It’s easy to blame globalization for everything; from vanishing factory jobs to wage stagnation and social unrest.
WIth Donald Trump back in office, the idea that global trade hollowed out the American middle class is becoming increasingly popular.
That is one key reasoning behind his aggressive trade policies.
Days before the 2024 election, the current US President said:
“On November 5, we will save our economy, we will rescue our middle class, [and] we will reclaim our sovereignty.”
However, the reality behind this rhetoric is far more complicated. New data, historical trends, and policy analysis paint a picture that doesn’t fit the usual political storylines.
The real threat to the middle class may not be what people think, and tariffs aren’t the solution many claim they are.
Did trade really hollow out US manufacturing?
It’s true that US manufacturing employment has shrunk from its 1979 peak of 19.5 million jobs to 12.8 million today, according to Wells Fargo analysis.
The “China Shock”, which refers to the wave of job losses that followed China’s 2001 WTO entry, cost the US an estimated 2 million jobs.
That impact, though concentrated and painful, affected about 1.5% of the US workforce.
But, It did not erase the middle class.
In fact, trade openness in the US is relatively low compared to most developed countries. Imports as a share of GDP remain smaller than in Germany or even China.
Source: Ourworldindata
And even with trade deficits, most goods consumed in the US are still made domestically.
The idea that globalization wiped out American factories ignores two realities: first, that most of the job losses happened before the peak of global trade in the 2000s, and second, that productivity and automation had already started reducing the number of factory jobs well before that.
Why did wages really stagnate for 20 years?
Between 1973 and 1994, US wages barely moved, even when adjusted for inflation. But this stagnation didn’t begin with trade agreements. NAFTA was signed in 1994, long after the slowdown began.
The most plausible cause was a dramatic slowdown in productivity growth that began in the early 1970s.
That period also saw two oil shocks, runaway inflation, repeated recessions, and declining union power.
None of these factors are typically included in popular narratives about trade, but they align more closely with the actual timeline of wage stagnation.
However, real wage growth has resumed since the mid-1990s. Median personal income has risen by roughly 50% since the early 1970s.
Lower-income workers have seen their wages rise by over 40% since 1996, according to data from the Economic Policy Institute.
That doesn’t mean inequality isn’t real, but it does challenge the idea that globalization caused a general collapse in worker living standards.
Can tariffs really bring back factory jobs?
President Trump’s economic team says tariffs will revive US manufacturing. Wells Fargo doesn’t agree.
In a recent analysis, the bank estimated that restoring manufacturing to 1979 employment levels would require $2.9 trillion in capital investment and 6.7 million new workers.
But the US only had 7.2 million unemployed people total in April 2025.
Labor costs are a big reason why. American factory workers earn seven times more than their Chinese counterparts, eleven times more than Mexicans, and sixteen times more than Vietnamese workers.
That makes the US competitive only in high-value, automated manufacturing and not in low-margin sectors like furniture or textiles.
And tariffs can backfire. By making imports more expensive, they often push up the dollar’s value.
This means US exports are less competitive, canceling out any gains for domestic production.
Wells Fargo analysts also note that tariffs add price uncertainty and hurt firms’ willingness to invest in hiring or capacity expansion.
Why wages are both too high and too low
US manufacturers face a strange contradiction. Wages are too high to compete globally in labor-intensive goods. But they’re also too low to attract American workers.
A factory job today pays less than the average private sector job, about 90 cents on the dollar.
This makes it hard for employers to fill positions in welding, machining, and other skilled trades.
At the same time, consumers don’t want to pay more for US-made goods. One experiment by a showerhead company offered two versions of the same product: one made in Asia for $129, the other made in America for $239. Out of 584 customers, not one chose the American version.
Source: Afina
This is the double bind facing US industry: rebuild too slowly and costs stay too high. Rebuild too fast and nobody wants the jobs or the products.
So what actually works?
If tariffs don’t deliver, what might?
A more effective approach is domestic. Higher minimum wages, stronger union protections, and full employment policies have shown more consistent results in boosting worker pay.
These policies would do more to raise non-college wages than any trade policy tool.
Industrial policy also matters. The CHIPS Act, for example, provides targeted subsidies to reshore semiconductor production and reduce supply chain risks.
But even here, success depends on skilled labor, something the US is increasingly short on.
A progressive trade agenda would also address global labor standards. One idea is a tiered tariff system based on countries’ labor rights records.
Countries with strong protections would face no tariffs; those with abusive labor practices would face up to 15%.
This would reward fairer economies while pressuring others to raise their standards.
Climate policy is another frontier. Without carbon border adjustments, cleaner US industries lose out to polluting producers abroad.
The EU’s CBAM could offer a framework: tariffs based on carbon emissions embedded in imports.
The US could adopt something similar.
Lastly, tax policy matters. The US corporate tax code encourages companies to move both profits and production offshore.
A coordinated global tax floor and stricter domestic rules could eliminate incentives to shift income abroad.
At the end of the day, globalization didn’t destroy the American middle class, and tariffs are unlikely to help it either.
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