Can bringing back manufacturing help the heartland catch up with 'superstar' cities? : Planet Money

A Planet Money article explores the potential of revitalizing U.S. manufacturing to address regional inequality between thriving 'superstar cities' and struggling heartland communities. While manufacturing has a multiplier effect, creating additional jobs in local economies, its impact is debated, with some arguing that tariffs and other interventions may not be effective or could negatively impact the broader economy. Economists note advanced manufacturing has a higher multiplier, approaching that of tech, but automation trends and the sector's overall size raise questions about its capacity to drive widespread prosperity, and the effectiveness of government policies remains to be seen.

Analysis

The article examines the potential for a U.S. manufacturing revival to address regional economic inequality, highlighting the sector's 'tradable' nature and job multiplier effects. Economist Enrico Moretti's research indicates that while an average manufacturing job creates 1.6 additional local jobs, high-end manufacturing boasts a multiplier of 4.9, comparable to the tech sector's 5. This underscores manufacturing's potential, especially advanced manufacturing, as a catalyst for local economic development, particularly for workers without college degrees. However, significant debate persists regarding its capacity to drive widespread prosperity and the effectiveness of policy interventions. Gordon Hanson cautions against a 'fetish' for manufacturing, emphasizing that broader solutions are needed for good non-college jobs and that tariffs could be counterproductive, a view supported by research indicating President Trump's tariffs were at best a wash for heartland economies. While 'superstar cities' captured over 70% of national employment growth between 2008 and 2018, attracting high-paid service jobs, former manufacturing towns experienced decline. Oren Cass argues manufacturing is a viable option for these struggling regions due to different locational requirements compared to tech or finance. Conversely, Moretti expresses skepticism about manufacturing's ability to be a major future job source due to automation and its current small scale, doubting tariffs can reverse long-term decline. While recent Biden administration policies have coincided with increased factory construction spending, particularly in Southern states, the long-term impact on regional inequality remains uncertain, with the effectiveness of tariffs and subsidies still under scrutiny.

Key Decisions for Investors

• Investors should closely monitor the impact of current U.S. industrial policies, including subsidies and tariffs, on manufacturing output, employment figures, and regional economic diversification, particularly focusing on sectors like advanced manufacturing which demonstrate higher economic multiplier effects.
• Opportunities in companies poised to benefit from reshoring trends or specific government incentives warrant careful evaluation, balanced against the risks associated with increasing automation within manufacturing and the historically mixed success of protectionist trade measures in generating sustainable, widespread employment.
• Strategic asset allocation should consider the ongoing economic dynamism of 'superstar cities' in high-value service sectors, while also identifying potential alpha in regions or companies that may benefit from genuine, policy-supported manufacturing revitalization, should current initiatives prove more effective than past attempts.
• A thorough due diligence process is crucial for investments in companies heavily reliant on specific trade policies or located in regions targeted for manufacturing growth, given the significant debate over the efficacy and potential unintended consequences of such interventions, including retaliatory trade actions.