[By Wolfgang Münchau, translated by Whale Life]
When Donald Trump stirred up a tariff storm at a press conference in the White House Rose Garden earlier this month, he specially invited a retired Detroit auto worker to stand on the podium. Brian Pannebecker from the United Auto Workers (UAW) said, "I have witnessed one factory after another close down in Detroit and its surrounding metropolitan areas." He believed that Trump's policies would revive these factories.
Pannebecker represents a key group within Trump's supporter base. His observation about the decline of American industry is entirely accurate. However, his mistake lies in believing that Trump can solve the problem. Trump's policies will undoubtedly attract companies back to the U.S., but these companies will neither hire members of the United Auto Workers Union nor provide the kind of jobs this group expects. There will be a return of manufacturing—but it will not be the type of manufacturing familiar to Pannebecker.
The fate of places like Detroit stems from a severe practical deviation from one of economics' most powerful theories—the theory of comparative advantage proposed by David Ricardo. In short, the theory advocates that countries should actively give up their strengths and focus on industries where they have greater advantages. This is the theoretical basis for the outflow of American and British manufacturing and also the deeper reason behind the decline of Detroit's auto factories and the rise of manufacturing in China and Germany.
On April 2nd local time, Trump announced tariffs would "bring back many jobs and factories to America." Video screenshot.
But there is a major issue with this theory: it overlooks groups like Pannebecker. Ricardo was correct at the macro level—globalization winners gain far more than losers lose. However, the key issue in political games is that the number of losers far exceeds the winners. In statistical terms: economists focus on average income or total income, while politics focuses on median income. Because the voters represented by the median determine the outcome of elections.
Diagnosing the ills of hyper-globalization is not difficult; the difficulty lies in planning the future direction. We are in a world shaped by trade agreements signed over nine years: the North American Free Trade Agreement between the U.S., Canada, and Mexico in 1992 marked the beginning; the establishment of the WTO in 1995 bridged the past and future; and China’s entry into the WTO in 2001 served as the closing act. These changes brought about a massive explosion in global trade, triggering an offshoring tide of American industries. More than two decades later, the global industrial landscape has undergone drastic changes.
The traditional industrial model involves receiving raw materials such as steel and plastic (what Pannebecker refers to as "products") and processing them into finished products. At that time, factories often employed thousands of workers. If you lived in Scunthorpe in northeast England, you had a high probability of being a steelworker or related to one; in Detroit in the 1960s, people either worked in automobile manufacturing or were musicians.
Globalization has not only driven companies away from the U.S. and the UK but has also fundamentally transformed the operational model of industrial enterprises. Modern manufacturing enterprises differ greatly from traditional factories; the former resemble network nodes in a global supply chain rather than physical entities with factories and employee canteens. Western European manufacturing enterprises procure raw materials from China (and increasingly from Russia) and obtain intermediate products required for production processes from Eastern Europe and other parts of Eurasia. Many factories seen in Germany today are merely assembly plants, primarily tasked with affixing the label "Made in Germany" on finished products.
What lies ahead for European automakers like Jaguar, Land Rover, Audi, and Porsche, which sell vehicles in the U.S. but lack domestic factories? To avoid tariffs, they need to build factories in the U.S., which means restructuring their entire supply chain systems. Some companies will do so, but most cannot.
The supply chain revolution is the most significant change in the industrial sector over the past thirty years. The impending Fourth Industrial Revolution will bring about another major transformation. Industry 1.0 refers to the mechanical revolution of the late 18th century, Industry 2.0 is the revolution of assembly line production, Industry 3.0 represents the digital revolution, and Industry 4.0 marks the comprehensive digital revolution of intelligent factories.
To understand intelligent factories, we need to connect them with the concept of the Internet of Things—integrating physical objects into digital networks. Imagine an intelligent refrigerator capable of automatically identifying the expiration dates of stored food, then apply this concept to the industrial sector: intelligent factories run by robots and equipped with sensors for real-time communication. They still require raw materials to produce things, but their reliance on complex global supply chains will decrease. This is precisely why countries (not just the Trump administration) are vying for control of critical raw materials like lithium and rare earth elements.
Former U.S. Treasury Secretary and former Federal Reserve Chairman Janet Yellen stated in an interview on April 14 that promoting the return of American manufacturing through tariffs is a "pipe dream." Video screenshot.
However, what truly distinguishes Industry 4.0 from previous industrial revolutions is its reliance on vast amounts of data. These data need to be stored and processed in energy-hungry data centers, and currently, only China and the U.S. have the capability to build such facilities on a large scale. This requires next-generation mobile communication technology—6G networks—to transmit the data collected by factory sensors to data centers. These data centers require a supply of cheap energy and teams with digital literacy. New factories will still employ human resources, but employees' educational backgrounds will be closer to today's Silicon Valley tech professionals than traditional industrial workers like Pannebecker and his former colleagues.
Among all countries globally, China holds an unparalleled leading position in the field of Industry 4.0. The U.S. might join this行列, but Europeans are already irreparably behind. While Europe struggles to promote the construction of 5G mobile communication networks, China has begun research and development of 6G technology. The Chinese government recently approved the construction of a giant hydropower station on the Yarlung Zangbo River, with a designed power generation capacity of 60 gigawatts, approximately equivalent to Germany's annual electricity consumption. Its power generation capacity will be about three times that of the current largest hydropower station—the Three Gorges Dam.
An environmentally-conscious Europe focused on achieving "net zero emissions" is destined to be unable to participate in this competition. For example, Germany, once one of the biggest winners of the global supply chain revolution, has lost its advantage in cheap energy—especially after deciding to shut down nuclear power plants and voluntarily cutting off natural gas supplies from Russia. Although nuclear fusion technology may change the situation, this still requires several decades. The era of Industry 4.0 will not wait that long; it will soon arrive under the power of hydropower stations, U.S. shale gas, nuclear energy, and natural gas. If any Western country truly has the ability to seize the commercial opportunities of Industry 4.0, it can only be the U.S. during the Trump era.
I have observed a common wishful thinking mindset among macroeconomists and commentators who constantly claim that Trump's policies are bound to fail. As German poet Christian Morgenstern once wrote, "Whatever cannot exist will not endure." Regarding whether Trump's approach can succeed, I remain open-minded. But if he ultimately succeeds, I am certain it will shock the world.
The way Trump is most likely to succeed is by following the path of Industry 4.0. Yet his critics almost never consider this strategic scenario, especially for economists primarily focused on the impact of tariffs on GDP. Their mental limitations may lead people to draw incorrect conclusions. Just as I myself truly understood the economic drivers of Brexit only after seeing a little-known dataset released by the UK Department for Work and Pensions (DWP)—showing that the median real disposable income of British voters declined continuously over the ten years prior to the 2016 referendum—if one only focuses on conventional official indicators such as GDP and unemployment rates, one will completely miss these profound changes. The Western economic community steeped in Ricardo's theory failed to foresee Brexit and did not notice the backlash against globalization.
Trump may have greatly underestimated the difficulty of dismantling global supply chains, and his tariff methods are also quite crude. But I believe he has grasped some trends. As Joe Biden's misleadingly named large subsidy plan—the Inflation Reduction Act—is essentially attracting global industries to shift toward the U.S. Some companies have already taken action: Apple announced plans to expand production in the U.S., and Taiwan Semiconductor Manufacturing Company (TSMC) and pharmaceutical giant Eli Lilly have made similar statements. However, traditional industries will not return; those unionized shop floor workers have become history.
Pannebecker led 20 former colleagues to attend Trump's "Liberation Day" speech in the Rose Garden. Chris Vitale, a third-generation auto worker, candidly told the Detroit News that deindustrialization had hollowed out his community. This is why Trump was elected. But even if he successfully guides industries back to the U.S., I doubt Vitale's community will escape the continued decline of its fortunes.
(The original article was published on the British commentary website UnHerd, titled "American Auto Manufacturing Jobs Won't Come Back." The translation has been abridged for reader reference only and does not represent the views of Guancha Observer. Follow Guancha Observer WeChat public account guanchacn for daily interesting articles.)
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