America’s Future Cannot Be Built on Tariffs
By Kenichi Ohmae
President Trump’s promise to restore America’s manufacturing glory through tariffs is based on a fundamental misconception of how the global economy works. Having advised governments and multinational corporations for decades, I’ve witnessed firsthand the evolution of international trade and the futility of protectionist policies. Tariffs have never successfully revitalized American industries—not even in McKinley’s time, not during the Japan-U.S. trade disputes which lasted over four decades, and certainly not now.
The problem isn’t that other countries have taken advantage of America. It’s the structure of the US economy. American factory workers, bolstered by unions, expect to earn $40 per hour—adding up to $100,000 per year, which is executive-level compensation. Executive pay then rises accordingly. Manufacturers of ordinary products simply cannot remain competitive at these labor costs. This wage level might be justified for producing premium goods like Ferraris or Porsches but not for standard vehicles, color televisions, furniture, apparel, toys, or smartphones.
Also, America enjoys unique advantages in global trade that Mr. Trump overlooks. As the issuer of the world’s reserve currency, the US is the only country which can settle international transactions with its own dollars. All they need is to print money to buy foreign products. Other countries must work hard to earn dollars to pay for their imports. The declaration of “mutual” tariffs in March made the US bonds tumble, putting the dollar’s future at stake.
The US is also the home to the world’s largest consumer base. In 2023, American consumers spent nearly $19 trillion, more than China’s entire $17 trillion GDP. The most sophisticated and aggressive retailers are Walmart and Amazon. They consistently dominate negotiations with Asian manufacturers, enabling Americans to access the world’s best products at the lowest prices—an enviable position that Mr. Trump’s tariffs would undermine. As I described in my book The Borderless World in 1989, American corporations literally pioneered the world’s most effective outsourcing strategy: import quality components from places with cheap labor, and sell to the most attractive markets.
The notion that protective tariffs can restore Rust Belt industries misunderstands both history and economics. These regions became “rusty” decades ago for structural reasons, and no trade policy can reverse.
Three Paths Forward, None Involving Tariffs
There are only three viable ways for advanced economies to thrive in today’s interconnected world. None involve trade barriers.
China exemplifies the first path: maintaining a low-wage economy with centralized control. Like an industrial corporation with Xi Jinping as both CEO and chairman, China has organized its economy to maximize export competitiveness. This strategy has delivered remarkable results, lifting hundreds of millions from poverty and enabling China to master everything from basic manufacturing to cutting-edge production technologies, AI and quantum computing in just decades.
But this approach is unavailable to America. The US cannot—and should not—artificially suppress wages to compete with developing nations. Moreover, America lacks the workforce necessary for mass manufacturing. When the Japanese companies I assisted tried to establish US factories, they struggled to hire even 100 production workers in regions with supposedly available labor. A Chinese-scale factory would require thousands. Foxconn currently produces Apple smartphones in Chengdu, China, with one million workers. Even if Apple managed only the final assembly in the US, it would still have to import all the key components from East Asia. Mr. Trump’s administration would have to specify which tariffs he would still charge, and where Foxconn and Apple would find their workforce.
The European approach represents the second path. When the EU removed internal borders, European producers had to compete based on quality and specialization rather than protection. Italian cities like Modena now dominate high-end automobiles. The small cities Carpi and Como specialize in knit products and silk wear respectively, attracting top designers and companies such as Hermes. Dutch agriculture exports rank second globally despite limited land. People around the world pay premium prices for luxury goods made in France. Each region developed distinctive competencies and strong brands that justify higher wages.
American manufacturers, however, have rarely pursued this quality-focused strategy. They do not upgrade the quality of their products to increase their prices. Instead, they’ve relocated production abroad, such as Nike in Vietnam, or sought government protection. Agriculture is a rare exception where commodities like corn and wheat remained cost-competitive in the global market and affect overall trade negotiations with other countries. Moreover, the European path requires high, redistributive taxes to maintain its quality of life for people who are not engaged in export industries; otherwise, the continent’s economic stability would collapse.
The third path—America’s traditional strength—is to function like a professional services firm, leveraging intellectual capital and global networks. This is where America truly excels. The “Magnificent Seven” tech giants dominate global markets not through manufacturing but through innovation, platforms, and services. Their “trade” with other countries does not go through the customs on the border, but goes through the internet without paying tariffs. Starbucks conquers international markets not by exporting coffee but by exporting its brand and management know-how. CocaCola is the largest operator of vending machines in Japan, but all it exports from the US is the concentrates. American companies succeed globally by establishing operations in target markets rather than shipping products from home.
American leaders deliberately cultivated this strategy, starting in the 1980s. They deregulated communications, airlines, finance, and technology and then established global leadership in those domains. Rather than protecting declining industries, American policy prioritized developing new ones, importing talent, fostering low consumer prices, and welcoming innovation.
Experience Before Nostalgia
My experience with Japan-U.S. trade negotiations over four decades taught me the value of strategy over protectionism. When American tariffs forced Japanese color television manufacturers to establish US production, these operations proved short-lived. Companies like Panasonic, Sharp and Toshiba were displaced by South Korean and Chinese competitors, who—thanks to shifting trends in American trade policy—could keep their manufacturing at home. The tariffs imposed on Japan merely postponed inevitable economic evolution while raising prices for consumers. Japan was better suited to follow its version of the European export-driven economic model, taking advantage of lower-cost manufacturing in other Asian nations. As to the automobile, the Japanese transplants in the US can now produce four million cars annually, and perhaps can survive any tariffs Mr.Trump might come up with.
American consumers are beginning to see the consequences of Mr. Trump’s tariff policies. They represent nostalgia for an economy that can never return. Putting the blame on others does not solve the problem of the inflated expectations of the Rust Belt workforce. The misguided focus on protectionism diverts attention from America’s genuine economic strengths and threatens the advantages that make American consumers and businesses the envy of the world. The US dominates AI development, hosts seven of the ten largest companies by market capitalization, and nurtures tomorrow’s unicorns and decacorns. Its future prosperity lies not in reclaiming lost manufacturing but in strengthening its formidable advantages in technology, innovation, and global services—areas where it still leads the world.
Rather than building walls, America should rely on building bridges to global prosperity.
Kenichi Ohmae is Chancellor of The Graduate School of Business of BBT University. He is also the author of “The Mind of the Strategist”, “The Borderless World”, and “The Invisible Continent”
