done, and we talked about this with our comments for revoking China's PNTR status, that comp import competition with China has resulted in 2 to 2.4 million jobs displaced in the United States in the early 2000s. And this has had ripple effects across entire economic regions in the U.S. And it's not just these 2 to 2.4 million jobs. It's even all the jobs that are also supported by those industries. It's the local school districts, it's local restaurants, and that's why you have this not only the closure of factories across the Midwest, but the broader economic collapse that came with it. And another great example of this change that we've had with trade liberalization is just looking at the income inequality within the US and how real wages have failed to keep pace with productivity. Since 2000 till today, Americans have produced 65% more. Their productivity has risen 65%. But the real actual income for these Americans, the actual uh median wages, has increased just by 23%. And so there's this huge gap. And we can also see this in a huge study done by the Rand Corporation, where they found that if we had the same income distribution levels, the same distribution of how much the top percents make versus the average American from 1975, we would have the bottom 90% of Americans be making $3.9 trillion more in 2023 alone. And just to put this in real terms, that would mean that every American in the bottom 90% would be making $1,000 more per month and be able to have much, much higher incomes with this amount. That's $1,000 per month per American in the bottom 90%. And that's just if we had the same income distribution levels as 1975. It wasn't that long ago. We weren't in a drastically different country back then. But all these economic changes that have happened over the past decades have really disproportionately benefited the very top of society. And trade has definitely been within that picture. And we're seeing not only these good middle class job losses, but all the jobs that are supported by them, people being forced into lower wage service sector jobs. And we're seeing those wages also being able to like not keep pace with inflation. And really that we've had these broad economic consequences from trade that really haven't been rectified and really haven't been recognized up until very recently. And even then, it's it's still a battle, of course.

SPEAKER_00 12:47

Well, I think it's clear, uh you know, it's important to draw a distinction between, you know, like make when we look at the manufacturing sector, you know, oh, excuse me, I hit my mic. Not all job losses are the same in the manufacturing sector. Um, and I think this is an important distinction to draw upon because, you know, when they they look at, you know, some I've seen some interviews that folks have done on YouTube, for example, where they show manufacturing employment kind of trending downward from like the 1940s onward. But, you know, you got to distinguish between productivity losses or uh, excuse me, manufacturing jobs that are the result of productivity gains, right? Which is actually a good thing. You don't want just random people, you know, grabbing a shovel and, you know, shoveling up the ground to try to like for some ambitious construction project. Yeah, sure, you can employ people, but you're not really getting a whole lot done when you can actually have an automated, you know, earth-moving equipment or something like that, right? But we got to distinguish between that kind of displacement of or lost jobs, if you will, uh, versus uh, you know, the kind of jobs that are just simply displaced. And if you look in the manufacturing sector, it's actually not a story of like, you know, productivity gains that are just spiking, it's stagnation. And especially from, you know, the period of like the high point uh in like 2007 to now, there's just been it's been almost been like a complete flat line. Uh, we've never actually reached back up to those peaks that we achieved uh in the middle part of the decade. So um, you know, that tells me that's again largely a displacement story. And I think that this focus on consumer welfare above all else, and say, oh, well, you know, we just need to get consumers the cheapest good possible. But if you're locked into a situation where your wages have stagnated and you have no choice but to choose the cheapest option because it's about survival for you. It's not a it's not just because like, oh, I have the choice. You don't have a choice. You just you are you are essentially forced into a situation where you have like the lowest, you know, option. Um, so yeah, I mean, I think we we need to address those issues as well. Um, because again, we're not trying to get unemployed or we're not trying to just boost employment for the sake of it, uh, just to have our numbers look good and feel good about ourselves. We're actually trying to get productive employment going uh and and create a more balanced economy. And I think you need to do that by, you know, creating uh meaningful work and opportunities for people. Because yeah, you've mentioned before the multiplier effect for for manufacturing jobs. It's not just one job, you know, and you go home. It's like a job that, you know, patronizes other local businesses and actually buoys the service economy as well. Like it undergirds the entire uh ic economy, right? So um, and again, I think these are kind of discussions that often get lost in this whole um, you know, in this whole uh discussion. But but why don't we pivot maybe to the third segment, um talk a little bit about investment trends and onshoring.

SPEAKER_01 15:26

Yeah, this is the third big part of the tariff conversation that really needs to be discussed and solidified is that we have this opposition talk that tariffs don't even work, that the the stated goal of tariffs to bring manufacturing back to the US, and they don't even work for that. We're not seeing any evidence of that. But when you look at the actual data, the first indicators that you would look to see whenever you are reshoring this manufacturing, we are really seeing these first signs. So, for example, for just manufacturing demand in the US, durable goods orders rose 8.2% in 2025. This is signaling that people are having more demand for US made goods. These orders are increasing. The ISM manufacturing PMI, which measures if manufacturing is expanding or contracting in the economy, hit 52.7% in March. And it's the third consecutive month that it's been increasing. And then I think the another really good data point that we're starting to see now is manufacturing labor productivity. And this is something that is also going to really tie back into the inflation numbers because as we manufacture more here in the US, our productivity, our the actual output that we rate that we are able to do per person is going to increase with economies of scale as we produce things more in mass. And it's a lot cheaper to make a hundred of a product per unit than it is to make 10 of a product per unit. And so as our output increases, our manufacturing costs are going to go down and this productivity is gonna rise. And we're already seeing that. In 2025, manufacturing labor productivity rose 1.9%. And this is the largest annual gain since 2010. And so this is a big increasing trend, and it will also really impact the inflation going forward as it becomes cheaper to make things in the US as we make more of them, just with these economies of scale. And the final thing I will also add is that we're also seeing these same sort of trends in our CPA domestic market share index, which increased 3.5% in 2025. And this is partly due to some of the import levels decreasing since the since early 2025 and late 2024 into the third quarter. But it's also actually tied to output rising in many of these key industries, especially ones that are linked to Section 232. For primary metals, for example, actual output is up significantly. And same with motor vehicles. We had a $2.9 billion increase, I mean $3.3 billion increase in primary metals gross output. And for motor vehicles, the output was up by an equally high amount of 4.8%. And so we're seeing many of these indicators actually go up in time and making significant impacts for the US economy that we're actually producing more, our per unit costs are going down. And these are the very early indicators. We're definitely not completely reshored yet. We've had decades of damage, as we've previously talked about. But these are very positive, early signals that if we continue along lines of good tariff protection with specific product and industry-level tariffs that are tailored for these industries and give these long-term price signals. If if tariffs are done right, they can give this huge positive boost and positive investment signal for investing in American production and American industry.

SPEAKER_00 18:38

Yeah, a couple of points I'll make on that is number one, yeah, I mean, the numbers, as you point, trend in the right direction. And this is the larger point of tariff. Sometimes I think that gets lost about, you know, when people are talking about who's paying for the tariff and all these things. But sure, I mean, there there are instances where consumer goods or the cost that consumers pay will rise slightly, at least. Um, but but you know, the point is you're trying to adjust the the incentives away from consumption to um production. And and that's, you know, you're trying to induce investment to come online. Um, you know, looking at just estimated capital expenditures that um, you know, again, these are largely based off of announcements, so that doesn't haven't necessarily materialized, but it's all trending in the right direction. I think this administration is actually credited with having the highest amount of estimated capital expenditures forecast um over this you know period so far, uh, you know, as far as the second term has been going for the Trump administration. Um but I'll also point out, as you mentioned, you know, we're talking about like 40 plus years of deindustrialization. I mean, this didn't just happen over time. I mean, China didn't go from producing like 5% of the world's manufacturing output in 2000 to 35%, you know, today. You know, that didn't happen overnight. 25, 26 years of them just methodically chipping away at the foundation. And I think the other point I'll make is that, you know, one of the things that concerns me is the lack of commitment, I think, to, you know, whether it's across successive administrations or um, you know, just even within the within the k given administration to just like uh uh outline and enunciate a policy, but then kind of chip back at it, right? So you announce tariffs on section 232 tariffs. We need a protective wall for our industrial base. And then you subsequently start to use it as leverage, so to speak, for you know, negotiations. Okay, we get them into the negotiation table, and then we're just gonna wipe that tariff away and carve out these holes in the whole apparatus to just Swiss cheese this bad boy. And all of a sudden, like your effective tariff rate is just plunged again. And so, how committed are you to this policy? Whereas you don't have that question in China. I mean, for for right or wrong, right? Regardless of that it's you could their industrial overcapacity is destroying their own economy. It's creating problems for themselves, but they're still, I'll give them that, you know, they're committed, they're gonna go down this path. Um and I feel like again, I I feel like we are very, you know, it's it's hard to know that that we're committed to the we're in this for the long haul. And it it's tough for investment uh as an investment signal. Like who wants to commit resources to projects that just could be mothballed by the next administration? So I really want us to be able to, like, I really wish we could be in a situation where we could just, you know, have that focus um, you know, and just know that that we're in this for for the long term. You know, it just feels like that's been lacking. Um, I think, I mean, maybe that's a good place to stop. I know if you had any other thoughts you wanted to offer Andrew before we wrap up.

SPEAKER_01 21:32

Yeah, the only other thought I wanted to say was what kind of inspired us to do this sort of overview of the major points in the tariff debate recently is your actual debate with me here, your debate at Ohio State University just a few weeks ago. And it was It was really great to see. And yeah, congratulations on the debate. It's really, especially as this debate gets more and more public for how effective are tariffs? Are tariffs doing the things that they're saying they're doing? Are they infect uh affecting inflation? I think that. These are the core questions. And so we really wanted to just outline the main points in this debate and also just congratulate you on how the debate went.

SPEAKER_00 22:07

You know, I appreciate that. And you know, it kind of reminds me back when you when you testified, uh, I think in the Senate Aging Committee, right? Um, you know, the the experience you had where you're you're essentially leaning into the facts and the analysis and the work that you've done. Uh I had much the same experience where the kind of reception I got was was very, you know, it wasn't like this partisan kind of bickering. It was very much well received because I think people in the end, as much as we talk about everything just divided, you know, polarization, tribalism, all that stuff, you know, in the end, I think people want to know that that you know that they're getting the right information and they they want to be able to just like you know make independent decisions just with the right information. So I think it's it's probably you know to our credit, maybe that the kind of work that we're doing, and and um that's why I think it's it's it's awesome to be a part of an organization that we're we're kind of pushing forward on that. So um yeah, no, I I think that's great that we could that I had that opportunity to do it. Um and so yeah, appreciate your comments. Um, but you know, I think that's again, that's a good place for us to wrap up. Uh, you know, you can learn more about the work that we do at prosperousamerica.org. Uh be sure to find us on YouTube or Spotify or wherever you get your podcast. Um until the next time, stay tuned. Take care.