The provocation was the “every president tries” part. If “trying” is defined as changing policy to consistently support employment growth in U.S. manufacturing, no president has tried in my lifetime to do this. Amazingly, doing nothing has indeed failed. Doing nothing was also the wrong choice.

The loss of manufacturing jobs

First, some data to define the problem. Furman focuses on the share of total employment that is in manufacturing. He notes that many structural non-policy forces (like technology and what people demand as countries get richer) put steady downward pressure on this in any growing country. There’s a lot of truth in that.

But the U.S. got much richer between 1965 and 2000—in fact it got richer at a far faster pace than it has since, so both technology and the different demands of a richer society should have been operating a lot less intensely since then. And yet the level of U.S. manufacturing employment was steady during that period, fluctuating roughly between 17.0 and 19.5 million depending on the state of the business cycle (see Figure A). After 35 years of stability, manufacturing jobs then cratered: 3 million manufacturing jobs were lost after the recession of 2001, and the 2003–2007 recovery saw essentially no gain at all in manufacturing jobs—the first manufacturing jobless recovery we’ve ever experienced. Then another 3 million jobs were lost during the Great Recession of 2008–09.

After falling from over 17 million to just over 11 million between 2000 and 2010, the sector has seen only very slow growth since. The new high point of manufacturing employment in the recent past was 12.9 million workers in early 2023.

Figure A

Manufacturing historically lost a disproportionate share of jobs during recessions, but what kept it from gaining jobs back quickly in the early 2000s and 2010s recoveries the way it usually had? One huge influence was the emergence of a large trade deficit in manufactured goods. In those decades, the deficit peaked at 4.4% of GDP in 2005 (see Figure B). After being forced into improvement by the Great Recession and the collapse of American spending on all goods and services (including imports), it has steadily moved back toward this peak and surpassed it in recent years.

Figure B

Policy measures can close the trade deficit and reshore manufacturing jobs

Tolerating this rise of the U.S. trade deficit was a policy choice. The deficit’s rise was driven by a dollar whose value is too high to allow balanced trade. A high dollar makes our exports expensive to foreign consumers and makes foreign imports cheap for U.S. residents. Hence, it leads directly to chronic trade deficits (see Figure C). Any serious effort at boosting manufacturing employment would require using policy levers to reduce the value of the U.S. dollar.

Figure C

What are these currency policy levers? First, policy would need to prevent other countries’ governments from actively managing the value of their currency to give their exports a competitive advantage against U.S.-produced goods. There are many ways to do this. Currency management is done through other countries’ governments (or their proxies) buying U.S. dollar-denominated assets (like Treasury bonds or mortgage-backed securities) to bid up the demand for dollars. There’s no particular reason the U.S. couldn’t undertake countervailing currency intervention and buy other countries’ assets whenever they bought ours in an effort to manage their currency’s value. Or we could tax foreign purchases of U.S. assets.

Second, we could raise taxes domestically to close fiscal deficits. In coming years unless we run into a recession (which the Iran conflict makes more likely), there is likely to be sustained upward pressure on interest rates stemming from the big increases in fiscal deficits locked in by the Republican mega tax and spending bill. Higher interest rates in the U.S. will attract foreign investors to U.S. assets, which will bid up the value of the U.S. dollar further and harm manufacturing.

Third, we could hasten the inevitable deflation of the AI-driven stock market bubble, which has attracted foreign investors looking to make high returns. All else equal, there would be less upward pressure on the U.S. dollar if foreign investors were not rushing in to buy dollars to purchase U.S. stocks.

Fourth, we could accelerate the transition to cleaner energy. The U.S. has swung from being a large net importer to a net exporter of oil and natural gas. This has greatly increased foreign demand for U.S. dollars simply to buy our energy supplies, which pushes up the value of the dollar and hurts U.S. manufacturing.

Finally, we could reform our corporate tax code to stop its bias toward offshoring both paper profits and real production. The swing toward a large trade deficit in the pharmaceuticals sector, for example, can be linked directly to the first Trump administration’s changes in the corporate tax code.

In short, taking currency seriously would mean going against some very powerful economic interests—finance, tech, pharmaceuticals, and fossil fuels—in the name of helping U.S. manufacturing. But it would be a good trade to make. And to be clear, dollar weakness that is caused not by intentional policy decisions but is simply an outcome of erratic policy decisions will not provide any sustained benefits to U.S. manufacturing. U.S. manufacturing needs a competitive value of the dollar and a healthy and stable domestic economy. Engineering dollar decline by sabotaging the stability of the domestic economy does not help.

How many jobs could be reshored if currency policy somehow closed the U.S. manufacturing trade deficit? Very roughly it would be close to 3 million. This would not change the long-run trend in the manufacturing share of employment, but it would boost manufacturing-based communities around the country.

Indifference to manufacturing was bad for economic dynamism

The long-run gains to rebuilding communities of manufacturing process knowledge in the U.S. could be large. U.S. losses and China’s growing dominance in manufacturing are in large part a story of deconstructing communities of process knowledge in the U.S. and building them in China. These communities are geographic clusters where firms and workers specialize in particular manufacturing sub-sectors. The agglomeration of knowledge and skills leads to steady innovation which further locks in the competitive advantage of the cluster and raises productivity growth.

Currency policy destroyed these clusters in the U.S. and provided ample space for them to grow in China. The large and constant pressure of an overvalued dollar in the U.S. imposes a heavy drag on the prospects of new manufacturing firms setting up shop and becoming a center for clusters like these. The currency policy of China surely acted as the reverse of this, clearing huge competitive space for new entrants and for further growth in communities of process knowledge.

Currency management was not China’s only industrial policy measure, but it is the one that allowed an across-the-board competitive advantage in all manufacturing industries. And it is the only industrial policy in the U.S. that would reclaim some of the across-the-board manufacturing disadvantage we’ve allowed to be imposed on our domestic industry. Targeted protection and subsidies for particular sub-industries in manufacturing have been important in crafting the exact patterns of trade, but it is currency policy that largely explains the manufacturing-wide trade deficit that the U.S. runs with China and other countries that manage their currency.

How big is this problem of losing expertise and process knowledge in manufacturing for the overall economy? Another sign of the indifference towards manufacturing shown by successive U.S. policymakers is that we don’t even really know—and this indifference and the ignorance it generates has grown over the past year of the Trump administration. The manufacturing sector used to be a source of productivity dynamism in the U.S. economy, but recent data indicate that as we hemorrhaged millions of jobs we also saw declining productivity growth in the sector. This productivity decline might not be entirely genuine—it might be a problem with statistical measurement. It would be nice to invest in our data-gathering infrastructure to shed more light on this issue, but instead the parts of the Bureau of Labor Statistics who have the expertise to do this have been gutted by the Trump administration and longer-run cuts. Another angle of taking manufacturing seriously would be supporting the public structures that provide needed inputs to know what’s even happening in the sector.

Doing nothing was a mistake

U.S. presidents have made the implicit judgement over the past 50 years that it’s a good trade for Americans to have a smaller domestic manufacturing sector in return for cheap imports of manufactured goods, even if that means we’re running chronic large trade deficits. It’s not so obvious to me that’s a good trade, and there’s one last angle that makes it even less obvious.

The foreign inflow of capital that is the mirror image of the trade deficit in manufactured goods is essentially investors abroad bidding against Americans who are looking to buy stocks and bonds and other assets to build their wealth. Bidding up the price of these assets means long-run returns will be lower. In short, this current system of trade imbalances lowers the returns to holding wealth for U.S. residents. One could argue that this is mostly a problem for wealthy U.S. households, who own the lion’s share of assets.

But there is also the issue of why the valuation of U.S. assets has grown in recent decades even aside from increased foreign demand. A huge part of this growth is a zero-sum transfer of income from labor earnings to corporate profits: Recent estimates have this transfer accounting for almost half of the entire nominal growth in the value of U.S. corporate equities in the last 40 years.

Absent foreign demand for U.S. assets, some of this loss to wages would have been counterbalanced for at least some subset of U.S. households by higher rates of return to their savings. To be clear, this zero-sum transfer from wages to wealth still would have been a negative development for the vast majority within the U.S. economy. But this transfer combined with the fact that most of the gains accrue to investors outside of the U.S. because of imbalances in trade and investment flows make it even more damaging. Essentially, U.S. households as workers feel all the pain of a campaign of wage suppression, but U.S. households as investors do not claim all of the benefits of this wage suppression.

Presidents have not tried to reverse manufacturing job loss

In the end, no president in my lifetime has made a serious and consistent effort to do what is necessary to make the U.S. dollar stay at values commensurate with balanced trade in manufacturing. Ronald Reagan famously negotiated the Plaza Accord, which pressured Germany and Japan (our two biggest trade-deficit partners at the time) to reflate their own economies and to stop currency intervention. But at the same time, Reagan ramped up military spending and made large tax cuts that put huge upward pressure on interest rates and led to huge trade deficits in the early 1980s. Bill Clinton oversaw smaller fiscal deficits but actively encouraged a “strong dollar policy” which saw the dollar hit some of its highest levels on record. This strong dollar policy and support for a punitive rescue package for countries slammed by the Asian financial crisis of the late 1990s led to another large increase in U.S. trade deficits. The Clinton administration’s support for permanent normalized trade relations (PNTR) with China and for China’s entry into the World Trade Organization (WTO) made it harder for subsequent administrations to apply pressure to China to abandon its significant currency management in the 2000s.

George W. Bush refused to address the Chinese currency management and undertook large tax cuts and increased military spending again, pushing up interest rates and leading to another round of large trade deficits. Barack Obama similarly failed to address currency management, even leaving it out of the Trans-Pacific Partnership (TPP) agreement he pushed hard in his final years in office. Donald Trump passed corporate tax changes that actively incentivized offshoring in his first term in office. His major trade policy change in the second term has been chaotic and fluctuating—though generally high and broad—tariffs across manufacturing. Manufacturing employment in 2025 averaged 157,000 lower than in 2024 even as the administration trumpeted these large tariff increases. That constitutes the worst non-recessionary year for manufacturing since 2004.

Furman is right that we have seen consistent presidential failure to support employment in manufacturing. And he’s right that most of these presidents made some rhetorical commitment to manufacturing that makes this failure jarring. But nothing serious was ever really tried, and that was a costly mistake.

At a core level, Trump’s USMCA did not fix the intense downward pressure on jobs and wages that has plagued U.S. manufacturing economies in the generation since NAFTA. USMCA made important advances over NAFTA but still failed to deliver on its promise to address systemic labor exploitation in Mexico—perpetuating instead the incentives for a race to the bottom in labor and pollution standards for producing goods that can compete duty free in North American markets.

USMCA actually expanded the back door to U.S. markets for unfairly traded products by allowing an expanded Chinese manufacturing footprint to penetrate the Mexican economy through imports and inbound foreign investment, allowing China to benefit from USMCA’s market access provisions. Essentially, USMCA became a way for Chinese-produced goods to masquerade as goods that should receive the preferential USMCA tariff rates. Additionally, USMCA expanded on NAFTA-granted corporate protections by advancing monopolistic property rights across the continental economy for the world’s largest digital economy and pharmaceutical industry interests. In short, there is no evidence that things have improved for U.S. workers and small businesses or their Mexican and Canadian counterparts under Trump’s trade rules for North America—and there is substantial evidence that things have gotten worse:

• After Trump signed USMCA on July 1, 2020, the U.S. trade deficit with Mexico and Canada widened sharply, increasing to a projected $263 billion in 2025, up from $125 billion in 2020 and $85 billion in 2017.
• The USMCA trade deficit is largely a problem of oil imports from Canada and manufacturing imports from Mexico. Excluding petroleum, the U.S. actually ran a trade surplus of $55 billion with Canada in 2024, or $3 billion more than in 2020. With Mexico, imbalanced trade is about manufacturing, not oil: The non-petroleum trade deficit with Mexico accelerated after USMCA took effect, reaching $156 billion in 2024 (or $55 billion more than in 2020).
• Although Trump’s USMCA sought to revitalize U.S. manufacturing industries, manufacturers across the country shed or furloughed more than 576,000 jobs since he signed the agreement, according to WARN Act notifications filed by employers.
• In the critical automotive industry that Trump claimed to want to reshore, imports of motor vehicles and parts from Mexico nearly doubled following USMCA, rising to $274 billion in 2024, up from $196 billion in 2019. Imports of light-duty vehicles from Mexico increased by 36% while imports of medium- and heavy-duty vehicles increased a whopping 256%.
• Despite novel labor reforms in USMCA—some worth preserving and expanding—the overall wage gap in manufacturing continues to drive corporate decisions to exploit Mexico’s low-wage, low-standard labor environment. At just $2.76 per hour, Mexican workers’ wages today are lower than they were in 2002—a mere 10% of U.S. and 12% of Canadian manufacturing wages. U.S. manufacturers expanded investment in Mexico by $155.4 billion through 2023, including $56 billion in transportation equipment production.
• USMCA left a gaping loophole for Chinese manufacturers to exploit duty-free access to North American markets without offering reciprocal market access for U.S. manufacturers. First to evade Trump’s 2018 tariffs and later to take advantage of the USMCA loophole, Chinese firms expanded their direct investment footprint in Mexico by as much as 288% through 2023 while expanding the export of a range of industrial products to Mexico by 160–900%.

Now USMCA faces a sunset review, requiring all three countries to agree by July 1, 2026, to extend the agreement another 16 years.1 But we don’t need to wait another 10 years to see if President Trump’s USMCA gambit will help workers and the U.S. economy—the data in this report show it has failed working people in all three countries and is in need of dramatic reform and renegotiation. One constituency—leaders from organized labor—has called for the sunset review to identify concrete revisions to address the problems of offshoring and content leakage while raising wages and standards for workers in Mexico (Shuler 2025). While the United States Trade Representative (USTR) is required to report to Congress and the president on its assessment of USMCA, the administration is duty-bound to remedy any flaws it finds in the agreement.

It’s unclear how the president might approach this statutory opportunity to reconfigure a key pillar of U.S. and global trade relations. Trump will be tempted to cast aside the trade agreement based on the rule of law in favor of his new improvisational and perpetual crisis approach to trade negotiations. As we’ve learned from Trump’s track record and thousands of years of trade history, a deal is not always a deal, artful as it may appear. It would seem Trump is not optimizing for general welfare, or even the benefit, generally, of the manufacturing sector he claimed to want to revive during his campaign, but rather to maximize and centralize trade rulemaking authority in the Oval Office.

Trump’s best play to achieve this is to continue delivering credible threats to disrupt the existing trade regime. So long as such threats exist, Trump can keep demanding ad hoc changes to trade policy. This dynamic and the poisonous uncertainty it creates for the economy is precisely why countries negotiate complex trade agreements—committing a shared set of economic rules to the parties’ agreed-upon gains, closer social and economic integration, and a predictable means to resolve conflicts when they inevitably arise. And that is what will be lost if Trump overturns a rules-based agreement and installs his extractive approach to trade relations as the United States’ new norm.

Of course, a rules-based trading system can reduce uncertainty but still contain extreme flaws. This was clearly the case with the pre-Trump status quo in the rules of the game governing globalization, most clearly typified by NAFTA; the rules were clear and binding, but they privileged powerful corporate interests over rank-and-file workers in all three North American economies.

The sunsetting of USMCA means the U.S., Canada, and Mexico now have a chance to put workers and their communities first, instead of representing the big business interests of the status quo. If the Trump administration fails to seize this opportunity and instead simply seeks to centralize its control over all trade policy, this will impose further severe economic disruption and hardship across North American manufacturing industries, cede technological and economic leadership to U.S. competitors, forsake the potential gains from deeper regional economic integration that most other parts of the world have embraced, and squander the recent post-COVID resurgence in U.S. manufacturing investments.

Uncertainty about the future of North American trade rules will cast a dark cloud over investments and jobs that bet on the idea of a regionally integrated North American economy. In 2024, that trade amounted to $1.6 trillion for the United States—nearly one-third of all U.S. trade—but reached far wider through direct supply chain linkages and indirect spending from the incomes earned producing, servicing, and moving goods around North America. Given the credible threat of disruption that President Trump brings to trade relations, one could anticipate that dark cloud to also remain a perpetual feature of U.S. and global macroeconomic expectations.

What’s worse, walking away will not end USMCA’s raw deal. Unless an amendment to the 2020 agreement is reached, the U.S. economy would still be bound by Trump’s failing USMCA for the next 10 years of the sunset. At any time before the end in 2036, a future president would be free to reopen the deal, potentially cementing even worse terms. Since USMCA’s rules will remain in force, it is imperative to win a trade model that creates a true worker-centered approach. Just as NAFTA became a model for subsequent agreements extending the lopsided, corporate-driven trade regime to scores of other U.S. trading partners (Bivens and Hersh 2025), a renegotiated USMCA could similarly be a model for protecting workers and communities from the excesses of trade. Without such changes, Trump’s USMCA will continue doing active economic damage and making it difficult, politically, to cultivate broader diplomatic relations important to the United States.

Hard bargaining on USMCA is the best chance to cement a model that embraces the mutual benefits of trade while protecting workers and their communities at the core of the economy. To do so, the president and his trade negotiators should:

• Articulate the administration’s goals for renegotiating USMCA to Congress and the public. Establishing well-defined objectives will make clear to U.S. trading partners, businesses, workers, and communities just what President Trump is trying to achieve in reframing the economic relationship with the U.S.’ two largest trading partners. At minimum, this means adhering to the public and congressional consultations and disclosures required by statute. Such an approach would help build consensus and political support to press for necessary legislative changes in Congress. If instead Trump pursues the kind of informal, ill-defined, and unenforceable “deals” announced thus far, it will cast a cloud of uncertainty over U.S. international economic relations—and ensuing trade and investment activities—through July 2026 and beyond.
• Strengthen and expand regional value content (RVC) and labor value content (LVC) rules. USMCA established rules for the share of content that must be produced in North America and at a given minimum wage to qualify for preferential market access or otherwise face higher tariff rates. However, these rules only applied to select components in automotive manufacturing industries and the 2023 “rolling-up” decision (USTR 2023) undercut those provisions. The 2026 sunset review should make clear the higher content methodologies pertaining to these calculations, while expanding coverage of RVC rules to other industries such as aerospace, white goods (i.e., large electrical goods like washing machines and refrigerators), semiconductors, electric vehicles (EVs), critical minerals and materials, shipbuilding, and food manufacturing. The review should also reset the LVC minimum wage rate to a meaningful level, index it to inflation, and open a process to enact a coordinated, North American-wide minimum wage regime for targeted manufacturing industries.
• Create binding constraints for content rules and regional trade preferences. Since 2018, Chinese manufacturers in industries receiving widespread state support have taken advantage of USMCA loopholes to evade U.S. trade enforcement measures by rapidly expanding manufacturing footprints in Mexico, among other locales. When Most Favored Nation (MFN) rates in industries like passenger vehicles are a mere 2.5% compared with the USMCA rate of zero, it provides little incentive for manufacturers to adhere to USMCA’s rules for qualifying content. In effect, diverted trade flows from China can gain preferential access to North American markets whereas North American companies do not enjoy the same reciprocal offer to compete fairly in China. To close this gaping leak of content, a revised USMCA must raise the regional content thresholds (“rules or origin” or ROOs) and realign MFN tariff rates so that they provide a credible deterrent to nonconforming USMCA content in USMCA supply chains. Section 232 automotive tariffs are a step in this direction but they must be rationalized with a strategic approach to target key supply chain segments and account for near-term supply constraints. For the North American primary metals industries, a renegotiated USMCA must strengthen the “melted and poured” standard for traded steel and adopt a “smelt and cast” standard for traded aluminum as qualifying content.
• Strengthen the labor Rapid Response Mechanism (RRM). USMCA’s RRM—negotiated by congressional Democrats to strengthen Trump’s initial draft deal—has helped improve wages and working conditions in a number of specific workplaces—covering roughly 60,000 workers. This is no doubt a meaningful outcome, but with more than 10 million manufacturing workers in the Mexican economy, it must be scaled to meaningfully move the needle on worker rights and wages. This should include sectoral enforcement in order to hold employers to collective accountability and to support sectoral bargaining. Because of its too narrow scope, the RRM has neither led to economy-wide improvements for Mexican workers nor eliminated the incentive for U.S. companies to offshore or use the threat of offshoring production to Mexico to undermine wages and working conditions in their U.S. factories. The RRM should apply equally in all three countries and expand the scope of violations to include all rights at work. Congress should restore and expand funding for Labor and State Departments and USAID labor rights experts needed to help monitor and enforce rising standards.
• Establish a rapid response mechanism for pollution. Workers and their communities across all three countries deserve the same protections from industrial- and trade-related air and water pollution. A renegotiated USMCA should include a pollution RRM, in parallel to an expanded and strengthened labor RRM, enforceable across all three countries.
• Eliminate exploitative IPR protections; Big Tech. A renegotiated USMCA must not compromise worker interests by prioritizing the agendas of Big Tech and Big Pharma. This means removing special “digital trade” rights and privileges that currently allow companies to preempt local laws addressing negative externalities from digital service provision and curbing expanded intellectual property rights with TRIPS-plus protections that benefit pharmaceutical companies with tighter monopolies and more limited competition.
• Institutionalize trilateral North American collaboration. Beyond President Trump’s efforts to tame opioid trafficking, the United States needs to collaborate more widely and deeply with the Canadian and Mexican for USMCA to succeed. President Trump must also institutionalize working trilateral relationships to cooperate on Committee on Foreign Investment in the United States-style foreign investment screening, economic security planning, forced labor import ban enforcement, tracing supply chains to enforce ROOs, and agricultural and environmental inspections, among a growing list of other fronts.

Such wins in the USMCA sunset negotiations would achieve something meaningful for U.S. workers and manufacturing communities. But fixing USMCA is not only a job for the Trump administration. In addition to these negotiating objectives for the administration, Congress needs to:

• Hold the administration accountable to the law on USMCA. Both USMCA and its U.S. implementing legislation specify a clear timetable for the administration to seek public comments, deliver a report to Congress on findings and recommendations, and articulate negotiating targets. Congress must ensure the administration follows this process specified in law to allow a more open process—relative to the president’s other bilateral deals—and hold the administration accountable to achieving specific outcomes.
• Reauthorize and expand Trade Adjustment Assistance (TAA). The program intended to compensate trade-impacted workers and deliver countercyclical demand stimuli to impacted communities lapsed in 2022 (DOL 2022). In addition to retooling USMCA from an agreement that benefits multinational corporations and expanding Chinese manufacturing, the president should push Congress to reauthorize and expand TAA to protect incomes for displaced workers and the regional economies that rely on them.
• Check executive branch overreach on tariff-making powers, including by passing SJ Res 37,2 to terminate the national emergency that was declared to justify tariffs on imports from Canada under the International Emergency Economic Powers Act (IEEPA). When the executive overreaches, Congress should exercise its responsibility by responding with such a targeted approach to exercising its authority and that leverages its unique role in mediating interest groups.

How did USMCA change—and not change—NAFTA?

President Trump negotiated USMCA from August 16, 2017, to September 30, 2018, and signed the revised agreement on November 30, 2018. His version of USMCA preserved “most of NAFTA’s market opening measures” (Villarreal 2024). Under the new rules, U.S. trade deficits in USMCA worsened sharply. The widening USMCA trade gap belied the widely different experiences with each partner: stable non-petroleum trade surpluses with Canada and rising goods trade deficits with Mexico, fueled in part by a rapid expansion of Chinese manufacturing trade and capital investment in Mexico after Trump’s 2018 tariffs. Despite tighter rules of origin that specify the share of an item that must be produced within North America to qualify for tariff-free access, the rules proved to be rather porous and insufficient to stem the tide of industrial migration to Mexico.

The underlying driver for these trends is the overwhelming incentive—that NAFTA created and USMCA continues—for large corporations to skirt fair wages, labor, and environmental regulations through offshoring and imports when wages in Mexico for comparable work are a mere 10% of U.S. wages and air and water pollution standards go unenforced. How did USMCA change the equation?

Trade deficits worsened under Trump’s USMCA

The United States’ North American trade deficit had been relatively stable over the preceding business cycle expansion starting in 2009 but increased sharply in 2018—coinciding with countervailing tariffs levied on U.S. imports from China and imports of steel and aluminum products more broadly—and increased even more dramatically after 2020 under Trump’s USMCA. We project that trade deficit will widen to $263 billion in 2025, up from $125 billion in 2020 when USMCA started, and $85 billion in 2017 before Trump’s overall first term trade strategy took effect—a more than 200% increase (Figure A). This was not how “fixing” NAFTA was supposed to work.

Figure A

The trade deficit is the difference between how much U.S. businesses sell to another country (exports) and how much U.S. businesses and consumers buy from that country (imports). A deficit with one country may be offset by a trade surplus with another country, or it may be “financed” by capital inflows, most often the purchase of U.S. financial assets by foreign investors. Overall, at the national level, these international payments for goods and finance balance out, so when the United States experiences a goods trade deficit, necessarily there are mirrored surpluses in the sale of financial assets abroad where foreign investors in essence “lend” to the U.S. economy.3

This macroeconomic balance is what determines the overall level of the U.S. trade balance, which is linked mechanically to the U.S. dollar exchange rate that sets the relative competitiveness of U.S. tradable industries and to dollar interest rates. Trade policy measures tailored to particular trading partners (those of both the United States and other countries) may shift around the relative shares of that total trade balance among trading partner countries, but it doesn’t change the overall U.S. balance of trade.4 Under chronic trade deficits that are driven by fundamental macroeconomic imbalances, across-the-board tariffs have very little purchase to enforce more balanced trade: They tend to push down both imports and exports instead (Hersh and Bivens 2025).

The president’s portrayal of trade deficits as a result of unequal exchange gets most of the details wrong. It is true these microeconomic relationships embody all sorts of exploitation, but a trade deficit is not a tribute paid to a trading partner country. It is the result of millions of business transactions, the lion’s share of which occur between companies within a related multinational corporate family. If one wanted to investigate exploitation in North American trading relations, it might make more sense to start with the trading corporations than with, say, Canada.

Figure B

In fact, breaking down the USMCA trade deficit on a country-to-country basis reveals that the U.S. North American deficit is largely a problem of oil imports from Canada and manufacturing imports from Mexico (Figure B). Excluding petroleum, the U.S. actually ran a trade surplus with Canada of $55 billion in 2024, up just $3 billion since 2020. The non-petroleum trade deficit with Mexico accelerated after USMCA took effect, rising by $55 billion to $156 billion in 2024, but it is clear energy is not dominant in U.S.-Mexico trade—manufactures and agricultural products are. This begs the question: Why has the trade deficit with Mexico grown so rapidly under Trump’s USMCA?

USMCA rebooted NAFTA’s drain on manufacturing industries

Although Trump sought to revitalize U.S. manufacturing industries with his fix for NAFTA, manufacturers furloughed or shed more than 576,000 U.S. jobs in the time since he signed the agreement, according to WARN Act notifications filed by employers.5 The surge of imports from Mexico was boosted as North American multinationals reshored or “friendshored” manufacturing to Mexico as part of supply chain reallocation strategies for reducing exposure to Chinese dominance in certain sectors and as Chinese enterprises expanded in Mexico to dodge the impacts of U.S. tariffs.

Underlying all this are wages and working conditions, both of which are much lower in Mexico than they are in the U.S. or Canada; and China’s are even lower still. USMCA gives multinational corporations the best of both worlds: the ability to manufacture for the U.S. market in Mexico, using Chinese-made primary and intermediate components. USMCA creates these race to the bottom incentives for businesses to exploit thanks to its rules of origin. The rules allow non-originating content to be magically transformed into originating content and make its way into North American supply chains with duty-free market access, even when that content is produced under unfair competition and exploitation in third countries. These rules specify the share of local content in a good to qualify for duty-free market access, which is typically 50–60% but as high as 75% for key components of automotive supply chains, including for steel and aluminum content. However, corporations are allowed to “roll-up”—essentially, rounding off—the non-originating content to count as 100% North American originating content.

Suppose a steel spring manufactured in Mexico uses 49.9% Chinese steel wire feedstock and 50.1% local content. When that spring is sold to an auto parts manufacturer, an appliance manufacturer, or whomever, that 49.9% Chinese steel—made without the same commitments to worker, environmental, and consumer safety standards, and without extending similar reciprocal market access to North American producers—becomes 100% North American. The more complicated that a product is—i.e., the more underlying, lower-tier components that are required to make a final good—the more foreign content can masquerade as “Made in North America.” Even under USMCA RVC calculations, substantial non-originating content will enter at 0% duty. Thus, non-originating content qualifying for USMCA ROOs can expand at an exponential rate while still “rolling-up” to count as 100% North American content.

More specific commodities within the automotive industry carry higher content thresholds. In addition to finished vehicles, component steel and aluminum, and specified “core parts,” the rules of origin require production meet a labor value threshold of an average of $16 per hour wage for 40–45% of the vehicle’s content. But the same “rolling-up” loophole that allows non-conforming content into the market applies to these rules as well.

Additionally, the core parts list omits critical new technology goods for electric vehicle related components and autonomous vehicle related components. USMCA Article 3.10 provides a mechanism for the parties to expand the list of core components covered by North American content rules, though this is not a foregone conclusion and, in the meantime, content leakages deter the establishment of North American competition to illegally subsidized and market dominant Chinese technologies. Absent nimble and deeply informed monitoring by executive branch agencies, the faster automotive industry technology evolves, the more vehicle content will become uncovered by USMCA ROOs. To aid in implementation and make this game of ROOs whack-a-mole more manageable, the United States government should work with its Mexican and Canadian counterparts to implement a rigorous content tracing system to ensure that corporations are playing by the rules when it comes to the core parts that help underpin the USMCA bargain.

Besides weaknesses regarding ROOs, the $16 hourly wage rate for the Labor Value Content threshold is too low. Within the United States, $16 an hour is at or near a poverty wage. But because no inflation adjustment was negotiated as part of USMCA—a flaw obvious even in real time—the LVC wage has declined 25% in real terms since USMCA was signed into law. And this wage floor—which is on track to become largely irrelevant before Mexican wages converge on U.S. and Canadian wages—covers less than half of a vehicle’s content, meaning it is not a meaningfully binding wage standard.

Leaky ROOs are a big obstacle to realizing the nearshoring gains of production at a higher standard, but they are not the biggest problem. For the ROOs to bind effectively on business supply chain choices, there needs to be a significant price wedge between conforming to USMCA rules and the higher Most Favored Nation tariff rate paid on nonconforming content. However, more often than not, the higher MFN rate is a mere 2.5%, paling in comparison with the savings from choosing competing nonconforming content—particularly if that is subsidized Chinese inputs. In short, if there is little penalty to pay for not adhering to higher standards, then there is little incentive for corporations to practice higher standards. In fact, recent research from the Federal Reserve finds that compliance with USMCA ROOs in automotive trade has been declining over time as the Big Three and transplant manufacturers have shown preference for using non-North American content (Bowdle and Kamal 2025).

Finally, not only did USMCA leave these loopholes for non-originating content, but the agreement largely relies on these same corporate entities to self-certify their compliance with the ROOs regime. This creates a clear incentive and opportunity for manufacturers to cheat compliance. The less the government monitors and enforces these rules, the more incentive manufactures have to evade USMCA ROOs, although the Trump administration appears to be taking a strict approach to implementing stricter new ROOs on automotive trade.6

Wage and worker power gaps are why USMCA remains a drag on working families

The wage gap in manufacturing continues to drive corporate decisions to exploit low-wage, low-standard labor in Mexico. At just $2.76 per hour, Mexican workers today earn less than in 2002—a mere 10% of U.S. manufacturing wages and 12% of Canadian wages—after adjusting for price differences between countries (see Figure C).

Figure C

Labor provisions in USMCA, in particular the Rapid Response Mechanism, have helped hold the line on labor rights for thousands of workers who were covered in the RRM’s 12 cases so far where worker rights largely were ultimately upheld. But without broadening the scope and scale of enforcement across for the more than 10 million workers across Mexican manufacturing industries (INEGI 2024), continuing the RRM in current form poses more of a mild headwind in the race to the bottom than a forceful deterrent.

Under USMCA, U.S. manufacturers expanded investment in Mexico by $22 billion through 2024 according to Bureau of Economic Analysis data (BEA 2025). This included:

• $10 billion investments in transportation equipment manufacturing facilities (a 61% increase);
• $3 billion in food manufacturing (87% increase);
• $1.9 billion in computer and electronics manufacturing (163% increase);
• nearly $520 million in appliance and electrical equipment manufacturing (30% increase); and
• $225 million in chemicals manufacturing (5% increase).

What’s remarkable is that corporations are moving investments to lower productivity uses as shown in Figure D. Productivity in Mexican manufacturing has been trending down for years relative to that of U.S. manufacturing productivity, in spite of substantial capital investments from U.S. and global firms. In the year before USMCA, Mexican manufacturing workers produced just 32% of what a U.S. manufacturing worker produced per hour. By 2024, they produced just 28%. For comparison, Chinese manufacturing productivity rose from 11% in 2010, to 21% in 2019, and 24% in 2004 relative to U.S productivity levels.

Figure D

Ostensibly, North American multinationals understand the wide and growing productivity differential with Mexican manufacturing workers but prefer to shift toward lower productivity anyway. Though the data indicate such decisions may not make sense for the long-term efficiency of the firm, they may make perfect sense for redistributing the profits of the firm to executives and shareholders by playing off workers against one another’s mutual interests. Businesses in other countries driving the surge in direct foreign investment to Mexico, most notably China, are less concerned with the productivity differential than with securing favorable access to U.S. markets, despite not being a member of the USMCA pact.

While the labor RRM is a significant innovation in USMCA, as noted above, it cannot be expected to compensate for institutional and implementation failures of the Mexican government to uphold worker rights. In fact, the government’s arguments in the recent Atento Servicios RRM case showed it is very much still working to constrain worker rights (USTR 2025b). Similar analyses by Mexican labor law experts find that USMCA is failing to transform Mexico’s fundamentally low-standard labor market institutions (Marroquín Bitar 2024).

Trump left open the backdoor for unfair trade through USMCA rules of origin

The first Trump administration imposed tariffs on a wide range of Chinese technological goods and on steel and aluminum products exhibiting unfair competition—along with the ever-present churn of U.S. anti-dumping and countervailing duty trade enforcement actions. Together, these erected significant new barriers to entry to U.S. markets. Chinese producers responded, in turn, with new business strategies, diversifying into offshore direct investments in lower-tariffed locales, or sometimes relying on transshipment or a handful of other strategies to evade the true applied tariff rate. Initially, Chinese industry diversified into industries close by—Southeast Asia and India—but that quickly expanded to include Mexico.

Chinese firms have practiced this move before. In anticipation of and following U.S. International Trade Commission (ITC) determinations of injury from Certain Passenger Vehicle and Light Truck Tires from China in 2015, Chinese tire manufacturers quickly expanded offshore in countries like Thailand and Vietnam, among others, substituting Chinese production for U.S. markets.7 As a result, tire imports surged from these countries and led to subsequent ITC import injury investigations.8

Figure E

This same story unfolded on a much larger scale post-2018, particularly for Mexico, where Trump’s USMCA made it easy for Chinese industry to gain purchase.9 Figure E shows that Chinese firms expanded their direct investment footprint in Mexico by as much as 288% through 2023, while investment in the United States essentially flatlined. This ballooning outward direct investment position for China since 2018 indicates a rapidly expanding overseas footprint for production organized around Chinese value chains, signaling an influx of content originating from Chinese-owned and Chinese-affiliated firms—often the beneficiaries of robust government subsidization and procurement programs, regulatory and tax forbearance, preferential credit, and other means of competing on noncommercial terms with U.S. domestic firms.10 Dallas Federal Reserve economists are correct to observe that, despite a rapid increase, China still trails U.S. foreign direct investment in Mexico (Kelly 2025). However, unlike the broadly diversified supply chain integration between the U.S., Canada, and Mexico, China’s investments have concentrated in two categories: industries with chronic global surplus capacity (steel, aluminum, glass, etc.) and cutting-edge Chinese industries globalizing on the back of these kinds of industrial policies.

Figure F

Close on the heels of Chinese FDI in Mexico came surging imports of industrial goods from China to Mexico—from raw materials to factory machinery, and component parts to semi-finished goods (Figure F). While China increased all goods exports to Mexico by 127% from 2017 to 2023, Mexican imports of Chinese iron and steel shot up 277%; aluminum products 265%; diesel engines 284%; motor vehicle parts 160%; and various categories of manufacturing equipment from 200–900%.

Table 1

And following the build-up of Chinese and others’ manufacturing capacity in Mexico since the onset of USMCA, U.S. imports of key manufactures from Mexico surged. Table 1 details the trends in automotive trade deficits under USMCA, a critical foundation for North American trade and an industry Trump aims to reshore. Imports of motor vehicles and parts from Mexico nearly doubled following USMCA, rising to a total of $274 billion in 2024, up from $196 billion in 2019—a 40% increase. Imports of parts and light-duty vehicles from Mexico increased by 35% and 36%, respectively, while imports of medium- and heavy-duty vehicles increased a whopping 256%. U.S. exports to USMCA partners expanded in these categories, too, but at a lower level, such that the import growth drove widening of the automotive trade deficit to $153 billion in 2024, up 56%. The vast majority of these and other components in the North American supply chain enter duty free under USMCA’s rules of origin.

Conclusion

North American economic integration remains as critical to U.S. prosperity as the treaties negotiated to govern it are flawed. Millions of people in the United States—particularly workers in trade-exposed industries—understood this deeply as the 2016 election loomed. President Trump seized on this dissatisfaction and moved to renegotiate NAFTA and replace it with USMCA in 2020. But Trump’s USMCA created more problems than it fixed. Today the pressure on manufacturing jobs and deterioration in the trade balance with Mexico are worse than before USMCA and Chinese manufacturers are setting up shop next door to take advantage of the loopholes that Trump left in the rules. The ongoing failures of USMCA necessitate significant reform and renegotiation to truly make a North American economy that puts workers at the center.

Notes

1. U.S. law requires that public comment on USMCA begin no later than October 4, 2025, and that the U.S. Trade Representative report recommendations to Congress no later than January 2, 2026. See Rethink Trade (2024) and U.S.-Mexico-Canada Agreement Article 34.7: Review Term and Extension, https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/34_Final_Provisions.pdf.

2.  S.J. Res. 37, 119th Cong. (2025).

3. “Lending” may include international financial flows from (net) purchases of U.S. stocks and bonds, international bank loans, trade financing, and net repatriated incomes, among others.

4. Trade with individual countries may not balance for a variety of benign reasons, in addition to anticompetitive and unfair trading practices.

5. Analysis of WARN Database (2025). 

6.  Proclamation No. 10908, 90 Fed. Reg. 14705 (March 26, 2025).

7. See for example, “Thailand-made Double Coin Tires Arrive in U.S.,” FleetOwner, March 30, 2018; “Linglong Opens Thailand Plant,” Rubber News, March 6, 2014; “Sentury Tire in Thailand: Establishing a World Class Tire Brand,” China Daily, January 21, 2016.

8. U.S. International Trade Commission, “Passenger Vehicle and Light Truck Tires from Korea, Taiwan, Thailand, and Vietnam,” Investigation Nos. 701-TA-647 and 731-TA-1517-1520, Publication 5212, July 2021. See also Hersh (2024).

9. See also Meltzer and Barron Esper (2025) on China’s circumvention of the U.S. tariff regime through USMCA partners.

10. For a recent survey, see Fang, Li, and Lu (2025).

References

Arain, Omer. 2025. “WARN Layoff Data” [Google sheet], WARN Database. Accessed July 6, 2025.

Bivens, Josh, and Adam S. Hersh. 2025. The U.S. Approach to Globalization Has Gone from Bad to Worse Under Trump. Economic Policy Institute, May 29, 2025.

Canis, Bill, Vivian C. Jones, and M. Angeles Villarreal. 2017. NAFTA and Motor Vehicle Trade. Congressional Research Service R44907, July 18, 2017.

Department of Labor (DOL). 2022. “Statement by Secretary Walsh on Termination of Trade Adjustment Assistance for Workers Program” (news release). July 1, 2022.

Fang, Hanming, Ming Li, and Guangli Lu. 2025. “Decoding China’s Industrial Policies.” National Bureau of Economic Research Working Paper no. 33814, May 2025.

Hersh, Adam. 2024. “Testimony Prepared for the U.S. International Trade Commission Report on the USMCA Automotive Rules of Origin.” Economic Policy Institute, October 16, 2024.

Instituto Nacional de Estadística y Geografía (INEGI). 2024. “Indicadores de Ocupación Y Empleo” (news release). April 26, 2024.

Kelly, Brendan. 2025. “China Expands Mexico Investment but Notably Lags U.S., Other G7 Economies.” Dallas Federal Reserve, September 26, 2025.

Marroquín Bitar, Diego. 2024. “Is USMCA Good for Mexican Labor? A Preliminary Analysis of USMCA and Labor Market Outcomes in Mexico.” Brooklyn Journal of International Law 49, no. 2: 542–555.

Meltzer, Joshua P., and Maricarmen Barron Esper. 2025. “Is China Circumventing US Tariffs via Mexico and Canada?” Brookings Institution, September 23, 2025.

Rethink Trade. 2024. U.S. Domestic Process Starts Mid-2025 for U.S.-Mexico-Canada Agreement 2026 Mandatory Six-Year Review.

Shuler, Liz. 2025. “Unfinished Business: Centering Workers’ Rights and Fair Competition in the USMCA Joint Review.” Brookings Institution, March 5, 2025.

U.S. Bureau of Economic Analysis (BEA). 2025. “U.S. Direct Investment Abroad, U.S. Direct Investment Position Abroad on a Historical-Cost Basis, By Country and Industry.” Accessed February 26, 2025.

U.S. House of Representatives, Ways and Means Committee. 2019. “Improvements to the USMCA Secured by Democrats in the ‘December 10 Agreement.’” December 13, 2019.

U.S. International Trade Commission (USITC). 2025. “DataWeb U.S. Trade and Tariff Data.” Accessed February 19, 2025.

U.S. Trade Representative (USTR). 2023. The Arbitral Panel Established Pursuant to Article 31 of the Agreement Among the United States, Mexico, Canada Which Entered into Force on July 1, 2020 (USA-MEX-CDA-2022-31-01): Final Report. January 1, 2023.

U.S. Trade Representative (USTR). 2025a. “United States-Mexico-Canada Agreement.” Accessed February 25, 2025.

U.S. Trade Representative (USTR). 2025b. Rapid Response Labor Panel on the Atento Servicios Case (MEX-USA-2024-31A-01). July 4, 2025.

Villarreal, M. Angeles. 2020. USMCA: Amendment and Key Changes. Congressional Research Service IF11391, January 30, 2020.

Villarreal, M. Angeles. 2024. NAFTA Renegotiation and the Proposed United States-Mexico-Canada Agreement (USMCA). Congressional Research Service R44981, February 26, 2019.

Wagner, Meg, and Brian Ries. 2018. “Trump Gives Remarks on US-Mexico-Canada Deal.” CNN Online, October 1, 2018.

1. There has been a clear deterioration in the labor market for Black workers this year: the unemployment rate is rising and employment is falling.
2. The decline in Black workers’ employment appears to be concentrated among Black women while Black men’s employment rates appear more stable.
3. Since January 2025, overall women’s employment has fallen most in professional and business services, manufacturing, and federal government—suggesting likely culprits for the decline in Black women’s employment.

An important signal that the rising Black unemployment rate may actually be more than a temporary blip in a notably volatile data series is that the share of employed Black adults between the ages of 25 and 54 is down compared to the last couple of years. After peaking at a historic annual high of 77.9% in 2024, the average so far this year is 76.6%. Until now, the rate had risen every year since 2021.

Another developing news story that has garnered increasing attention is the reported 300,000 Black women losing jobs and/or leaving the labor force in recent months. While a number that big certainly makes headlines, employment levels from the monthly household survey—especially those based on a small demographic slice of the monthly survey sample—should always be used with caution. While I’m not convinced that 300,000 is the most accurate accounting of the situation, Black women are uniquely experiencing a decline in employment that is not observed among other groups of women or Black men.

A clearer and more reliable indicator of how Black women are doing in the labor market is their employment-to-population ratio (EPOP). As Figure A shows, Black women’s employment has dropped sharply this year, but there has been a longer downward trend that started in early 2024. This stands in stark contrast to the trend for white women whose EPOP has changed little over the same time while Hispanic women have seen a slight increase.

Figure A

Similarly, Figure B shows that the EPOP for Black men in the same age group has been much more stable over the last three years. Since the decline for Black women is not reflected in other group trends by gender or race alone, there appears to be something happening in the labor market that has been particularly damaging to Black women. Below, I explore possible explanations based on analysis of payroll employment data.

Figure B

The 2020 pandemic recession showed how occupational segregation can contribute to a larger decline in employment among groups overrepresented in industries with the largest job losses. While the Bureau of Labor Statistics does not report industry-specific job losses by race and gender, they do produce a series on women’s payroll employment using data collected in the monthly establishment survey. And although the data from the household and establishment surveys are not directly comparable, checking for similar or related trends can be informative. With those caveats in mind, Figure C shows that women’s payroll employment has declined in eight industries between January and August of this year. The largest of those losses have occurred in professional and business services (–83,000), manufacturing (–41,000), and federal government (–33,000). Close to half of all workers in federal government and professional and business services are women, as are 29% of manufacturing workers (see Table 1).

Figure C

Since federal job cuts have frequently been cited as a contributing factor for employment losses of Black women due to overrepresentation in that sector relative to their share of the total workforce, let’s start there. Table 1 shows that the year-over-year rate of decline in payroll employment of all women in federal government (–1.2%) was slower than the rate of decline in total employment (–2.4%) in that sector. This suggests that women aren’t losing jobs faster than men in the federal sector, but without additional information, we can’t rule out the idea that women’s federal losses are disproportionately falling on Black women.

The second-largest number of women’s job losses has been in manufacturing. As Table 1 shows, women are a smaller share of total employment in this industry compared with the federal government or professional and business services. However, unlike in the federal government, women have lost manufacturing jobs at a faster than average rate over the past year.

The largest number of women’s job losses has been in the professional and business services industry, which employs seven times more women than the federal government. As such, a higher rate of women’s job losses in this industry would be more likely to show up in declining EPOPs for Black women. Compared with the total year-over-year rate of job losses in the industry (–0.3%), women have lost jobs at a much faster pace (–1.3%).

As shown in Table 1, a closer look into the rate of employment decline in professional and business services shows that losses have been overwhelmingly concentrated in employment services—a decline of 3.2% between July 2024 and July 2025. Similarly, women’s losses within professional and business services were also skewed toward employment services.

Employment services accounts for roughly 15% of total employment within the professional and business services major industry. Women are nearly half (47.9%) of employment services workers and the most common occupation is human resource worker. This suggests the shedding of employment services jobs as a likely culprit behind large job losses among women in the industry. Again, additional information would be required to definitively conclude that those job losses are disproportionately falling on Black women. Well-documented patterns of occupational segregation often limit the representation of Black women in higher-level and higher-paying professional and management positions, resulting in overconcentration in service, administrative, and support occupations. Thus, it would not be a huge leap to assume that women’s job losses skewed toward employment services, over one of the subsectors beginning with “professional, scientific, and technical” or “management”, are probably having a negative impact on Black women’s employment.

Table 1

In recent decades Americans have seen a huge increase in trade (flows of exports and imports). This influx in global trade has posed significant challenges to U.S. workers. The trade flows (and policy responses to them) have contributed to anemic wage growth for workers without a college degree, caused severe damage to manufacturing communities throughout the country, and represent an increasingly unsustainable organization of global production and consumption.1 People in the U.S. have good reason to be conflicted about the challenges that globalization and the rise in trade pose to their working lives and communities, and the potential benefits trade can create.

U.S. workers have also watched as too many policymakers enthusiastically push a proliferation of trade agreements. These agreements have accelerated trade flows and carved out corporate-driven “rules of the game” for a globalization that puts almost no priority on the well-being of regular people in the United States or the resilience and sustainability of the overall economy. Most of the Washington, D.C., establishment has supported these trade agreements, promising a supposed influx of good jobs and increased standards of living that would come because of increased trade.

Given this history, it is no surprise that many of these workers want something different from policymakers regarding our nation’s approach to globalization. And the Trump administration’s current approach is certainly different—it is even worse than what came before. This approach is motivated by ever-changing and contradictory goals and is built entirely on threats of historically high and broad-based tariffs that change by the day (or even hour) rather than opportunities for mutual benefit from cooperation.

Ratcheting up tariffs across the board is not a serious response to, nor will it solve, the larger challenge of lackluster wage and job growth for noncollege workers. Lower tariffs were not a significant driver of the larger trade flows that pressured wages for these workers in recent decades. This is not to say that there are not real problems with the U.S.-led global trading system nor useful changes to be made to policies regarding globalization. But historically high and broad tariffs are not among them, and domestic policy choices have had much more to do with the wage suppression most U.S. workers have experienced in recent decades (Mishel and Bivens 2021).

In this paper, we provide a rough outline for how those concerned about the economic plight of working-class Americans should approach issues concerning globalization and trade. Often the best approach to issues intersecting with international trade does not directly implicate traditional trade policy tools (like tariffs). For that reason, we say that these recommendations constitute a progressive approach to globalization in the 21st century.

Key challenges that globalization poses to U.S. workers:

• Growing import flows from lower-wage nations and threats to offshore jobs put modest, but steady, downward pressure on wages of workers without a college degree.
• Chronic trade deficits have reduced employment in U.S. manufacturing and raised our foreign debt.
• The inflation stemming from pandemic and war shocks between 2020 and 2024 highlighted the fragility of global supply chains. These supply chains should be strengthened to prepare for a future prone to larger and more frequent shocks.
• Competition from foreign trading partners that permit unfair and abusive labor practices has made labor artificially cheap.
• A failure to harmonize climate regulations internationally threatens to see greenhouse-gas polluting production simply migrate away from the United States to low-standard locales rather than being reduced globally, undermining U.S. industry and forcing the burden of adjustment onto workers in greenhouse gas-intensive sectors.
• A failure to harmonize corporate tax treatment internationally allows corporations to play countries off each other and ensures that some countries will almost always have incentives to act as tax havens, making it harder for all countries to impose reasonable taxes on corporate profits.

Although policymakers from both parties have too often been reluctant to admit to the problems created by a U.S.-led, corporate-friendly global trading system, none of these problems presents insurmountable challenges. Our key recommendations to solve the central problems of globalization are the following:

• While trade flows have put downward pressure on wage growth for large portions of the U.S. workforce in recent decades, trade policy would have only weak and unreliable effects in reversing this. Instead, policymakers should strengthen key domestic policy bulwarks that underpin workers’ leverage and bargaining power to boost wage growth. These domestic policies include a substantial increase in the minimum wage, protections for workers to freely associate and bargain collectively in unions, and full employment macroeconomic policy management, which will have larger and more reliable effects on wage growth.
• Reducing damaging trade deficits cannot be solely achieved through trade policy unless it is so restrictive that it functionally returns the country to an isolated regime with no trade at all. Instead, more balanced trade will only result from macroeconomic policies consistent with lower trade deficits, including exchange rate management and a reasonable mix of fiscal and monetary policies.
• Supply chain resilience is important, yet individual businesses will underinvest in it without public support. Collapsing supply chains initially sparked the post-COVID-19 inflationary spike across the globe. Supply chains remain vulnerable to disruptions from natural disasters, geopolitical events, and even human and computer errors. Unless one is entirely confident that these events will never happen again, the costs of supply chain fragility are potentially large enough that it’s worth using policy measures to build up supply chain resilience. Trade policy tools like tariffs and subsidies are potentially useful measures here.
• The U.S. should reward countries that respect labor rights with preferential access for their imports and should incentivize other countries to enforce labor standards. This can be done by imposing tariffs that shrink as countries improve in upholding labor rights. These tariffs cannot fully protect U.S. workers from competition from countries where exploitation makes labor cheap, but tariffs can provide some buffer from this, and imposing them provides a valuable political signal that simple fairness matters for trade policy (as it does for all other types of policy).
• Effective climate policy must be global, if not universal. In terms of driving destructive climate change, it does not matter where greenhouse gas pollution originates. National policies that raise the price of pollution locally but simply push emitting factories offshore fail to deal with the overall problem while putting domestic industries at unfair disadvantage. Until there is a more coordinated global approach to greenhouse gases (a global carbon tax or something similar), national governments should be willing to leverage trade policy tools (like tariffs tied to the intensity of greenhouse gas emissions involved in producing imports) to promote lower-pollution industries while avoiding “carbon leakage,” reduce global emissions, and incentivize industry investments in carbon-reducing technologies.
• International coordination of tax policy that ensures large multinational corporations pay their fair share in taxes would help U.S. workers far more than either higher tariffs or more trade agreements. The global tax system currently provides easy access to tax havens for corporations and encourages the offshoring of both paper profits and real factories away from the United States. Much of this problem can be solved unilaterally, but even the remaining problems constitute a far more important and pressing target for useful international coordination than further trade agreements do.

Policy recommendations to address these challenges

In this section, we provide some high-level recommendations about how policies should address globalization’s challenges.

Trade policy can do little to spur wage growth, but domestic policies would be much more effective

The production of imports from lower-wage nations tends to intensively use noncollege labor relative to U.S. exports. This means that the pattern of trade flows between these nations and the U.S. reduces the demand for noncollege labor in the United States, as imports displace more noncollege labor than exports support. Hence, trade flows put steady, albeit modest, downward pressure on wage growth for noncollege workers, a group comprising over 60% of the workforce (EPI 2025). The downward pressure on wage growth is nontrivial. Between 1979 and the mid-2010s, these trade flows likely depressed wages of noncollege workers by between 5%–6% (Bivens 2013; Autor, Dorn, and Hanson 2011). For workers who have seen extremely slow growth in wages over this entire period, another 5%–6% of wage growth would have been most welcome.

Crucially, this downward wage pressure stemming from trade flows does not just affect workers in tradeable industries. It spills over and puts downward pressure on wages for noncollege workers throughout the economy. Further, the wage suppression that trade flows imposed on noncollege workers allowed income gains for college-educated workers and business owners. 2 Yet policymakers never offered compensation to noncollege workers at anything close to the scale of this redistribution of income away from them. Instead, policymakers offered vague promises of retraining and empty assurances that trade was always “win-win.” This policy neglect added a deep insult to the injury of trade-induced wage suppression for these workers.

Yet it is important to remember that this policy neglect was not confined to globalization. In fact, nontrade forces supported by intentional policy decisions were putting far more intense downward pressure on wages than trade flows did.3 One aspirational benchmark for wage growth is economywide productivity growth. In the 30 years after World War II, broadly equal wage growth among all workers was clearly a target for policymakers who supported strong institutions (from unionization to fast-growing minimum wages to the maintenance of full employment) to meet this target. But over the 1979–2019 period, wage growth for noncollege educated workers decoupled from overall productivity growth, and as productivity growth continued, worker wages lagged behind—cumulatively by close to 50 percentage points over this period.

Trade competition certainly contributed to this decoupling and stagnation of wages. But analysis shows that nontrade sources explain three-quarters or more of the entire wage suppression these workers experienced in this time (Mishel and Bivens 2021). Reversing the nontrade forces that have contributed to wage suppression would do far more to help noncollege workers than any policy that could influence trade flows. Further, besides these nontrade forces having more force in boosting wage growth, they are also far more reliable in their effect. The policy levers available to influence trade flows are generally weak and unreliable unless taken to utterly extreme levels.

Finally, while growing trade flows with lower-wage nations reduced wage growth for noncollege labor in recent decades, they also boosted business profits and wages for workers with a college degree. Using tariffs to reverse these trade flows might, after long periods of time, lead to a reorientation of production in the United States that boosts demand for noncollege labor and raises their wages (though it might not). If tariffs did lead to this production reorientation, however, it would also lead to reduced wages for college-educated labor and lower profits, and the decline in college wages and profits would be larger than the increase in noncollege wages.

To be clear, this distributional shift toward noncollege labor and away from college-educated labor and profits would be a progressive outcome, and if it was the only option available to policymakers to make noncollege wages rise faster, we would be in favor of it. But it would be an extremely inefficient way to boost noncollege workers’ wages. Other wage-boosting policies like increased unionization or maintenance of full employment would not clearly lead to overall growth declines and might even boost growth. In short, while rising trade flows have put downward pressure on noncollege wages in recent decades, using the tool of tariffs to reverse this would be an extremely inefficient way to raise noncollege wages relative to other available tools.

Macroeconomic policies supporting a ‘strong’ dollar are the real causes of damaging trade deficits

Trade deficits are driven near entirely by the value of the U.S. dollar being too high to balance imports and exports—an outcome that can be traced to macroeconomic policy choices.4 A high value of the dollar makes imports cheap to U.S. consumers and makes U.S. exports expensive on global markets. This, in turn, leads to an excess of imports over exports. It is often taken as given that the United States should pursue a “strong dollar” policy, and that has often been the implicit (sometimes even explicit) goal of Treasury departments during both Republican and Democratic administrations. This bias toward dollar strength has led directly to toleration of excess trade deficits.

A rule of thumb for thinking about policies to reduce trade deficits and boost manufacturing is simply that if a given policy does not lead to a reduction in the value of the U.S. dollar, it will not have any traction in reducing trade deficits. The value of the U.S. dollar is driven by the demand and supply of dollar-denominated assets in global markets—traditionally called the capital account of the United States’ international balance of payments and now sometimes referred to as the financial account. When the demand for dollar-denominated assets is high relative to supply, the dollar rises in value and vice versa (Blecker 2009).

This rule of thumb is why tariffs are highly unlikely to be effective in reducing U.S. trade deficits unless raised to prohibitive levels. Tariffs actually raise the value of the U.S. dollar, which causes exports to fall roughly in proportion to the import declines following imposition of tariffs. This effect is compounded by the fact that many U.S. exports today contain substantial imported content, which causes export prices to rise directly in response to tariffs.5

Currency interventions from foreign governments

The demand for and supply of these dollar-denominated assets is set by macroeconomic policy decisions. One such decision is to allow the capital account to be influenced by intentional decisions of foreign governments. Often, for example, the Chinese and Japanese governments have intervened in global financial markets to purchase dollar-denominated assets to keep the demand for dollars high and to subsequently allow their own exports to gain a cost advantage in U.S. consumer markets. U.S. policy encouraged such policy actions through trade agreements that incentivized offshoring manufacturing production and strong support for financial liberalization that exposed countries to excessive risks of currency, banking, and financial crises.

The role of private capital flows

Another decision is to allow the capital account to be influenced by speculative private capital flows, even if they lead to an uncompetitive value of the dollar. In the late 1990s, for example, capital flowed from European countries to the United States largely due to European investors looking to buy rapidly appreciating U.S. corporate equities. When the U.S. stock market bubble eventually popped, the flow of capital from Europe largely dried up, and the dollar lost considerable value relative to the euro. This reversal led to a welcome decline in the U.S.–euro area trade deficit in the early 2000s. Until the end of 2024, a similar trend seemed to be occurring as the U.S. stock market had seen very large gains relative to those in Europe. This was associated with a large increase in the dollar’s value in recent years. The recent sharp decline of U.S. stock markets has not been mirrored in Europe, so some welcome relief from chronic upward pressure on the dollar stemming from these capital flows may well arrive over the next year.

The safe haven of the U.S. dollar during financial crises

As liberalized global financial markets have grown more volatile and prone to crisis (Reinhart and Rogoff 2011; Claessens and Kose 2013), nation states and financial institutions have sought to insulate themselves by accumulating ever-greater reserves of U.S. dollar financial assets. This demand to acquire dollar-denominated assets led directly to upward pressure on the dollar, which, in turn, led directly to these countries running large trade surpluses (that is, selling more exports to the United States than the imports they buy from the United States). This practice of self-insuring against systemic financial risks caused by liberalized global markets accelerated following the 1997–1998 Asian Financial Crisis, when countries learned it was too costly to depend on external institutions like the International Monetary Fund to help manage these risks.

When instability threatens international capital markets, investors and financial institutions “flee to safety,” meaning they sell off relatively risky assets and buy relatively safe U.S. dollar assets. The worsening of the dollar’s overvaluation occurs at a time when U.S. exporters are under the highest stress. The upshot of all of this is that a more effective international regime to aid countries facing currency and financial crises could reduce the need for countries to “self-insure” by trying to build up dollar reserves. This would be good for both the self-insuring countries who could now use precious financial resources on other social goals and for U.S. trade deficits.

Fiscal and monetary policy choices

Fiscal and monetary policy decisions are other macroeconomic policy choices affecting the U.S. trade balance. In regard to fiscal policy, when the U.S. economy is near full employment, federal budget deficits can push up trade deficits. If budget deficits run at full employment lead to higher interest rates (as they often do), this will lead foreign investors to demand more dollar-denominated assets to earn these now-higher rates. Increased demand for U.S. assets, in turn, causes the dollar to appreciate and the trade deficit to expand.

In regard to monetary policy, the same dynamic holds when the Federal Reserve raises interest rates. Whatever the source, a widening spread between U.S. and foreign interest rates attracts more capital to dollar-denominated assets, and this causes a rise in the value of the dollar, which, in turn, harms U.S. net exports.

Strategies to manage the value of the dollar

Keeping the value of the dollar at a level that more closely balances imports and exports, hence, requires a range of macroeconomic strategies. The most controversial would see the U.S. engage in more active currency management to ensure that foreign influences—either intentional government policy decisions or destabilizing private capital flows—are not allowed to push the demand and supply of dollar-denominated assets out of balance. Currently, Congress requires the U.S. Treasury to monitor currency management by foreign countries and make biannual reports naming countries that undertake active currency management for competitive gain. In practice, Treasury has more often than not demurred on naming clear instances of currency management. (Treasury 2024).

The U.S. government has much stronger options than mere surveillance and naming to countervail trade-distorting currency practices of other countries. If, for example, a foreign government began buying dollar-denominated assets, the U.S. could simply begin buying assets denominated in the currency of the foreign government, thereby neutralizing the effect of the foreign governments’ intervention in the U.S. capital account.6 Another possible option is for U.S. policymakers to institute a “market access charge” such as the one proposed in the 2019 bill, Competitive Dollar for Jobs and Prosperity Act (2019) that would levy a small tax on the foreign purchase of U.S. dollar assets for countries maintaining sustained trade surpluses with the United States (Hansen 2017).

Running fiscal and monetary policies that are consistent with lower levels of interest rates would also relieve upward pressure on the dollar’s value and help close trade deficits. On the fiscal side, this simply means that when the economy is at full employment, deficits should not be increased or should even be reduced. The how of this deficit reduction at full employment is every bit as important as the how much in terms of its effect on the welfare of U.S. residents, but it is the how much that determines the degree to which deficit reduction can help pull down the trade deficit.7 On the monetary side, the Federal Reserve should set interest rates at the lowest level consistent with stable inflation and avoid periods when unnecessarily high interest rates put upward pressure on the value of the dollar.

The advantages of a stronger dollar

Among policymakers, the reflexive privileging of a “strong dollar” policy has contributed to chronic trade deficits in the United States. However, any change in the value of the dollar creates both winners and losers. A strong dollar, for example, makes imports cheap to U.S. consumers and foreign travel more affordable for U.S. residents. It also makes it easier for U.S. businesses both domestically and abroad to attract foreign capital for investment projects. It allows retailers like Walmart and Amazon to source goods more cheaply for resale. These are not trivial benefits.

The advantages of a weaker dollar

But a lower value of the dollar would bring its own significant benefits. Most importantly, U.S. exports would be on a much more level playing field in global markets. Export-oriented production in the United States would expand. Domestic businesses competing with imports would gain competitive breathing room and expand their production. The manufacturing sector in the United States would expand. The reduction in trade deficits would lead to less future income leaking out of the U.S. to foreign investors.

Globalized supply chains are fragile. Industrial policy and trade protection can support their resilience

In recent decades, multinational corporations have prioritized maximizing short-term profits, even at the expense of investing in the resilience of their supply chains. For example, a company that focuses on maximizing current profits might source all inputs from the single lowest-cost producer. They might also minimize the size of their inventories of key inputs to production since inventories, by definition, are inputs not being sold in the current period and generating profits.

This short-term focus both ignores risks to the company’s own operations from supply chain disruption and creates a negative spillover cost for other businesses and consumers that rely on their products. In the jargon of economists, underinvestment in supply chain resilience creates a negative externality, a cost of business that is absorbed by others besides the actor undertaking it.

Underinvestment in supply chain resilience is a valid target of industrial policy interventions, sometimes including trade protection. For example, businesses focused on resilience should spread production of key inputs among different producers to hedge against the risk of disruption at a key link in their production chain, even if this modestly boosted the current cost of producing these inputs.8 This could also include “reshoring” of key inputs if policymakers were worried about threats to resilience stemming from international conflicts that would stop the ability to source imports. One way to ensure this greater regional diversity (including a larger role for U.S. production) of key inputs could include trade policy measures like tariffs.

This logic lies behind the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act passed in the Biden administration. It offers subsidies for chipmakers to set up manufacturing facilities within the U.S., largely in hopes of avoiding the extreme shortage of chips that drove the first wave of inflation in the post-pandemic recovery. There are also undeniable geostrategic issues driving the CHIPS Act (for good or for ill), but even these geostrategic concerns largely center on the basic question of how to make the U.S. economy more resilient to economic shocks.

Further, a resilience-minded business could maintain buffer stocks of key inputs (such as semiconductor chips or fuel oil), so they can keep production flowing in the event of supply delays or disruptions. Failure to do so can create large costs for the firm and the broader economy, as evidenced by the inflation stemming from pandemic- and war-related supply shocks between 2020 and 2024. One obvious long-running example of this is the Strategic Petroleum Reserve, which the federal government can run down or build up to help smooth out fluctuations in energy costs.

Because individual companies are unable to ensure systemic supply-chain robustness, the rational incentive for them is not to incur costs trying to do this. This market failure defines a key role for policymakers in creating incentives for investments to make supply chains more resilient. Besides creating incentives for more private investment, there are also explicitly public roles for policymakers in bolstering resilience. One key example is having federal agencies monitor supply chains for areas of weakness. Providing subsidies or other public supports for investments in resiliency is a worthy priority for policymakers concerned with the challenges of globalization.

The U.S. should buffer its workers against abusive foreign labor practices and incentivize trading partners to strengthen labor standards

The U.S. should reward countries that respect labor rights with preferential access for their imports and incentivize other countries to enforce higher labor standards. Laws and regulations protect workers and businesses against having to compete with producers willing to exploit vulnerable workers within the domestic economy. Given that, there is good reason to be concerned when this kind of unfair competition is embodied in imported goods as well.9

Much of the wage differential between U.S. workers and workers in lower-income countries like Mexico and China is driven by productivity differentials. The U.S. economy is the most productive in the world, while productivity (defined as average output generated in an hour of work) is much lower in our lower-income trading partners. But some of the wage differential between the U.S. and other countries reflects not just productivity differentials, but the state of labor standards and enforcement.

Econometric analysis by Rodrik (1999), for example, shows that the level of democratic institutions has large and significant impacts on national wages. Rodrik finds that moving from a level of democratic quality that characterized Mexico in 1999 to a level characterizing the United States in that year could see wages in Mexico increased by up to 40% even with no change in productivity. Palley (2005) further finds that this effect runs entirely through greater degrees of democracy leading to higher levels of labor standards, measured by the number of International Labour Organization (ILO) “core labor standards” ratified in a given country. In short, even after accounting for productivity differences, labor can be made significantly cheaper through nondemocratic, exploitative labor regimes.

Widespread violation of labor rights and democratic norms is problematic for fairness and for the competitive position of U.S. workers. In countries like China, substantial investments in production technologies and human capital development (health and education) are narrowing the productivity gap with the United States, which should, in theory, lead to less wage pressure. But if the degree of labor exploitation intensifies, this can undo some of the useful lessening of wage pressure that should have accompanied Chinese productivity growth.10 Even when low-income countries might wish to boost labor standards, the destructive race-to-the-bottom logic of global competition among open economies can lead them to hold back for fear of losing export competitiveness and foreign investment attractiveness.

There are many potential benefits for both U.S. workers and for workers throughout the world to engage in economic competition along many margins. But the scope of useful competition should be focused on who can make their exports more efficiently, not who can more effectively serve up their own nation’s workers for exploitation—whether by local or multinational firms. When trade competes on low labor standards, few of the potential benefits from trade flow to workers.

Two different groups have resisted efforts to incorporate enforceable labor standards within the structure of existing international trade rules. On one side, there are developing country interests concerned about losing the comparative advantage of exploitation who see labor standards as a kind of neoprotectionism. In theory and reality, strong labor protections favor, rather than hinder, growth in late-developing economies (Storm and Capaldo 2018). On the other side are advanced economy corporate interests profiting from this exploitation by substituting workers in their own countries for oppressed workers offshore.

The linkage between trade policy and labor standards has a long intellectual history, yet very few workable proposals have been made during that time. For most of this debate, the primary focus was on whether enforceable labor standards should be part of the main treaties governing the global economy, whether it be trade agreements between countries or multilateral agreements like the World Trade Organization (WTO). But these efforts largely aimed to put the onus for enforcing labor standards on national governments that may not have the capacity, resources, or interest in upholding worker rights instead of on the companies profiting from the exploitation. Further, the efforts were hampered by the need to achieve unanimity among parties to an agreement.

A different model was instituted with the so-called Rapid Response Mechanism (RRM) in the U.S.-Mexico-Canada Agreement (USMCA) that entered into force in 2020. In addition to implementing new and improved labor laws in Mexico, USMCA’s RRM allows enforcement of labor standards at the factory level by an independent panel investigation (rather than a government inspector for whom incentives may be conflicted) when freedom of association and collective bargaining labor rights are violated. While the RRM represents a substantial policy innovation, it is not a match for the challenge of lifting labor standards at a systemic level. To date, only slightly more than two dozen cases have been alleged (ILAB 2025). Meanwhile, wages in Mexican manufacturing today are below their level in 2002 in inflation-adjusted terms and now stand at just 10% of U.S. manufacturing wages, or a mere $2.76 per hour.11

A ranking system for countries based on respect for labor rights

There is, however, no real reason why the U.S. must wait until new trade agreements are signed to begin the process of incentivizing better labor standards in trading partners and buffering U.S. workers from destructive competition. Rodrik (2019), for example, urged the U.S. to institute unilateral domestic safeguards.

The broad brush of our proposal is simple. The United States (perhaps led by the International Labor Affairs Bureau (ILAB) in the Department of Labor) should work with other international bodies and experts to develop a five-tiered ranking of countries around the world based on their respect for labor rights.12 Tier one would be countries that have legislated and successfully enforce the highest degree of labor protections around the world. Tier five would be countries whose labor regime is so odious that the U.S. should simply refuse to accept their imports until it is improved. In between, tier two countries should face a 5% tariff on all exports to the U.S., tier three countries a 10% tariff, and tier four countries a 15% tariff.

Are we positive these are the exact right number of tiers and tariff levels? Of course not, but that’s something that could be researched and assessed by the institutional staff assigned to this task. Further, this proposal is not meant to be calibrated to precisely solve the entire problem of differing labor standard regimes around the world. Instead, it is meant to show that the U.S. government takes seriously how labor is treated around the world and how that spills over onto workers in the United States. It is also meant to provide a competitive buffer against unfair competition that is a bit more than purely symbolic. The highest tariff level here (15%) would cut roughly in half the wage penalty imposed by being in the bottom tiers of democracy or labor standards enforcements identified by Rodrik (1999) and Palley (2005).

One difference between this broad proposal and some others that try to address the “social dumping” of exploitative labor practices is that it is country-based, not product-based. Often proposals aimed at integrating labor standards and trade policy require a finding that abusive labor practices provide a competitive advantage in a particular export good. We think a country-based approach makes more sense for two reasons.

First, it requires much less granular information to sort countries into tiers based on their general approach to labor rights than it does to investigate the cost structure of every possible export to the United States and how it might be impacted by labor practices at particular plants. Second, poor countrywide labor practices have powerful externalities that will pull down wages paid in exporting plants, even if the plants themselves have decent labor standards. Export plant owners only have to pay wages above those in the surrounding labor market to attract the workforce they need. If the surrounding labor market has wages suppressed by substandard national labor policy practices, then the exporting plant can have decent labor practices within its walls yet benefit strongly from the substandard national labor environment. Given these considerations, a commitment to provide better market access to entire nations based on their labor practices is a more workable policy.

The highest tariff level in this broad proposal would not be trivial, and it certainly might apply to large and important trading partners like China unless they make some welcome changes to their labor rights regime. In this sense it might sit uneasily with our skepticism about the use of tariffs in the previous section on trade deficits. We argue that it doesn’t. This labor standards-based tariff would be in effect regardless of the state of trade balance between countries. It does not aim to reduce trade deficits (and it cannot). Further, unlike the second Trump administration’s tariffs, it has a clear goal and specifies a clear road map for how trading partners could change their behavior to have it removed.

Harmonizing climate policies will help reduce greenhouse gas emissions and strengthen U.S. industry

Without harmonized climate regulations, individual countries risk the migration of greenhouse gas-intensive production to low-standard locales and the replacement of domestic production with carbon-intensive imports. This dynamic means that national climate policies and emissions regulations might simply push production to lower-standard locales rather than reducing global emissions overall. If, for example, the U.S. instituted a carbon tax and China did not, instead of reducing carbon emissions globally, some of the effect of this U.S.-based tax could be to push production that emitted carbon offshore to China. This “carbon leakage” would undermine the environmental goals of the carbon tax, and it would see U.S. producers of these emitting industries having to find new economic activity to engage in for no particularly useful reason.13

All of this is highly theoretical so far. The U.S. does not have robust regulations against carbon emissions (in part because of rollbacks to key greenhouse gas regulations during the first Trump administration), and no such regulations seem to be on the horizon. But if the day comes when some countries want to move ahead with stricter emissions controls, these countries should have the freedom to use trade tools like tariffs based on the carbon content of goods to ensure that production is not just moved offshore.

But until there are internationally harmonized climate policies, the progressive approach to globalization for the United States would be to leverage trade policies to herd the global economy toward reduced greenhouse gas pollution and other economic practices that threaten planetary boundaries critical for sustained life on Earth (Richardson et al. 2023). As with labor standards, U.S. trade policy could be designed to reward countries pursuing climate change-mitigating policies that incentivize foreign producers to reduce polluting emissions and clean up their manufacturing industries. The latter could be accomplished by forcing the internalization of costs of greenhouse gas emissions embodied in imports. By preventing “leakage” of emissions to foreign pollution havens, U.S. climate policy would also ensure that domestic, emissions-intensive industries would not be put at a cost disadvantage while shouldering the burden of adjusting to low-carbon production on their own.

The European Union is already putting such a policy regime in place with the Carbon Border Adjustment Mechanism (CBAM). This mechanism, in essence, levies a tariff on goods equivalent to the cost of greenhouse gas emitted during production in the country of origin. Beginning in 2026, EU importers will be required to purchase CBAM certificates covering the embodied emissions they import, consistent with EU pricing for equivalent emissions. Foreign producers that pay for emissions costs domestically will receive credits against fees due under the CBAM. Initially, the EU’s CBAM will apply to imports of iron, steel, and aluminum products; cement; fertilizer; hydrogen and electricity goods; with the mechanism expanding to cover imports from additional emissions-intensive industries, such as chemicals and polymers, down the road.

A policy to level the playing field in terms of emissions pollution is critical both to addressing the imminent climate crisis and to ensuring fair competition for U.S. industries. These industries are among the world’s cleanest producers but are up against other countries whose rapidly expanding production capacities are among the world’s dirtiest (Hersh and Scott 2021). During the Biden administration, the United States and European Union made strides toward a cooperative regime to limit unfair global competition from polluting imports with the Global Arrangement on Sustainable Steel and Aluminum. The agreement would provide a platform for onboarding like-minded countries intent on greening the most pressing industrial emissions (Mullholland and Meyer 2024; Malhotra and Tucker 2023). Legislators have already introduced a number of proposals for U.S. versions of a CBAM (JEC 2024).

This approach to limiting global greenhouse gas emissions and the competitive advantage for polluting countries also may conform to World Trade Organization (WTO) rules. The WTO carves out explicit rights for national regulation of “process and production methods,” recognizing that traded goods can be distinguished by how they are made, although WTO case law has yet to define clear boundaries for how such distinctions can be regulated (Benson et al. 2023; Porterfield 2023).

New international agreements should focus much more on taxes than on trade

Most of the benefits of freer trade can be secured by countries unilaterally and do not require international agreements. If a country decides that it is in their economic interest to allow imports to enter without tariffs, they do not need to strike an agreement with a trading partner to allow this. These unilateral tariff reductions are usually the largest source of estimated gains from trade by far.

Taxing capital income (profits from corporations and returns to wealth), however, is different. Here, effective policy requires some degree of international coordination. Without this, some countries will seek to become tax havens and carve out benefits for themselves at the expense of other countries’ ability to tax the richest entities in society. 14

The levers of international reform that would end tax havens and profit-shifting by rich corporations are well known and require political will to enact. One obvious lever would be for countries to agree upon and adopt a global minimum tax on corporate profits, regardless of where profits are booked. Proposals to adopt such a global minimum tax could, by themselves, raise roughly $500 billion over the next decade (Clausing 2021). The Biden administration made some promising first steps in cobbling together an international coalition to adopt and enforce such a tax—but future policymakers need to build on this progress, not tear it down.

Other reforms would build on Senator Sheldon Whitehouse and Congressman Lloyd Doggett’s No Tax Breaks for Outsourcing Act (2025), which would, among other things, fully tax the foreign income of U.S. multinational corporations, eliminate the tax-free return on foreign tangible assets, and eliminate a subsidy for excess profits from exporting that exists in current law. The overarching principle is that taxes owed should depend on the level of income, not the type of income (or one’s accountant’s creativity in claiming what type of income is being earned).

The current method of taxing capital incomes, and especially the corporate income tax, provides an incentive for corporations to shift both accounting profits and tangible production abroad.15 The current tax method essentially subsidizes firms to generate income outside of the United States. This is a perverse and inefficient setup, one aiming to serve the interests of rich corporations rather than the broad U.S. economy. It can be stopped with some straightforward policy changes.

Conclusion

Donald Trump’s approach to trade policy is bad for the United States and the rest of the world. But this does not imply that the pre-Trump global trade regime was working well. As usual, Dani Rodrik (2019) has put it best, arguing about Trump’s first term: “In a way, one of the worst consequences of Trump [emphasis added] is that he is reinforcing the views of the architects of the existing system as to why there shouldn’t be a change.”

The flawed approach inherited by Trump’s first administration perpetually sought to extend a set of international agreements and norms that privileged corporate interests over workers. From a progressive perspective, the bad part of this system was that it privileged corporate interests. From Trump’s perspective, however, the bad part was that it was a set of international agreements.

The Biden administration made some useful breaks with past practice on globalization. While the administration did not go far enough on many margins, it set off in a useful direction. The administration prioritized the effect of trade on workers, not just consumers, and didn’t prioritize corporate-led trade agreements. Key industrial policy targets aiming to solve market failures were put ahead of ideological fealty to free trade. In short, the Biden administration was not simply a return to the pre-Trump globalization regime that was so bad for American workers—instead they had tentatively begun charting a new path.

The second Trump administration has completely spurned this new path and doubled down on xenophobia and dominance displays as the center of trade policy. If this policy approach continues, it will lead to a poorer United States and a poorer global economy. It will not lead to a renaissance of good jobs in manufacturing.

At some point, a serious approach to the challenges of globalization will need to be reestablished. We hope this paper can help spark and inform that more serious debate.

Notes

1. See Bivens 2017 for an overview of the effect of globalization on American wages and how policy has amplified the harms of globalization. U.S. Bureau of Labor Statistics (BLS), “Table A-4. Employment Status of the Civilian Population 25 Years and over by Educational Attainment: Monthly, Seasonally Adjusted” retrieved from FRED, Federal Reserve Bank of St. Louis, February 12, 2025. David H. Autor, David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” American Economic Review 103, no. 6 (2013): 2121–2168.

2. The theory here (supported by evidence) is called the Stolper-Samuelson theorem. Its broad outlines are explained in Bivens 2017. The summary is that it predicts that trade with labor-abundant countries will lower wages in the United States and raise returns to other factors of production (like human capital).

3. See Mishel and Bivens 2021 for a decomposition of all the policy changes that led to wage suppression and wage inequality.

4. For a broad overview of trade deficits and their economic effects, see Blecker 2009.

5. See Steil and Della Rocca 2021 for an assessment of the economic effect of tariffs introduced in the first Trump administration. Another obvious issue in regard to tariff effects on the balance of trade is the retaliation that may occur.

6. See Gagnon 2020 for a discussion of countervailing currency intervention and its role in keeping trade deficits manageable for the U.S.

7. See Bivens 2019 on how different routes to deficit reduction imply very different outcomes for the welfare of most Americans. In a nutshell, deficit reduction achieved through higher levels of revenue raised progressively (mostly from rich households and corporations) can see deficit reduction go hand in hand with improved welfare for most, but deficit reduction achieved through cuts to income support, social insurance and public investment programs will harm welfare for the majority.

8. See Acemoglu 2021 for a broad discussion of how private investment decisions can lead to supply chain fragility.

9. See Rodrik 2019 for a good overview of these types of fairness concerns when domestic regulation and the rules of the global economy seem to conflict.

10. From 2010 to 2025, Chinese output per hour of work increased from 11% to 24% of the U.S. productivity level (ILO 2025a, 2025b). A recent ILO report (2025a) confirms China’s expanding use of mass detention and forced labor in export industries. Friedman 2014 shows how labor regulation in China has evolved to increase repression as wages and development have increased—a model that is being exported to other developing economy countries with increasing Chinese foreign direct investment.

11. EPI analysis of ILO (2025b) and BLS (2025a, 2025b) data.

12. There are numerous bodies around the world that collect detailed information on the state of labor rights in countries around the world. Freedom House periodically publishes a report on the global state of workers’ rights, the International Labour Organization and the International Trade Union Confederation annually track countries’ progress in protecting key labor freedoms, and the WageIndicator Foundation and the Centre for Labour Research collaborate to produce a tiered ranking of countries’ labor protections called the Labour Rights Index. In short, much of the raw material to provide a ranking of the type called for in this report already exists.

13. See Sato and Burke 2021 for an explanation of “carbon leakage.”

14. See Zucman 2015 for an overview of the problem of tax havens.

15. For evidence on this, see Kimberly Clausing, “Profit Shifting and Offshoring, Then and Now,” and Rebecca Kysar, “Profit Shifting and Offshoring in the New International Regime,” presentations for “Will the Trump Tax Cuts Accelerate Offshoring by U.S. Multinational Corporations?,” a conference hosted by the Economic Policy Institute, May 7, 2018.

References

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Zucman, Gabriel. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens. Translated by Teresa Lavender Fagan. Foreword by Thomas Piketty. University of Chicago Press.

This is a fair-enough characterization of what the blog post said about the steel and aluminum tariffs it was analyzing, but it misleads in applying this conclusion to the tariffs being proposed yesterday (and in previous weeks) by the current Trump administration. Specifically, the steel and aluminum tariffs examined in that EPI blog post were narrowly targeted and applied to roughly $50 billion of imports, less than 2% of the imports that yesterday’s announced tariffs would apply to. In terms of assessing the effect of tariffs, this large difference in scale matters crucially.

It is hard to overstate what a radical change yesterday’s tariff announcements are relative to either the steel and aluminum tariffs we examined in that blog post or even to the full suite of tariffs passed in the first Trump administration. The first Trump administration’s tariffs were far narrower and only undertaken after a lot more study and consultation. For example, seven months into his first term, President Trump ordered the United States Trade Representative to investigate Chinese trade practices. The report was released in March 2018 and found a number of instances of China engaging in unfair practices. In that same month (over a year into the term), the Trump administration announced tariffs on up to $60 billion worth of imports from China.

By the end of the first Trump administration, further tariffs had been implemented. With these additional tariffs, roughly $380 billion worth of goods were subject to these taxes, which had been phased in over four full years.

Now, Trump is imposing tariffs on essentially all goods imports—more than $3 trillion—after just over two months into his term. Tariffs can be a legitimate and useful tool in industrial policy for well-defined strategic goals, but broad-based tariffs that significantly raise the average effective tariff rate in the United States are unwise. Further, the second Trump administration’s rationale, parameters, and timeline for tariffs have been ever-shifting. As the original post cited by the administration argues, tariffs should not be a goal unto themselves, but a strategic tool to pair with other efforts to restore American competitiveness in narrowly targeted industrial sectors.

Instead, the administration seems determined to squander and wreck the strong economy. Each of the individual policies they are pursuing—illegal layoffs of federal workers, mass deportations, constant threats and retractions of broad-based tariffs, and Medicaid spending cuts—would be bad for the economy. But each policy is also being pursued with maximum levels of chaos and incoordination, creating unprecedented levels of economic uncertainty. This uncertainty is itself a serious economic threat.

Below, we sketch out the macroeconomic dangers posed by each of the administration’s big policy initiatives so far, and end with an assessment of where this leaves the U.S. economy. The best outcome that could result from continuing these policies would be avoiding a recession but still sharply reducing growth and creating an U.S. economy that is significantly poorer than it would have otherwise been. The most likely outcome, however, is a recession in the coming year.

DOGE and the illegal attack on the federal workforce and payments

Among all the Trump administration blunders, the so-called Department of Government Efficiency’s (DOGE) illegal layoffs and contract cuts will show up first in macroeconomic data (they might already be showing up in unemployment insurance claims). The size of these cuts to date are not large enough to cause a recession by themselves, but if DOGE continues to pursue further cuts and they begin to add up to significant shares of the federal workforce, they could certainly spark a recession.

Further, the medium- and long-term damage of DOGE’s efforts are profound. DOGE is arbitrarily hacking away at key state capacity that is incredibly valuable and would be hard to reassemble quickly in the future. Their cuts also open up a number of new possible channels to trigger an economic crisis. Any one of these potential crises has a low probability of coming to pass, but creating multiple new possibilities for an economic wreck is extraordinarily reckless.

For example, cuts might erode our ability to detect and manage new pandemics. Or they might hamstring key public services that facilitate private-sector activity (such as air travel safety or scientific research). Given DOGE’s multiple demonstrated instances of misunderstanding basic facts about the government systems they are meddling with, it is far from inconceivable that DOGE could inadvertently cause key federal payments (say, interest payments to U.S. Treasury holders) to be missed or delayed. All in all, the unanticipated illegal DOGE attack on the public sector is the clearest current danger to the economy, which is saying a lot given the other bad policy efforts underway.

Further, the DOGE effort also creates huge uncertainty about how long the legal challenges will take to play out, whether Republican-appointed judges will be willing to cross the Trump administration, how long and in what form restitution will take, and even whether the administration will further the constitutional crisis by ignoring court decisions.

The Republican budget marching through the reconciliation process

The House budget resolution calls for cutting spending programs like Medicaid to help pay for a tax cut primarily for the rich, which would transfer income away from the bottom half of U.S. families and toward the very top. This is a terrible outcome by itself, one that would increase economic misery and inequality.

But the budget resolution if passed would also noticeably drag on overall demand growth in the economy. When disposable incomes fall for families living paycheck to paycheck, their spending falls in lockstep. Conversely, when rich families get a tax cut, they tend to save most of it. This decline in demand alone would force the Federal Reserve to cut interest rates to keep unemployment from rising. In turn, this would give the Fed much less ammunition to push back on any other recessionary force that arises in coming months.

This reconciliation process is also creating great uncertainty. It seems fairly sure that Republicans will extend the so-called Tax Cuts and Jobs Act (TCJA)—it is a universal Republican priority to keep taxes low for the rich. But it is still unclear whether this will be financed through cuts to spending like Medicaid (which would destroy demand) or just adding to the deficit (which would expand demand). Added on top of these layers of uncertainty are the possibility of a government shutdown and fights over the debt ceiling in the coming months.

Mass deportations

Should the Trump administration’s stated desires for mass deportations come to pass, this would constitute a profound shock to both demand and supply in the macroeconomy. In sectors where immigrants are a much larger share of workers than consumers—like food production, construction, and child care—prices will rise sharply as labor supply craters. In sectors where immigrants are more likely to be consumers than workers—retail, professional services, and durable manufacturing—demand will dry up.

Research has shown clearly that as immigrant workers are forced out of economies by enforcement measures, these economies suffer sharp employment declines of both immigrant and U.S.-born workers.

The final scope of the mass deportation efforts is also highly uncertain in macroeconomic terms (in human terms, we know this will cause great suffering). The administration might decide they are fine with highly performative acts of cruelty but not directly target millions of families. Or they might actually try to deport the millions they claimed they would target during the presidential campaign. Forecasting overall labor demand and supply given this uncertainty is extremely hard.

Unstrategic and chaotic tariff policy

Tariffs can be a useful policy tool. But the Trump administration’s approach to trade policy has been completely bizarre, with the strategic goal they claim to be targeting changing by the day (or even hour). And instead of using tariffs surgically to meet discrete goals, the Trump administration tariffs have been sweeping and across the board—often falling on goods (like many agricultural products) that the U.S. has no ability at all to produce domestically.

The initial rollout of widespread and high tariffs with no strategic goal was bad enough—these would have caused lots of pain to consumers while doing little to help workers in industries (like manufacturing) who have been genuinely damaged by past decades’ trade policy. But the administration has threatened—and even imposed—such tariffs only to yank them away again and again.

Radical uncertainty for its own sake

Each of these policy measures would be bad for the economy and typical families on their own. The fact that each comes with huge uncertainties creates even further damage.

This approach of pursuing destructive policy measures in the most chaotic and unpredictable way possible is tailor-made to freeze business investment in plants and equipment. What business will want to make plans about the future when key questions of demand, supply, the potential workforce, and the costs of inputs are entirely up in the air?

Swings in business investment are the most volatile parts of gross domestic product (GDP) in normal times, often leading the economy into recession. A policy approach that has led to the highest levels of economic uncertainty in history—higher than even the first months of the COVID-19 pandemic—is not a pro-investment agenda.

It is again worth noting the incredibly favorable investment environment that was handed off to the Trump administration. Business investment during the Biden administration grew faster than from 2017–2019, and significantly faster than it had averaged between 1979 and 2019. Further, the share of profits in corporate sector income hit historic highs in the pandemic recovery, offering huge incentives for businesses to keep investing in plants and equipment.

A policy agenda that manages to swamp this favorable investment momentum and send it into reverse would be a disaster, yet that seems to be where the radical uncertainty created by the Trump administration is taking the U.S. economy.

Uncertainty handcuffs the Federal Reserve

Finally, this uncertainty greatly complicates the Fed’s job. Inflation is currently running ahead of the Fed’s desired target, yet they have admirably tested the waters of lower interest rates because they have forecasted continued progress on lowering inflation even with slightly lower interest rates. But their forecasts are now far more uncertain. Multiple policy whipsaws that undermine both demand and supply growth will leave them very unsure about when and how much they should move interest rates to counter these policy shocks. Given that Fed policy is the first line of defense against recessions, policy uncertainty that makes it harder for them to recognize when the balance of demand and supply is getting out of line will see them acting less quickly than needed to recessionary shocks.

The U.S. will unambiguously be poorer at the end of Trump’s term

Absent a radical reversal of the current policy agenda, the U.S. will be a poorer country at the end of Trump’s term than it should have been. The only open question is how rapidly this de-growth will happen, whether more quickly through a sharp recession or more slowly as the supply destruction outpaces demand destruction.

My personal view is that avoiding a recession over the next year will require huge luck. The luck will either take the form of the administration quickly backtracking on many of its worst ideas, or in the fact that supply destruction will happen quickly enough that the demand destruction will not lead to spiking unemployment. But this second scenario is still very bad for U.S. economic growth, and either scenario will cause economic pain that was easily avoidable.

Medium- and heavy-duty vehicles are a backbone of U.S. economic life. Transitioning these vehicles from internal combustion engines (ICE) to low- and no-emission technologies is a critical step for eliminating greenhouse gas and other toxic emissions from the transportation economy. At the same time, this transition could have serious implications for the ICE vehicle manufacturing industry and auto workers—as well as the steel and aluminum industries that contribute so much to vehicle manufacturing—that have long been hammered by outsourcing and offshoring, union-busting, and intensifying international competition.

If done right, the transition to manufacturing clean trucks and buses presents a rare opportunity to reverse these trends and revitalize long-beleaguered industries with expanding investment, creation of good jobs, and broadly rising incomes in the United States. If done wrong, the transition risks exacerbating the current trends that see companies moving production offshore or to U.S. states embracing anti-worker policies, threatening the security of the good jobs that remain.

Our report models potential economic futures for U.S. truck and bus manufacturing supply chains under a variety of policy scenarios through 2032. The results indicate three pillars are necessary to secure good jobs for legacy auto workers and new entrants to the workforce, and to ensure a robust future for truck and bus manufacturing in the United States. To win good jobs manufacturing U.S. trucks and buses, policymakers must:

1. Maintain a strong public commitment to low- and no-emission vehicle transition, including supply-side and demand-side measures to overcome endemic market failures in the development and deployment of new clean vehicle technologies.
2. Increase the domestic market share and domestic content share for clean vehicle components in made-in-America trucks and buses by tackling the problems of bad trade policies and strongly tying financial incentives to domestic content requirements.
3. Condition financial incentives for companies on creating high-quality jobs; institute penalties and clawbacks for companies that fail to meet their commitments to U.S. investments and good jobs; and prohibit participation in these programs for companies that can’t show “clean hands” with the National Labor Relations Board (NLRB), the Internal Revenue Service, and other relevant regulatory bodies.

On all three counts, President Trump is flooring it in the wrong direction. Reversing federal funding for clean vehicle manufacturers and consumers will eliminate the first pillar of a clean vehicle transition that promotes good jobs, stranding more than $145 billion in new U.S. manufacturing investments and accelerating the decline in market share for domestic truck and parts manufacturing.

The demand for clean trucks will still be there. Although Trump has nixed clean vehicle targets for future new sales, 35 other countries—along with U.S. states, cities, and a range of private-sector manufacturers, fleet owners and operators, utility and infrastructure providers, and capital investors—have pledged to reach 100% clean truck and bus sales by 2040. But without a sufficient U.S. manufacturing base and workforce, that new demand will be met by foreign suppliers. Legacy ICE producers will be faced with dwindling market share and deteriorating production economies squeezing profits.

Figure A illustrates the potential harm of repealing the clean vehicle incentives from the Inflation Reduction Act (IRA). Pulling supply- and demand-side supports from the industry would result in nearly half a million fewer clean energy trucks and buses produced domestically through 2032, relative to the baseline scenario. This would cost more than 35,000 job-years (a quantity requiring one person’s work over one year) in truck assembly and parts manufacturing of ICE and clean vehicles and shrink the industry by nearly $16 billion. Conversely, we find that continuing with federal support for clean vehicles and tightening content rules to increase domestic market share would result in an additional 112,000 trucks and buses made in the United States, and an additional 171,000 job-years.

Figure A

Trump’s track record on the other two pillars is similarly unpromising. Although he made trade competition a signature policy campaign of his first term, the situation facing medium- and heavy-duty vehicle manufacturing got worse. Trump renegotiated the North American Free Trade Agreement (NAFTA), but his United States-Mexico-Canada Agreement (USMCA) preserved the fundamental flaws that empower multinational producers to threaten and actually relocate work to lower-wage and more readily exploitable places like Mexico. Trump left gaping loopholes in USMCA’s “Rules of Origin,” allowing foreign content to enter duty-free into U.S. markets without offering the same market-opening to U.S. producers—a loophole ripe for exploitation by heavily subsidized Chinese producers. And when it came to Chinese producers, Trump’s Phase 1 trade deal failed to meaningfully address any U.S. structural economic concerns. Will Trump’s second term be any different? So far, his tariff bluster seems to be aimed more at leveraging tariffs for international bargaining over non-economic issues rather than protecting good jobs from unfair trading practices.

Since USMCA was signed into law, wages for U.S. motor vehicle production workers have fallen more than 7% after inflation. Meanwhile, U.S. imports from Mexico of medium- and heavy-duty trucks increased 500% and imports of motor vehicle parts increased 150%. After growing steadily since July 2009, overall employment in motor vehicles and parts fell in the first Trump administration while also shifting employment to states with lower wages and worker protections. Trump led relentless attacks on workers’ rights during his first administration, and when he had an opportunity to support striking autoworkers in 2023, he criticized them and spoke at a non-union factory. Now, the president is working closely with union-buster and Tesla, Inc. CEO Elon Musk, who could shape Trump’s policies to squeeze his competitors out of the marketplace.

Will Trump realize he is taking the wrong turn for the future of good jobs building trucks in the United States? Workers in truck manufacturing communities and the rest of the world awaiting critical climate solutions like clean vehicles will be holding our breath.

Glossary of acronyms and initialisms

BEV: Battery electric vehicle

CHIPS: CHIPS and Science Act of 2022  

EV: Electric vehicle

FCEV: Full cell electric vehicle 

ICE: Internal combustion engine

IRA: Inflation Reduction Act of 2022

MHDV: Medium- and heavy-duty vehicles, inclusive of Classes 4–8 trucks and buses

NAFTA: North American Free Trade Agreement of 1994

USMCA: United States-Mexico-Canada Agreement of 2020

Medium- and heavy-duty vehicles—big trucks and buses—are a backbone of economic life in the United States. Transitioning these vehicles from internal combustion engines (ICE) to low- and no-emission technologies is a critical step for eliminating greenhouse gas and other toxic emissions from the transportation economy. At the same time, this transition could have serious implications for the ICE vehicle manufacturing industry and auto workers.

The auto manufacturing industry was once a dependable source of good, union jobs capable of sustaining middle-class communities—particularly for workers without a four-year university degree. But these jobs have deteriorated in quantity and quality thanks to decades of corporate outsourcing and union-busting; bad trade policies; rising foreign competition; and short-sighted corporate governance strategies which caused the 2008 automotive industry crisis.1

Combined, these factors created a generation-long drain of jobs from U.S. motor vehicle industries, applying unrelenting downward pressure on the quality of jobs that remained with predictable reverberations to local economies that have borne the brunt of industry restructuring.2 After 2008, average wages in the industry fell sharply while corporate profits, executive compensation, and stock buybacks soared and crowded out investment in the technologies, manufacturing capacity, and workforce development to compete for the clean vehicle future.

Now that future is upon us. If done right, the transition to manufacturing clean trucks and buses presents a rare opportunity to reverse these trends and revitalize long-beleaguered industries to expand investment, create jobs, and raise incomes in the United States. If done wrong, the transition risks exacerbating the current trends that see companies moving production offshore or to U.S. states embracing anti-worker policies, threatening the security of the good jobs that remain.

This report assesses the potential impacts of a transition on employment, output, and labor incomes in clean truck and bus manufacturing supply chains by modeling a range of policy scenarios from 2024–2032 to understand what is required to secure a just transition for legacy auto workers and new entrants to the workforce. Our analysis shows that a just transition, broadly, must target three things:

1. Maintaining a strong public commitment to low and no-emission vehicle transition, including supply-side and demand-side measures to overcome endemic market failures in the development and deployment of new clean vehicle technologies.
2. Increasing the domestic market share and domestic content share for clean vehicle components in made-in-America trucks and buses by tackling the problems of bad trade policies and strongly tying financial incentives to domestic content requirements.
3. Ensuring that newly created jobs are good jobs with program requirements for companies receiving financial incentives to make them good jobs; penalties and clawbacks for companies that fail to meet their commitments; and prohibitions from participating in programs for companies that can’t show “clean hands” with the National Labor Relations Board (NLRB), the Internal Revenue Service, and other relevant regulatory bodies.

The transition toward clean trucks and buses began in earnest under the Biden-Harris administration, with the 2021 Infrastructure Investment and Jobs Act, 2022 Inflation Reduction Act (IRA), and 2022 CHIPS and Science Act making big strides towards the first target. Together, this legislation allocated billions of dollars toward supporting manufacturers to make low- and no-emission heavy-duty vehicles and components, supporting owners of public and private fleets to purchase them, and building charging infrastructure to power them.3 While the Biden-Harris administration sought to attach highroad labor and domestic content standards to the tax incentives, grants, and no-interest loans to promote clean vehicles, these fell by the wayside in legislative horse-trading needed to pass the U.S. Senate.4 As a result, the law provides policymakers little leverage to hold recipients of billions of subsidies accountable, significant shares of which are flowing to companies that do not meet domestic content requirements or are expanding investments in states with anti-worker policies, undercutting goals two and three.

Now, the Trump administration is moving to drastically reorient the federal policy approach to clean vehicles by freezing disbursement of support for clean vehicle manufacturing provided by the Inflation Reduction Act and other legislation.5 This would rob the resources necessary to incentivize rapid development of domestic clean vehicle manufacturing capacity at a time when consumer demand is shifting away from ICE vehicles.6 And although President Trump took some major actions on trade in his first administration, these failed to reverse the long-term decline in motor vehicle manufacturing jobs and communities, or to advance worker rights more broadly:

• Though pledging to fix the North American Free Trade Agreement (NAFTA), Trump’s United States-Mexico-Canada Agreement (USMCA) left in the fundamental flaws that allow multinational corporations to shift production to low-cost, low-standard locations and create loopholes to import foreign content into North American supply chains. Both bolster employers’ credible threats of outsourcing or closing plants to suppress wage demands from workers in U.S. (and Canadian) manufacturing facilities.
• USMCA’s leakage problem—allowing non-USMCA content to count as being “Made in North America” in qualifying for lower tariffs—undercuts U.S. and North American workers by pitting them in competition against non-USMCA producers with lower labor, environmental, and consumer safety standards and without extending reciprocal market access to similar U.S.-based producers. Under USMCA rules, such content can even qualify for U.S. taxpayer subsidies under IRA policies.
• Since USMCA was signed into law, wages for American motor vehicle production workers have fallen more than 7%, after inflation. Meanwhile, U.S. imports from Mexico of medium- and heavy-duty trucks increased 500% and imports of motor vehicle parts increased 150%.
• Overall employment in motor vehicles and parts lost nearly 8,000 jobs in the first Trump administration. And the significant geographic churning of domestic employment toward lower-wage, non-union jobs in Southern U.S. states contributed to the decline in quality of the remaining jobs in the sector.7
• Looking forward, state-supported Chinese electric vehicle (EV) producers are positioning to exploit loopholes Trump left in USMCA that enable them to penetrate North American motor vehicle supply chains at the same preferential tariff rates as North-American-based producers, without having to compete under reciprocal opening in their home market. By routing through Mexico, Chinese producers will be able to circumvent the 60% blanket tariff President Trump proposed.
• Trump appointees to the NLRB led unprecedented attacks on workers’ rights, overturning long-established precedents, and empowering employers over workers at every turn.8
• In 2023, then-candidate Trump voiced criticisms of striking auto workers and avoided their picket lines in favor of speaking to workers at a non-union factory.9
• Trump and Tesla, Inc. CEO Elon Musk, the world’s largest EV-maker and one of just a handful of e-truck makers, are vocally anti-union, which suggests a Musk-influenced vehicles policy will not prioritize job quality.10 Moreover, Musk has not been shy about advocating for policies that will benefit his company and harm his competitors, even though these policies would be net negative for the US vehicles manufacturing sector as a whole.

Our modeling results show that eliminating financial support and domestic production incentives would fail to meet the three criteria for a clean vehicle transition and result in the worst possible outcome for industry workers and their communities. Not only will current producers fail to seize opportunities to develop new clean vehicle business—making U.S. truck consumers increasingly dependent on foreign technology leadership—but they will also face increasing cost pressures and a declining market share for ICE vehicles at the same time, giving an opportunity for new and foreign clean vehicle manufacturers to leapfrog incumbent domestic producers.

The real way to achieve a just transition to manufacturing clean vehicles is to expand the domestic content and market share for medium- and heavy-duty vehicles produced in the United States, while leveraging substantial public investments to raise job quality across the industry. After surveying the landscape for jobs in the U.S. truck and bus manufacturing industries, the report presents and compares analyses of potential economic futures under varying transition policy scenarios. We conclude with an overview of the policies needed to achieve a just transition in U.S. truck manufacturing—and looming over all these will be the deadline for the United States and partners to reauthorize USMCA in 2026, and a potential opportunity to fix some of these problems. 

Summary findings

• U.S. truck and bus producers face intensifying competition from lower-wage countries, subsidized imports, and corporate offshoring. In 2023, the U.S. imported more than 14 times as many trucks and buses (342,000 units) as in 2007—11,100 units more than produced domestically, with nearly 90% of imports from Mexico.11
• Employers continue issuing credible threats to shutdown factories and relocate production in order to suppress wage demands at home, made possible by the rapidly deteriorating trade position under USMCA. Since 2020, major employers in truck supply chains—like Volvo Group’s Mack Trucks, Daimler Trucks, and Stellantis—have made threats to their workers, announced plans to move production offshore, or implemented relocation plans.12
• State-supported Chinese clean vehicle and component producers are positioning to exploit gaping loopholes left in USMCA motor vehicle content rules going forward. Overall, the Chinese foreign direct investment (FDI) foothold in Mexico grew more than 560% since 2016 and imports of core Chinese-made parts to Mexico, like chassis with engines and bodies and cabs, increased by 132 times and 670 times, respectively, since the start of the 2009 business cycle expansion. This loophole is not just open to Chinese producers. And while we have yet to see importation of complete, Chinese-made trucks or buses from Mexico, U.S. policymakers should anticipate such a probabilistic future scenario and take steps to offset the effects of bad trade policies and market-distorting Chinese-government subsidies.
• Eliminating support for clean energy vehicles would undermine domestic manufacturing industries. Revoking the IRA and related policies would kill support for manufacturing clean energy vehicles and components—stranding $145 billion in new investments and costing more than 35,000 job-years (a quantity requiring one person’s work over one year) in truck assembly and parts manufacturing of ICE and clean vehicles. In total, nearly half a million fewer clean energy trucks and buses would be produced domestically through 2032.13 This would also likely mean loss of market share for domestic content components in diesel gasoline-powered trucks and buses because legacy producers not benefitting from the clean vehicle transition will face deteriorating economies of scale in ICE vehicle production.
• For a just transition, clean energy trucks and buses must be built in the U.S. with good union jobs. Relative to current market expectations, building on current policies to better incentivize investments in domestic production and high-quality jobs could yield an additional 172,000 job-years, building at least 477,000 more clean energy trucks and buses at union wages in the United States through 2032.
• Most of these jobs (79%) would not require a college degree, and with union representation, these workers can earn middle-class wages and comprehensive benefits.

• Better wages for manufacturing workers mean better economic outcomes. Contrary to what many companies claim, it is possible to pay workers good, union wages and provide them benefits while transitioning production lines to clean trucks. We find that widespread unionization with policies to onshore truck and bus manufacturing would increase output and wages throughout the domestic supply chain by $85.9 billion and $28.8 billion, respectively. Building more trucks and buses with more workers is good for workers, good for the communities where these high-quality jobs are located, and good for the environment.

Why we wrote this

Medium- and heavy-duty vehicles are a backbone of economic life, transporting the goods, services, and people working in our economy.14 With 23 million vehicles on the road driving 430 billion miles annually, these trucks and buses serve as essential links in the chains that deliver the goods and services to people and businesses, propelling economic activity.15 Motor vehicle manufacturing employment more broadly is a critical driver of overall economic activity in the United States: Each job in the industry supports 10 additional jobs and three times the output throughout the rest of the economy.16 

But the prevalence of big trucks and buses throughout the economy also carries substantial environmental—and, as a result, economic and public health—consequences. In the United States, the transportation sector is the single largest source of greenhouse gas emissions, with trucks and buses accounting for about one-fourth of those emissions, despite being just 6% of the vehicles on the road.17 Beyond global climate effects, localized air pollution from the transportation sector comes with substantial economic costs that go beyond individual health outcomes—costs borne disproportionately by the 120 million people living in low-income communities and communities of color, often in marginalized proximity to concentrated sources of emissions.18 Such chronic and pervasive exposure to toxic emissions carries macroeconomic implications for human capital accumulation and long-term productivity growth.19

Tailpipe emissions from trucks and buses account for one-fourth of total transportation emissions, in turn one-fourth of U.S. emissions from all sources, and have grown 2.2% annually, on average, since 2000.20 And the consequences for our looming climate crisis are driving an unprecedented global transition to electrify transportation—the eventual replacement of fossil fuel-powered vehicles with no-emission vehicles powered by onboard rechargeable batteries or fuel cell systems that convert hydrogen gas to electricity.21 That’s why 36 countries, including the United States, have pledged to reach 100% clean truck and bus sales by 2040, along with subnational entities like California, New York City, and a wide range of manufacturers and suppliers, fleet owners and operators, utility and infrastructure providers, and private capital investors.22

Achieving this transition will require further development of a wide range of technologies. Innovations will be required for producing the different component parts necessary for electrified vehicles, as well as for the development and installation of information technologies and capital equipment needed to manufacture those components at scale. What’s more, success will require equally ambitious and complementary investments to upgrade and expand renewable energy supply chains on which clean vehicle operations will rely—generation, storage, transmission, and distribution to end users. The challenges of clean vehicle industry development are too complex for traditional policy silos and will require policymakers to take a coordinated approach to industrial policy in order to achieve a just transition.

The stakes of failing to achieve a just transition are high given rising competition to control markets for medium- and heavy-duty vehicle manufacturing. Already, Trump’s USMCA continues NAFTA’s drain of jobs and employers’ ability to suppress worker demands with threats of relocation. But the international competitive environment is shifting and poised to disrupt U.S. markets with vehicles produced in USMCA countries but supplied by a rapidly growing overseas network of Chinese parts producers exporting market-distorting subsidized products to the United States. Without additional policy actions, the U.S. risks experiencing another “China shock”-level event, which decimated manufacturing communities across the country, focused on the broader motor vehicle manufacturing industry.23 This will mean loss of jobs and downward pressure on wages and standards in the jobs that remain, leaving U.S. labor markets and transportation supply chains exposed to risks of international disruption.

Achieving a just transition entails a significant public sector role to manage the transition: creating demand for new investments; retooling legacy internal combustion engine production facilities and training the workforce to produce the clean vehicle goods of the future; striking the right balance in foreign trade; and providing financial bridges to small and medium employers who will face less favorable access to capital markets and steeper challenges in navigating the transition. Failing to pursue a robust and comprehensive clean vehicle agenda is likely to leave workers and the industry’s small and medium enterprises in the lurch.

Sharpening international competition for and offshoring of truck and bus manufacturing

Natural barriers to trade due to the size and weight of MHDVs, as well as the importance of proximity to consumers demanding high degrees of customization, have long insulated U.S. truck and bus manufacturing industries from more intense trade competition—although parts producers in the supply chain have certainly not been immune to pressures from outsourcing and offshoring, with subsidized foreign steel and aluminum content taking a heavy toll. But now international competition is sharpening as the world races toward a transition to clean vehicles, and Chinese producers have begun establishing manufacturing footprints for homegrown Chinese firms and hallmark brands around the world.24 Supported by wide-ranging government subsidies and lax labor, environmental, and consumer protection regulations, a growing new presence of Chinese state-supported motor vehicle manufacturing on America’s doorstep portends a critical challenge to U.S. producers.

President Trump made trade competition a signature economic policy of his first term, although outcomes from his agenda largely failed to address these challenges.25 While Trump created an opportunity to renegotiate NAFTA, an agreement that had long plagued U.S. motor vehicle and parts workers, its replacement failed to rebalance trade or to address NAFTA’s fatal flaws that empower multinational producers to threaten and actually relocate work to lower-wage and more readily exploitable places like Mexico. Rules designed to promote North American production set too low a threshold for determining what counts as North American content to qualify for duty-free treatment in North American trade were not designed to effectively incentivize use of higher-wage local content in manufacturing vehicles.26

Tariffs Trump imposed in his first term aimed to tackle the challenge of state-supported exports of Chinese technology goods, including many categories of motor vehicle parts. Separate global tariffs on steel and aluminum products bound on Chinese exporters, who have upended global markets with strong state support.27 But the main effect was not to deter imports from Chinese-oriented motor vehicle supply-chains, but to divert their production to third countries subject to more favorable tariff treatment by the United States. A surge of outbound Chinese FDI and exports of manufacturing equipment followed, accompanied by surging U.S. imports of motor vehicle parts from countries where Chinese producers expanded their offshore export platforms, including Mexico, Thailand, India, Indonesia, Malaysia, the Philippines, and Vietnam.28 In Mexico, nearly one-fourth of Chinese FDI in late 2023 flowed to the auto industry.29

Figure A illustrates this rising import competition in trucks and buses in recent years, most notably the sharp growth in imports from Mexico, particularly after USMCA.30 In 2007, prior to the Great Financial Crisis and the 2008 U.S. auto industry crisis, the U.S. imported a mere 24,000 MHDVs (less than 10% of U.S. production) with two-thirds of these imports coming from Canada.31 Following the economic recovery after 2009, increasing truck and bus production in Mexico largely displaced Canadian production to serve an expanding share of the U.S. market. Amid this race to the bottom, truck and bus imports from Mexico grew to nearly 98,000 units by 2019—92% of total truck and bus imports—with imports from Canada amounting to less than 6% of total imports, and those from the rest of the world amounting to less than 3%. In total, imports grew to represent 31% of U.S. MHDV production.

By 2023, the United States imported more than 342,000 trucks and buses—88% from Mexico, or 11,100 more units than were produced domestically. This dramatic shift largely reflects growing outsourcing and migration of traditional U.S. producers to Mexico. This dynamic may be poised to change in coming years as a result of the increasing penetration of Chinese manufacturing foreign direct investment in Mexico seeking sidestep U.S. trade enforcement measures.32 With an early start and heavy subsidization under the 2013 “Made in China 2025” policy, China has become the world’s largest producer of and market for clean energy vehicles, and established supply chain dominance in critical clean vehicle components, particularly in the minerals, anodes, cathodes, and cells that go into storage batteries.33

Figure A

Facing U.S. tariffs on a wide range of manufactured and technology goods and steel and aluminum products, as well as broader trade policy efforts to uphold U.S. steel and aluminum producers, Chinese firms began shifting production chains toward countries with more favorable tariff treatment. From 2018 to 2022, Chinese firms increased their direct investments in Mexico by 126%, and their exports of manufacturing equipment to Mexico increased 134% over their pre-tariff level.34 Chinese outbound investment and export of manufacturing machinery show a similar pattern with countries that have shown surging motor vehicle parts exports to the U.S. in the years following 2018 tariffs: Thailand, India, Vietnam, Malaysia, and Indonesia, among others.35 This is less an example of trade diversion (changing trade partners to the next lowest-cost country) than of production diversion—rerouting production in Chinese supply chains through third countries to gain preferential access to U.S. markets. And the most preferred access comes through USMCA partners Mexico and Canada.

A misguided USMCA panel ruling in December 2022 already undercut stronger “rules of origin”—i.e., measures to ensure that imports receiving the best access to North American markets are made with significant North American-originating (“regional value”) content, by workers earning decent wages—in the renegotiated agreement. This ruling enables substantial non-North American content to enter North American motor vehicle supply chains in vehicles that qualify for duty-free entry to U.S. markets. The more complicated an intermediate part is (i.e., the more it incorporates lower-tier components), the more foreign content can masquerade as being “Made in North America.”

USMCA was negotiated prior to policy and industry commitments to the clean vehicle transition, leaving key components and technologies inadequately addressed in existing USMCA rules of origin. The leakage to non-USMCA content undercuts U.S. and North American workers by pitting them against foreign producers operating without the same commitments to worker, environmental, and consumer safety standards—and without similarly extending reciprocal market access to U.S.-based producers. What’s more, this subterranean content can qualify for clean vehicle tax credits subsidized by U.S. taxpayers under the IRA.

Chinese clean energy vehicle and parts manufacturers are poised to exploit this foothold into USMCA markets. Already, the United States is facing surging motor vehicle parts imports from countries where Chinese producers are expanding investments in manufacturing, but complete Chinese-branded vehicles produced in Mexico are not far behind with potential for severe disruption of established producers.36 And the United States is not the only country facing risks from surging, subsidized Chinese vehicle and part imports. Following a nearly year-long investigation into Chinese electric vehicle subsidies, the European Union levied countervailing tariffs of up to 45.3% on imported Chinese vehicles.37

The case of Chinese company BYD is instructive. From an upstart mobile phone battery company that manufactured its first car in 2005, BYD is now the world’s largest EV manufacturer and the world’s second largest EV battery producer.38 BYD is already a manufacturer of battery electric vehicle (BEV) school buses in Canada and school, coach, and transit buses in the United States. These projects began with promising community engagement and $39 million in taxpayer funds but devolved into recriminations of broken promises over the number and quality of jobs created and community benefits delivered.39 A range of BYD battery electric Class 6 and Class 8 trucks are already available in the U.S. market—more models than any other clean energy vehicle manufacturer is offering.40

BYD’s current dominance in the market for light passenger vehicles should serve as a harbinger of the potential for the company—among others benefitting from direct and indirect Chinese government support—to undercut U.S. and global markets for trucks and buses as well. Analysis released by industry benchmarking firm A2Mac1 shows that BYD markets essentially the same battery electric car (the Dolphin) in both the Chinese and European Union markets, but what retails for around $14,000–$15,000 in China is priced at $33,000–$35,000 in Europe—in line with the lowest priced BEVs in the market.41 Even after accounting for slight modifications to the vehicle to comply with higher European safety standards, taxes, and transportation costs, A2Mac1’s piece-by-piece teardown of the vehicles in the two markets finds that BYD is earning roughly $7,400 in profit on each unit sold in the EU.

These super profits owe to BYD’s unparalleled low costs of production, only made possible by a complex set of complementary Chinese government policies. To be certain, BYD has produced a number of cutting-edge product and process innovations that have made the company a technological leader, but they have done so with the benefit of robust and comprehensive industrial policies providing favorable access to credit and land; tax and regulatory forbearance; investments in critical mineral development and refining; investments in workforce development; demand-side policies providing consumer incentives and charging infrastructure; and suppression of worker rights, health, and safety concerns.

At present, BYD is content to reap these profits rather than upend market structures with price wars that are now squeezing other electric vehicle manufacturers.42 Insulated from the same kind of financial market pressures to return short-term profits to investors faced by peer companies in the United States, BYD can instead expand on their competitive lead by returning those earnings to investment in developing new technologies and markets for their products.43 But the mere realization of such super profits signals to competitors BYD’s ability to wage a decisive price war, which is certain to deter future investments by others or potential new entrants in the market for clean energy vehicles without a change to the market dynamic.

The situation for clean trucks and buses will be no different. Without additional policy actions to ensure development of viable domestic clean vehicle manufacturing, increasing permeation of BYD and other Chinese motor vehicle assembly and parts firms in Mexican manufacturing with potential preferential access to U.S. markets through USMCA is set to sharply disrupt U.S. truck and bus (and light-duty vehicle) manufacturing.

Assessing the jobs and economic impact of battery electric (and fuel cell electric) trucks and buses

Our modeling analysis focuses on how U.S. industry employment and output in truck and bus manufacturing and supply chain industries would be impacted by strengthening or curtailing policies intended to promote onshoring of domestic clean vehicle manufacturing, high-quality union jobs, and financial support for infant clean vehicle industries. We use the IMPLAN input-output model to assess the impacts of a shift from manufacturing diesel trucks and buses to ones with battery electric or fuel cell electric powertrains and a range of policy scenarios over the medium-term outlook from 2024–2032. Input-output models divide the economy into constituent industries and trace the complex interdependencies between them—546 discrete industries in IMPLAN’s case.44

In this report, we limit our consideration to impacts on the truck and bus assembly industry and the business-to-business purchases of inputs required for manufacturing of final vehicles, and so on down the supply chain. This excludes so-called “induced effects” on the macroeconomy created when workers directly engaged in truck and bus supply chains spend their incomes, which can—statistically speaking—suffer from aggregation bias in such analysis.

We take S&P Global Mobility’s Medium- and Heavy-Commercial Vehicle Forecast as the baseline scenario for our analysis against which to measure impacts of potential policy changes.45 S&P Global Mobility surveys market participants and producers; their database covers more than 95% of global MHDV production at the plant and vehicle model level for medium- and heavy-duty trucks and buses (Class 4–8 vehicles), a representation of which is pictured in Table 1.46 In total, S&P Global projects U.S. production of nearly 3.9 million MHDVs from 2024–2032, including nearly 600,000 battery electric vehicles and 115,000 full cell electric vehicles (FCEVs). Under current expectations and market and policy conditions, S&P Global projects that by 2032, 28% of U.S. heavy truck production will be clean vehicles and 42% of medium-duty trucks and buses will be clean energy-powered.47

Table 1

BEVs and FCEVs are too new to receive unique treatment in the IMPLAN model’s array of industries. Therefore, first we must estimate the requisite component inputs for these new manufacturing industries. This goes well beyond just the different powertrains propelling the trucks and buses forward—batteries, motors, and fuel cell systems. E-drive systems in both battery electric vehicles and full cell electric vehicles necessitate redesigning chassis to accommodate battery and electrical systems. Essential functions powered by the burn of a diesel engine like power-steering and power-braking, cabin and cargo HVAC, and thermal management all need to be adapted to high-voltage electrical systems. Upgraded tires are needed to handle additional torque at the wheel from e-drive and regenerative braking. All of this requires using substantially more semiconductors and related content than are found in a clean energy vehicle’s diesel counterpart.

Technological advances in recent years, in tandem with increased investments to meet growing consumer demand for clean vehicles, will bring light-duty BEVs to cost parity with diesel vehicles—even before accounting for current IRA consumer tax incentives—and medium- and heavy-duty clean energy vehicles are not far behind.48 Industry executives regularly claim that BEVs will require 30–40% less labor content than diesel internal combustion engine vehicles.49 Auto executives certainly should have inside information on the production engineering process, but they also have incentives to mislead shareholders (about the potential costs of the transition) and workers (in order to suppress wage demands).

However, independent engineering data do not bear out this reduction in labor content required for clean vehicle production, suggesting that EVs should be expected to embody more labor content than ICE vehicles.50 As a result, it is reasonable and conservative to treat the labor content of ICE and BEV vehicles to be roughly equivalent. Still, such technical engineering analysis leaves open the questions of where and under what conditions those alternative powertrain components will be developed and produced.

Beginning with IMPLAN’s model for ICE heavy-duty vehicle manufacturing, we adjust the contributions of various motor vehicle input industries to substitute costs for components that will replace existing diesel parts. The International Council on Clean Transportation and Ricardo, Plc., a private motor vehicle industry consulting group, provide a teardown analysis identifying cost breakdowns for clean energy components relative to other costs of a complete vehicle, as well as future cost trajectories, as technologies and manufacturing economies of scale improve in the near term.51 Replacing—or, in some cases, supplementing—industry inputs to diesel truck and bus manufacturing with content for low- and no-emission vehicles and scaling overall costs to 100% allow us to create new clean energy vehicle industries that can be modeled within IMPLAN. Thus, we can jointly model the impacts of projected U.S. trucks and buses production for nine discrete groups of vehicles: medium- and heavy-duty trucks and buses produced with diesel, battery electric, and fuel cell electric powertrains.

The baseline S&P Global forecast embodies the current policy environment under Biden-Harris administration policies, as well as market expectations for truck and bus, consumer preferences for drivetrains, and the landscape of international competition within motor vehicle supply chains. We then vary these assumptions in a variety of scenarios to test the impacts of different possible directions for U.S. clean energy vehicle manufacturing policy on employment and output:52

1. 50% clean truck and bus adoption: The U.S. has joined a group of 36 nations pledging 100% of new sales will be clean trucks and buses by 2040.53 Given the rapidly converging cost differences and expected lower total cost of operation for clean energy vehicles, as well as private sector commitments to decarbonize and reduce operational costs, we consider an intermediate scenario where adoption of electrified trucks and buses may outpace S&P Global projections.54 Here, we assume that U.S. output of clean trucks and buses reaches 50% of the total by 2032—with increased production primarily coming from more BEVs—as opposed to the 28% for heavy-duty trucks and 42% for medium-duty trucks and buses currently predicted by S&P.
2. Baseline + increased domestic market share: Unlike the IRA’s Section 30D light-duty clean vehicle tax credits, clean commercial vehicles qualifying for up to $40,000 each under Section 45W do not come with the same requirements for North American assembly or for critical mineral and battery components. To test the potential impact of policies incentivizing increased domestic production of complete trucks and buses and parts, we assume a 10% increase in U.S. production with a doubling of U.S.-originating content in storage battery production.
3. 50% clean trucks and buses + increased domestic market share: This scenario applies the assumption of increased domestic market share in the second scenario with the assumption of more rapid end-user clean vehicle adoption.
4. Scenario 3 + widespread unionization. As discussed above, policies supporting the development of clean energy truck and bus manufacturing industries eschewed requirements that public resources be used to support good jobs. Although political compromise necessary to pass legislation stripped motor vehicle manufacturing workers of labor protections extended to construction work, there are a variety of policy options available that can ensure public resources are being used to support good jobs and not just corporate profits. To test this scenario, we adjust total labor income in the truck and bus manufacturing industry to a union-equivalent rate, based on the current union-wage premium and industry unionization rate, while holding employment constant.
5. Trump’s likely approach: retreat from the clean vehicle transition. Despite the pressures from ballooning greenhouse gases and other toxic emissions from trucks and buses and the rapid expansion of private investment into U.S. clean vehicle manufacturing, not a single Republican official supported IRA legislation. Now, many have pledged to undo public policies supporting this green transition—President Trump, Sen. John Barasso, Sen. Shelly Moore Capito, Rep. Cathy McMorris Rodgers—and at least nine Republican-sponsored bills would repeal or rescind IRA programs.55 In this scenario, we assume the loss of support for investment in domestic manufacturing cuts the domestic content shares of key clean vehicle components by as much as one-half, while loss of demand-side tax credits for MHDV purchases and declining production efficiencies at lower-scale operations cut U.S. clean vehicle production to one-fourth of the S&P Global baseline. Disruption and uncertainty from the policy reversal make consumers less likely to choose low- and no-emission powertrains over diesel trucks and buses, and those opting for clean vehicles are more likely to be supplied by foreign manufacturers or by domestic manufacturers using significantly higher foreign parts.

Results

Figures B–D present visualizations of our topline modeling results for employment, labor income, and economic output impacts, respectively, relative to the S&P Global baseline scenario. When interpreting these results as a whole, it is important to keep in mind that truck manufacturing is an unusually high capital-intensive activity, where a relatively small number of workers can produce large value of output. In Scenario 1, where we assume faster than expected adoption of clean trucks and buses (50% of the market by 2032), employment in truck and bus manufacturing would increase by more than 31,000 job-years while employment in truck and bus supply chain industries would increase by more than 93,000 job-years. Combined, a more rapid expansion of clean truck and bus adoption in the U.S. market would support nearly 125,000 more job-years of work in motor vehicle and parts manufacturing than the status quo. As a group, these workers will earn $11.2 billion over this time. Reaching 50% clean truck and bus adoption by 2032 will mean an additional $61 billion in economic activity in U.S. motor vehicle and parts industries.

Even if the path of clean energy vehicle adoption remains the same through 2032, policies that work to increase the onshore manufacturing and domestic content of U.S. trucks and buses and parts (Scenario 2)—resulting in more domestic manufacturing activity for the same quantity of vehicles—will also improve the situation of workers and businesses in the industry. Increasing market share for U.S. medium- and heavy-duty motor vehicle and parts manufacturing is a boon for workers in the industry, supporting a total of more than 148,000 additional job-years—more than 33,000 in vehicle manufacturing and 115,000 in supply chains, earning an additional $13.3 billion. In total, output in the industry is expected to increase $72 billion by 2032, relative to S&P Global’s baseline scenario.

With an increased clean vehicle share and increased domestic market share separately improving employment and output prospects for truck and bus manufacturing and parts, it should be no surprise that combining the effects (Scenario 3) yields even more positive results. In this scenario, higher demand for clean trucks and buses combined with greater U.S. production capacity translates into more work and more GDP incentivized by green transition policies, supporting more than 171,000 additional job-years, $15 billion in labor income, and $82 billion in industry output.

Ideally, strong labor protection policies would work in concert with supply- and demand-side policies to support good jobs alongside emerging clean vehicle manufacturing industries as they develop. Thus, we model a scenario (4) where widespread unionization raises wages to union levels, strong U.S. content requirements expand domestic market share by 10%, and consumer preferences bring clean trucks and buses to a 50% market share. Here, we assume the same number of workers is employed assembling these vehicles, but that they are paid a union wage. With labor inputs representing only a marginal share of the total cost of a vehicle, it is expected that firms adjust through a combination of lower corporate profits and executive compensation. Given historic profitability and CEO pay, companies have ample space to absorb these costs.56 In certain market dynamics, producers may be able to pass some of this additional cost onto consumers, but the price difference would be imperceptible—less than the cost of purchasing floor mats with a new vehicle.

In this maximal policy scenario, total employment supported in the industry would increase by 172,000 job-years, paying $19.1 billion in labor income, while output would expand by $85.9 billion over the baseline forecast scenario. These results suggest that policies supporting increased domestic manufacturing and unionization yield 28% more labor income for workers over the status quo. What’s more, rather than adversely impacting business with increased labor costs, unionization increases industry output by 4% relative to merely increasing clean energy vehicle quotas and domestic content (Scenario 3).

By now, we can see a pattern emerging: The stronger and more comprehensive the policy support for a clean truck and bus manufacturing, the greater the overall job and economic benefits we should expect for the industry. However, many conservative politicians—including President Trump—are pledging to undo signature legislation supporting a green transition in motor vehicle manufacturing (Scenario 5). Our analysis shows that such a move creates a lose-lose-lose outcome. A policy retreat from greening U.S. truck and bus manufacturing would cull more than 35,000 job-years from the industry (7,200 in vehicles and 28,000 in parts); drive the loss of $3.3 billion in labor income; and shrink industry output by $15.8 billion relative to the baseline scenario, as the United States misses out on newly resurgent motor vehicle manufacturing industries and becomes reliant on foreign technology and manufacturing imports.

Figure E further shows the damage that such a policy move would wreak. Relative to the baseline scenario, 477,000 fewer trucks and buses would be made in America, compared with an additional 112,000 trucks in Scenario 4. The intuition is clear: producing more vehicles with higher shares of U.S.-made content requires more workers (or work hours) who are paid decent wages. The policy retrenchment from clean vehicle transition proposed by President Trump not only moves in the opposite direction, but it runs counter to global trends. Because the rest of the world will be transitioning to clean vehicles, this could effectively shut U.S. producers out of future truck and bus export markets.

Even these figures likely significantly understate the potential economic costs of a clean vehicle policy retrenchment. Job losses predicted by the IMPLAN model only capture the mechanical production relationships between truck and bus manufacturing and their demands on motor vehicle supply chain industries. We should anticipate in practice, given real-world complexities, that economic uncertainty and chaos in the sector following such a policy whiplash will impose more severe job and economic costs.57 In particular, small- and medium-sized suppliers with less favorable access to credit markets than multinational corporations or subsidized foreign producers will find it harder to adapt to shifting targets and could face elimination from the market.

Our results show that, whether battery- or hydrogen fuel cell-driven, electrifying truck and bus manufacturing with high policy standards is a clear winner for workers and the industry overall. However, it is important to highlight that these results do not suggest that all firms and workers will automatically be winners under the transition to electrified trucks and buses. Workers and plants producing legacy ICE vehicles and parts will need retraining and retrofitting to take advantage of new opportunities; smaller businesses with less favorable access to capital than multinational manufacturers will have more difficulty adapting to these changes. Policies must pay careful attention to both ensure that dislocations from churning are managed to avoid creating political resistance to transition policies or to erode the overall benefits promised by the transition.

Figure B

Figure C

Figure D

Figure E

Policy recommendations and conclusion

Federal incentives to build clean vehicles and their components in the United States and to buy domestically manufactured vehicles have spurred a manufacturing renaissance in this country.58 The future of U.S. truck and bus manufacturing industries will be determined by whether policymakers take steps to ensure a just transition toward manufacturing clean vehicles. President Trump’s move to scuttle financial incentives for U.S. clean vehicle manufacturing will likely accelerate the decline in U.S. truck and bus manufacturing employment and job quality, as well as the communities these support.

This outcome is not inevitable, but could result from a series of bad policy choices that would empower companies over workers. Our modeling shows that another path is possible where clean trucks and buses are made with domestically manufactured components (particularly batteries) and when workers are paid union wages, the economic benefits of a clean truck and bus transition can more than offset losses in sunset ICE manufacturing industries. Doing so will require that policymakers build on current policies and other legislation to tackle problems created by past trade policy mistakes and offer policy support to develop the market for clean vehicles from the supply and demand sides.

For the transition to succeed, broadly, the policy approach must:

1. Maintain a strong public commitment to the low- and no-emissions vehicle transition, including supply-side and demand-side measures to overcome endemic market failures in the development and deployment of new clean vehicle technologies.
2. Increase the domestic market share and domestic content share for clean vehicle components in made-in-America trucks and buses by tackling the problems of bad trade policies and strongly tying financial incentives to domestic content requirements.
3. Ensure that newly created jobs are good jobs with program requirements for companies receiving financial incentives to make them good jobs, penalties and clawbacks for companies that fail to meet their commitments, and prohibitions from participating in programs for companies that can’t show “clean hands” with the NLRB.

Domestic manufacturing requirements and incentives ensure that taxpayer support for the industry ends up supporting good jobs and investment to build the clean trucks of the future and their key components at home, rather than just contributing to corporate profits. Labor protections for manufacturing workers ensure that the permanent jobs are desirable, high-quality, and community-sustaining jobs, where workers have the free and fair choice to join a union.

From this perspective, strong supply-side programs are those that require applicant manufacturers to build clean trucks and batteries in the U.S. and source components from other domestic manufacturers. They require applicants to meaningfully engage with organized labor and together build frameworks to negotiate community benefit and workforce agreements, which pave the path to unionization. Strong demand-side programs drive fleet owners to purchase vehicles only from manufacturers that assemble their vehicles in the United States, and source U.S.-made batteries and other components. They require or incentivize the purchase of vehicles made by union workers, or in facilities where workers have the free and fair choice to join a union.

Specifically, policymakers designing incentives to support clean truck manufacturing and deployment should consider adopting the following policies:

Trade policy recommendations

1. Raise the MFN tariff rate on trucks and buses to incentivize companies to invest and operate in compliance with the North American Rules of Origin requirements—rather than simply choosing to pay the current tariff rate—while tightening these rules to cover critical clean vehicle components and to ensure content is truly made in North America.
2. Leverage the USMCA July 1, 2026 sunset to negotiate to raise standards for wages and working conditions across all three countries by tightening Rules of Origin for what qualifies as “Made in North America,” improving USMCA’s labor chapter, strengthening enforcement of the Labor Value Content calculations, more aggressive implementation of USMCA’s Rapid Response Mechanism to expand labor rights in the region, and establishing meaningful wage standards for manufacturing workers.
3. Restrict any goods subject to China Section 301 and Section 232 tariffs from gaining preferential access to U.S. markets under trade agreements or preference programs, including the USMCA and the Generalized System of Preferences (GSP) granting favorable U.S. market access to select low-income and developing economy countries.
4. Restrict any goods produced by an entity based in, supported by, or owned by a nonmarket economy from gaining preferential access under trade agreements or preference programs, including USMCA and GSP.
5. Proceed quickly on the Department of Commerce, Bureau of Industry and Security’s “connected vehicles” notice of proposed rulemaking (2024) to exclude vehicles and sensitive technology and components from countries of concern from operating in the United States.59

Supply-side policy recommendations

1. Utilize program requirements to ensure that applicant manufacturers have made enforceable commitments to card check neutrality, indicating the company’s pledge to voluntarily recognize and bargain a contract with the union once the majority of workers indicate they would like to be represented by that union. Card check neutrality commitments secure workers’ right to organize without illegal intimidation from employers.60
2. Require applicant manufacturers to submit detailed Community Benefits Plans modeled after the Department of Energy’s Battery Manufacturing & Recycling and Battery Materials Processing Grants, wherein employers are asked to submit letters of support from labor unions and required to build plans that advance community and labor engagement, as well as job quality and worker continuity.61
3. Predicate the awarding of government support for applicant manufacturers on a “clean” record with the National Labor Relations Board, which helps to indicate an employer’s observance of, and respect for, existing labor law.
4. Utilize clawback provisions with penalties to hold applicant manufacturers to their labor commitments on an ongoing basis, and beyond authoring the initial Community Benefits Plan.62

Demand-side policy recommendations

1. Require domestic assembly and domestic content requirements to access clean truck deployment incentives, including grants and tax credits.The current policy for commercial clean vehicle tax credits (Section 45W) available to truck and bus consumers requires neither. For all consumer incentives, ensure that only vehicles undergoing final assembly in the U.S. and with domestically manufactured battery cells (including cell components such as anodes, cathodes, and separators) are eligible.
2. Add additional “bonus” incentives for the purchase of vehicle models assembled in facilities where manufacturing workers are protected by a collective bargaining agreement, as certified by a labor union. Add further incentives for the purchase of vehicle models using battery cells made in union manufacturing facilities, as certified by a labor union.
3. Apply Build America, Buy America to school buses as part of the nation’s critical rolling stock—just like public transit buses and mobile port equipment are now.
4. Implement Build America domestic content rules in a manner that distinguishes batteries and non-battery components. Batteries can comprise more than half of the cost of a clean energy vehicle; as written, current content rules are likely to push other non-battery components (currently or with potential for domestic manufacturing) offshore.
5. Expand Transit Infrastructure Vehicle Security Act restrictions to cover all federal assistance applicable to trucks and buses, currently only applied to Federal Transit Administration and Federal Aviation Administration programs.

Smart industrial policy uses a host of tools—like grants, loans, and tax credits—to proactively shape a nascent industry to maximize particular benefits or realize specific outcomes. The recommendations offered above may, where feasible, be applied to existing programs in future rounds of funding or help to guide the creation of new supply- and demand-side programs at all levels of government.

However, it is important to note that manufacturers are free to contribute to a strong, domestic, and union-dense clean truck supply chain without government intervention or coercion. They can choose to be high-road companies, competing on the basis of the quality of their products—rather than on the low costs of their production processes, materials, and labor. That they have historically chosen not to do so is the reason why smart industrial policy is so essential.

Acknowledgements

The authors would like to thank the following people for valuable input on earlier drafts: Candace Archer, Jim Barrett, Josh Bivens, Katherine deCourcy, Anna Fendley, Ted Fertik, Katherine Garcia, Alice Henderson, Basma Hussein, Eddie Iny, Roxanne Johnson, Jori Kandra, Jennifer Kelly, Alison Kirsch, Stevie Marvin, Terin Mayer, Ray Minjares, Eric Ribbentrop, Ellen Robo, Kevin Rudiger, Megan Sarlin, Luke Tonachel, Yihao Xie, and Peter Zalzal.

Appendix

Appendix Figure A

Appendix Figure B

Appendix Figure C

Notes

1. Frank Levy and Peter Temin, “Inequality and Institutions in 20th Century America,” National Bureau of Economic Research Working Paper no. 13106, May 2007.
Henry S. Farber, Daniel Herbst, Ilyana Kuziemko, and Suresh Naidu, “Unions and Inequality over the Twentieth Century: New Evidence from Survey Data,” Quarterly Journal of Economics 136, no. 3 (August): 1325–1385.
Joel Cutcher-Gershenfeld, Dan Brooks, and Martin Mulloy, The Decline and Resurgence of the U.S. Auto Industry, Economic Policy Institute, May 2015.
Lawrence Mishel and Josh Bivens, Identifying the Policy Levers Generating Wage Suppression and Wage Inequality, Economic Policy Institute, May 2021.
Chandra Childers, Rooted in Racism and Economic Exploitation, Economic Policy Institute, October 2023.
Adam S. Hersh, “UAW-Automakers Negotiations Pit Falling Wages Against Skyrocketing CEO Pay,” Working Economics Blog (Economic Policy Institute), September 12, 2023.
U.S. Bureau of Labor Statistics, All Employees, Motor Vehicles and Parts [CES3133600101], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CES3133600101, last updated November 1, 2024.

2. The heavy-duty vehicles comprise a unique segment of the industry with its unique challenges, though also sharing some commonalities with the transition in light-duty vehicle manufacturing; for some data, official statistics do not disaggregate between light-duty and heavy-duty industry segments. Where available, we present industry-specific data; elsewhere we rely on higher industry aggregation for motor vehicles and parts manufacturing.

3. The White House, President Biden Announces up to $6.1 Billion Preliminary Agreement with Micron under the CHIPS and Science Act (fact sheet), April 25, 2024.

4. Department of Labor, “Protections for Workers in Construction Under the Bipartisan Infrastructure Law” (web page), accessed May 2024.
Internal Revenue Service, “IRA Prevailing Wage Requirements” (web page), accessed May 2024.
CHIPS for America, Building a Skilled and Diverse Workforce (fact sheet), published February 28, 2023.

5. The White House, Unleashing American Energy (executive order), January 20, 2025.

6. The Economist, “Why Chinese Companies Are Flocking to Mexico,” November 23, 2023.
Meritt Enright, “How China Became the Leading Car Supplier to Mexico and What It Means for the U.S.,” CNBC, August 24, 2024.
Mexico News Daily, “BYD Weighs 3 States for Electric Vehicle Plant,” August 26, 2024.
Elizabeth Machuca, “China’s BYD Plans Expansion Into Mexico, Rules Out U.S.,” Wards Auto, May 24, 2024.
Reuters, “MG Motor to Build Manufacturing Plant, R&D Center in Mexico,” August 8, 2024.
Noi Mahoney, “China-Based Automaker to Invest $3B in Mexico EV Plant,” Freight Waves, April 3, 2023.

7. U.S. Bureau of Labor Statistics, All Employees, Motor Vehicles and Parts [CES3133600101], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CES3133600101, last updated November 1, 2024.
Chandra Childers, Southern Economic Policies Undermine Job Quality for Auto Workers, Economic Policy Institute, September 4, 2024.

8. Celine McNicholas, Margaret Poydock, and Lynn Rhinehart, Unprecedented: The Trump NLRB’s Attack on Workers’ Rights, Economic Policy Institute, October 16, 2019.

9. Jill Colvin and Tom Krisher, “Trump Goes to Michigan to Rail Against Biden’s Electric Vehicle Push While GOP Rivals Debate,” Associated Press, September 28, 2023.

10. Grant Schwab, “UAW Claims Illegal Labor Threats in X Talk Between Musk and Trump,” The Detroit News, August 13, 2024.

11. Board of Governors of the Federal Reserve System (US), Motor Vehicle Assemblies: Heavy and Medium Truck Assemblies [MVAHMTRCKS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MVAHMTRCKS, last updated November 15, 2024.

12. AB Volvo, “Volvo Group to Increase North American Heavy Truck Production Capacity,” April 11, 2023.
Rick Holmes, “’Slap in the face’: Union criticizes company’s decision to build some Mack trucks in Mexico,” WFMZ-TV News, April 11, 2024.
Geert De Lombaerde, “Daimler Truck signals production ‘flexibility’ if Trump tariffs require it,” Fleet Owner, November 8, 2024.
Michael Mayland, “Automaker Stellantis has discussed moving pickup truck production from the U.S. to Mexico, union leader says,” CNBC, August 20, 2023.

13. BlueGreen Alliance Foundation, “EV Jobs Hub” (web page), last updated November 2024.

14. Medium- and heavy-duty vehicles encompass Class 4–8 trucks and buses—but not light-duty pick-up trucks like the Ford F-150, Chevrolet Silverado, or Dodge Ram—as well as school, transit, and coach buses; they do not include agricultural machinery or motor homes. Generally, these vehicles have a gross vehicle weight rating (GVWR) above 14,000 pounds and encompass most, but not all, of the list of “Medium- and Heavy-Duty Truck HTS 10-Digit Import Codes,” identified by the U.S. International Trade Administration (2023).

15. Dana Lowell and Jane Culkin, Medium- & Heavy-Duty Vehicles: Market Structure, Environmental Impact, and EV Readiness, Environmental Resources Management, July 2021.

16. Historically, motor vehicle jobs and output multipliers were even higher before so much of the supply chain moved offshore. Industries including wholesale and retail distribution of motor vehicles and parts and maintenance services comprise additional vast industries with broad economic impacts of their own.
IMPLAN (2024). IMPLAN Regions Multiplier Summary.
Josh Bivens, Updated Employment Multipliers for the U.S. Economy, Economic Policy Institute, January 2019.

17. Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2022, April 2024.
American Lung Association, Delivering Clean Air: Health Benefits of Zero-Emission Trucks and Electricity, October 2022.

18. American Lung Association, State of the Air, April 2023.

19. MHDVs are a major source of nitrogen oxide and particulate matter emissions—smog-forming pollutants that are strongly associated with a wide range of poor health and individual development outcomes, including adverse childhood cognitive and health development; increased incidence of chronic cardiovascular disease; and cancer. And these costs tend to be disproportionately borne by historically disadvantaged groups, often living in marginalized proximity to concentrated sources of emissions. Roughly 72 million people in disproportionately low-income communities and communities of color live in “fenceline” communities near warehouses, ports, railyards, airports, and major freight routes and highway corridors that experience heavy MHDV traffic. Particularly in the case of MHDVs, the American Lung Association (ALA) estimates that a full transition to zero-emission MHDVs by 2050 in just the U.S. counties with the highest levels of MHDV traffic would yield up to $735 billion in public health benefits. More specifically, ALA estimates that a full transition to zero-emission MHDVs by 2050 could avoid more than 8,500 lost workdays, 1.75 million asthma attacks, and 66,800 premature deaths. When including the impact of electrifying light-duty vehicles as well, these numbers increase to 13.4 million lost workdays, 2.78 million asthma attacks, and 110,000 premature deaths.
American Lung Association, Delivering Clean Air: Health Benefits of Zero-Emission Trucks and Electricity, October 2022.
Environmental Protection Agency, “Final Standards to Reduce Greenhouse Gas Emissions from Heavy-Duty Vehicles for Model Year 2027 and Beyond” (regulatory announcement), March 2024.
American Lung Association, Zeroing in on Healthy Air, March 2022.

20. International Energy Agency 50, “Trucks and Buses” (web page), accessed May 2024. 

21. A similar transition is underway in passenger vehicles and light trucks, with much overlap of producers in light-duty and medium- and heavy-duty motor vehicle supply chains.
International Energy Agency 50, “Trucks and Buses” (web page), accessed May 2024.

22. Global Commercial Vehicle, “Global Memorandum of Understanding on Zero-Emission Medium- and Heavy-Duty Vehicles” (web page), accessed May 2024.

23. EPI analysis of the Current Population Survey Basic monthly microdata, EPI Current Population Survey Extracts, Version 1.0.52 (2024), https://microdata.epi.org.

24. International Energy Agency 50, Global EV Outlook 2023, April 2023.

25. Trade in steel and aluminum products offers some exception. 
Adam S. Hersh and Robert Scott, Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures, Economic Policy Institute, March 2021.
Adam S. Hersh and Robert Scott, Aluminum Producing and Consuming Industries Have Thrived Under U.S. Section 232 Import Measures, Economic Policy Institute, May 2021. 

26. Adam S. Hersh, “Testimony prepared for the U.S. International Trade Commission report on the USMCA Automotive Rules of Origin,” October 16, 2024.
Adam S. Hersh, “EPI comments to the Office of the United States Trade Representative on the US-Mexico-Canada Agreement with respect to automotive goods,” January 22, 2024.

27. Adam S. Hersh and Robert Scott, Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures, Economic Policy Institute, March 2021.
Adam S. Hersh and Robert Scott, Aluminum Producing and Consuming Industries Have Thrived Under U.S. Section 232 Import Measures, Economic Policy Institute, May 2021. 

28. Adam S. Hersh, “EPI comments to the Office of the United States Trade Representative on the US-Mexico-Canada Agreement with respect to automotive goods,” January 22, 2024.

29. Isabella Cota, “Growth of China’s Automotive Sector in Mexico Worries the US,” EL PAÍS English, November 13, 2023.

30. Adam S. Hersh and Robert E. Scott, Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures, Economic Policy Institute, March 2021.
Adam S. Hersh and Robert E. Scott, Aluminum Producing and Consuming Industries Have Thrived under U.S. Section 232 Import Measures, Economic Policy Institute, May 2021.
Robert E. Scott, The Manufacturing Footprint and the Importance of U.S. Manufacturing Jobs, Economic Policy Institute, January 2015.

31. Board of Governors of the Federal Reserve System (US), Motor Vehicle Assemblies: Heavy and Medium Truck Assemblies [MVAHMTRCKS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MVAHMTRCKS, last updated November 15, 2024.

32. These include anti-dumping and countervailing duty enforcements and Section 232 and Section 301 tariffs enacted under U.S. trade law in response to anti-competitive practices in the Chinese economy.
Adam Hersh, “Docket Number USTR–2023–0013: 2024 USMCA Autos Report,” January 17, 2024.
Connor Pfeiffer, “Will China Drive Its Electric Cars in From Mexico?” Wall Street Journal, March 5, 2024.
Alliance for American Manufacturing, On a Collision Course: China’s Existential Threat to America’s Auto Industry and Its Route Through Mexico, February 2024.

33. Scott Kennedy, Made in China 2025, Center for Strategic and International Studies, June 1, 2015.
Usha C.V. Haley, Putting the Pedal to the Metal: Subsidies to China’s Auto-Parts Industry from 2001 to 2011, Economic Policy Institute, January 2012.
Agnes Chang and Keith Bradsher, “Can the World Make an Electric Car Battery Without China?” New York Times, May 16, 2023.

34. Adam Hersh, “Docket Number USTR–2023–0013: 2024 USMCA Autos Report.” January 17, 2024.

35. Adam Hersh, “Docket Number USTR–2023–0013: 2024 USMCA Autos Report.” January 17, 2024.

36. Reuters, “China’s BYD to Launch First Pick Up Truck at Event in Mexico.” May 7, 2024.
Daniel J. McCosh, “BYD Seagull Lands in Mexico as Dolphin Mini,” Wards Auto, March 1, 2024.

37. Philip Blenkinsop, “EU slaps tariffs on Chinese EVs, risking Beijing backlash,” Reuters, October 30, 2024.
Jorge Valero and Alberto Nardelli, “EU Moves Toward Hitting China with Tariffs on Electric Vehicles,” Bloomberg, March 6, 2024.

38. Heejin Kim, “China’s CATL, BYD Dominate EV Battery Market as Demand Grows,” Bloomberg, October 11, 2023.

39. Mass Transit, “BYD Receives Largest Battery-Electric Bus Order in U.S. History,” November 14, 2019.
Emily Alpert Reyes, “Electric Vehicle Firm BYD Accused of Violating L.A. Wage Rules,” Los Angeles Times, December 1, 2015.
Jobs to Move America, “Protest Denounces Broken Promises by BYD Motors, Inc., Chinese Electric Bus Manufacturer to Taxpayers of LA” (press release), December 1, 2015.
Jennifer Medina, “Chinese Company Falling Short of Goal for California Jobs,” New York Times, October 25, 2013.

40. BYD, BYD Truck Fact Sheet (fact sheet), accessed May 2024.

41. Author’s discussion with A2Mac1 representatives.
Nick Carey and Ben Klayman, “Insight: Why BYD’s EV Exports Sell for Twice the China Price,” Reuters, April 26, 2024.

42. Laura He, “Tesla Cuts Prices in US, China and Germany as Competition Heats Up,” CNN Business, April 22, 2024.
Andrew J. Hawkins, “Ford Slashes Mustang Mach-E Prices Again as EV Price War Enters Its Second Year,” The Verge, February 20, 2024.
Riz Akhtar, “Nissan Slashes Driveaway Price of Electric Leaf to Below $40,000 as EV Price War Deepens,” The Driven, May 9, 2024.

43. Adam Hersh, China’s Path to Financial Reform, Center for American Progress, October 2014.

44. Like all models, input-output models including the IMPLAN model, make necessary simplifying assumptions about the real world we are trying to understand, which condition our interpretation of the results. IMPLAN® model. 2024. Data, using inputs provided by the user and IMPLAN Group LLC, IMPLAN System (data and software), 16905 Northcross Dr., Suite 120, Huntersville, NC 28078 www.IMPLAN.com.

45. S&P Global Mobility, Medium- and Heavy-Commercial Vehicle Forecast, May 2024.
S&P Global Mobility, Medium- and Heavy-Commercial Vehicle Forecast Services Dictionary, September 2023.

46. The historical S&P Global data correspond closely to publicly available industry economic data on MHDV production from the Federal Reserve. We estimate projected output values based on the linear regression of inflation-adjusted manufacturers’ vehicle shipment on truck assemblies.
Board of Governors of the Federal Reserve System (US), Motor Vehicle Assemblies: Heavy and Medium Truck Assemblies [MVAHMTRCKS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MVAHMTRCKS, last updated November 15, 2024.
U.S. Census Bureau, Manufacturers’ Value of Shipments: Heavy Duty Truck Manufacturing [A36CVS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/A36CVS, last updated Novemver 4, 2024.

47. For more detail, see Appendix Figures A–D.

48. UBS, “The Electric Vehicle Revolution Is Shifting into Overdrive” (web page), March 3, 2021.
International Council on Clean Transportation, E-Truck Virtual Teardown Study, June 2021.
Ben Sharpe and Hussein Basma, “A Meta-Study of Purchase Costs for Zero-Emission Trucks,” International Council on Clean Transportation Working Paper no. 2022-09, February 2022.

49. Zachary Shahan, “Ford CEO: 40% Less Labor To Build Electric Vehicles,” Clean Technica, November 16, 2022.
Jim Barrett and Josh Bivens, The Stakes for Workers in How Policymakers Manage the Coming Shift to All-Electric Vehicles, Economic Policy Institute, September 2021.

50. Turner Cotterman, Erica R. Fuchs, Kate Whitefoot, and Christophe Combemale, “The Transition to Electrified Vehicles: Evaluating the Labor Demand of Manufacturing Conventional Versus Battery Electric Vehicle Powertrains,” Energy Policy 188, 114064 (June 2022).
Andrew Weng, Omar Y. Ahmed, Gabriel Ehrlich, and Anna Stefanopoulou, “Higher Labor Intensity in US Automotive Assembly Plants After Transitioning to Electric Vehicles,” Nature Communications 15, 8088 (September 2024).

51. International Council on Clean Transportation, E-Truck Virtual Teardown Study, June 2021.
Ben Sharpe and Hussein Basma, “A Meta-Study of Purchase Costs for Zero-Emission Trucks,” International Council on Clean Transportation Working Paper no. 2022-09, February 2022.

52. Given current tight labor market conditions near full employment levels, our results should be interpreted as supporting employment in MHDV manufacturing and parts industries, rather than creating new jobs. This likely would entail job-shifting—drawing workers employed in other industries into motor vehicle manufacturing. On average, these jobs are better paid and yield higher productivity than other jobs, meaning there will be individual and social welfare gains from such job shifting even if there is no net change in total employment.

53. Global Commercial Vehicle, “Global Memorandum of Understanding on Zero-Emission Medium- and Heavy-Duty Vehicles” (web page), accessed May 2024.

54. Hussein Basma, Claire Buysse, Yuanrong Zhou, and Felipe Rodriguez, Total Cost of Ownership of Alternative Powertrain Technologies for Class 8 Long-Haul Trucks in the United States, International Council on Clean Transportation, April 2023.
North American Council for Freight Efficiency, “Medium-Duty Electric Trucks: Cost of Ownership” (web page), accessed May 2024.
Andrew Burnham, David Gohlke, Luke Rush, Thomas Stephens, Yan Zhou, Mark A. Delucchi, Alicia Birky, Chad Hunter, Zhenhong Lin, Shiqi Ou, Fei Xie, Camron Proctor, Steven Wiryadinata, Nawei Liu, and Madhur Boloor, Comprehensive Total Cost of Ownership Quantification for Vehicles with Different Size Classes and Powertrains, Argonne National Laboratory, April 2021.

55. James Temple, “Trump Wants to Unravel Biden’s Landmark Climate Law. Here Is What’s Most at Risk,” MIT Technology Review, February 26, 2024.
Senate Committee on Energy & Natural Resources, “Barrasso, Rodgers Pen Op-Ed: The Biden Climate Legacy: American Weakness,” Republican News, October 19, 2023.
Houston Keene, “One Year Later, Senate Republicans Give Inflation Reduction Act an ‘F’: ‘Reckless Spending Spree’,” Fox News, August 16, 2023.
House Committee on Appropriations, “House Republican Bills Attack and Undermine the Inflation Reduction Act and Bipartisan Infrastructure Law,” n.d.

56. Al Root, “How Much UAW Wage Increases Will Really Raise Car Prices,” Barron’s, October 1, 2023.
Adam S. Hersh, “UAW-Automakers Negotiations Pit Falling Wages Against Skyrocketing CEO Pay,” Working Economics Blog (Economic Policy Institute), September 12, 2023.

57. Disruptions can be expected to plague both the supply- and demand-sides, as consumers will face greater uncertainty in committing to invest in long-lived durable goods with more uncertain prospects for future operational costs.

58. Leo Banks, How Inflation Reduction Act Electric Vehicle Incentives Are Driving a U.S. Manufacturing Renaissance, Center for American Progress, November 2023.

59. Department of Commerce Bureau of Industry and Security, “Securing the Information and Communications Technology and Services Supply Chain: Connected Vehicles,” Docket No. 240227-0060. March 1, 2024.

60. Teamsters Local 492, “What Is Card Check Neutrality?” (web page), October 4, 2017.

61. Community Benefits Plan template, accessible here.

62. Good Jobs First, “Key Reforms: Clawbacks” (web page), accessed May 2024.

While the labor market has slightly softened in recent months, job growth in December was extremely rapid and accompanied by wage growth that remained above inflation yet fully compatible with a return to 2% inflation—the Federal Reserve’s preferred target. In short, the labor market remains extremely strong yet in no need of policy measures to rein it in. All in all, it is hard to imagine an incoming administration wanting a stronger economic situation to inherit.

Table 1 below shows a range of measures indicating the trajectory of the economy for each incoming administration since Bill Clinton.1

Table 1

• The incoming Trump administration will inherit an unemployment rate of 4.1%, the lowest since George W. Bush was elected. Meanwhile, President Biden inherited an unemployment rate of 6.8%.
• The share of adults between the ages of 25 and 54 with a job—also known as the prime-age employment-to-population ratio (EPOP)—sat at 80.5% at the beginning of November 2024. This is its highest handover value since the 2000 presidential election.
• Overall and private-sector job growth are running at their fastest pace since Trump was first elected in 2016.
• Manufacturing job growth has been running at a negative pace during every single election since Bill Clinton. But, the manufacturing decline being inherited by the incoming Trump administration is at its slowest pace since the first Trump administration.
• Construction job growth is running at its fastest pace since the first Trump administration.
• Inflation is a slightly different story: In 2024, inflation was running at a 2.7% pace in December before the inauguration, its highest pace since the George W. Bush administration inherited 3.4% inflation. The first Trump administration inherited a 1.8% inflation rate, and the Biden administration inherited a 1.2% inflation rate.
• Perhaps most strikingly, the incoming Trump administration is inheriting extraordinarily fast real (inflation-adjusted) growth in the stock market. The stock market grew 28.8% over the past year, more than twice as fast as what was handed off to President Biden (the previous fastest pace at a presidential administration transition).
• Growth in real gross domestic product (GDP) and GDP per capita are both running at their fastest pace since 2000.
• Growth in real private business investment is also running at its fastest pace since 2000.
• Real wage growth is running at a pace (1.1%) comparable with the 2016 (1.3%) and 2020 (1.4%) elections. Real wage growth in pre-2016 elections was running at a much slower pace, even in the 2000 election.

Besides the striking strength of the economy being handed off to the incoming Trump administration, the table also shows that Republican administrations inherit much stronger economies. On every measure tracked in the table except inflation, Republicans on average inherit economies on better trajectories—including faster measures of employment, real wage growth, GDP growth, and stock market appreciation, along with lower unemployment. Democrats, in turn, have inherited lower inflation rates on average.

This aligns with evidence from a previous report showing the strong Democratic advantage in macroeconomic performance during their terms in office (i.e., not just at hand-off to changed administrations).

Those looking to make serious evaluations of how well the incoming Trump administration manages the economy need to keep this extraordinarily strong inheritance in mind as they make these judgments.

Footnote

1. For the monthly variables, we used data available until November of the presidential election years. For the unemployment rate and prime-age EPOPs, we used a rolling three-month average of each to reduce volatility. All other variables measured a year-over-year change comparing October in the election year with the previous October. The unemployment rate, the prime-age EPOP, employment growth (overall, private, manufacturing, and construction), and inflation (or the annual change in the overall consumer price index) were all obtained from the Bureau of Labor Statistics (BLS) online databases. The real stock market data was obtained from Robert Shiller’s online database. For quarterly data, we used data from the 3^rd quarter of the election year. We used the change relative to the 3^rd quarter of the previous year to compare. The measures of GDP and business investment were both from the National Income and Product Accounts (NIPA) data from the Bureau of Economic Analysis (BEA). For measuring real wages, we used the change in hourly wage and salaries from the Employment Cost Index (ECI) from the Obama administration on. We deflated this by the overall consumer price index. For the Bill Clinton and George W. Bush administrations the ECI data were not consistently available, so we used the average hourly earnings of production and nonsupervisory workers from the Current Employment Statistics (CES) of the BLS.

Dear Commissioners:

Thank you for the opportunity to comment on the upcoming 2025 Report on the USMCA Automotive Rules of Origin. Although these rules are only really beginning to come into effect, it is already clear that the incremental tightening—along with the labor Rapid Response Mechanism—are insufficient to overcome the fatal flaws in the NAFTA model that allowed multinational producers to threaten and actually relocate work to lower-wage and more readily exploitable places like Mexico. i Thirty years after the start of NAFTA, this corporate strategy is still suppressing wages for motor vehicle and parts workers and their communities in all 3 countries. USMCA has done little to change this equation and the updated Rules of Origin (ROOs) seem unlikely to change the course dwindling job quality and quantity in the U.S. motor vehicles and parts industries.

ROOs are too leaky to ensure high quality jobs

Even before the 2023 “rolling up” decision, USMCA’s content rules were too porous and the labor value standard too low to achieve the competitive North American automotive industry with high quality jobs that we all want. The rules allow non-originating content to be magically transformed into originating content and creep into North American supply chains with duty-free market access, even when that content is produced with illegal subsidization and exploited workers in third countries. Leakage from USMCA’s ROOs undercuts all North American workers by pitting them against non-USMCA producers who have not made the same commitments to worker, environmental, and consumer safety standards, and have not extended reciprocal market access to similar North American producers.

The porous rules have a number of implications: First, the more complicated an intermediate auto part is – i.e., the more underlying, lower-tier components are required to make an intermediate part – the more foreign content can masquerade as “Made in North America.” Even under USMCA RVC calculations, substantial non-originating content will enter at 0% duty. Thus, non-originating content qualifying for USMCA ROOs can expand at an exponential rate.

Second, the core parts list omits critical new technology goods for electric vehicle related components and autonomous vehicle related components. Fortunately, USMCA Article 3.10 provides a mechanism for the parties to expand the list of core components covered by North American content rules, though this is not a foregone conclusion and, in the meantime, content leakages deter the establishment of North American competition to illegally-subsidized and market-dominant Chinese technologies. The faster the industry evolves, the more vehicle content will be uncovered by USMCA ROOs.

Third, for most places in the United States $16/hour is at or near a poverty wage, on par with fast food and other low-skilled service wages. But because President Trump did not negotiate an inflation adjustment, already the Labor Value Content wage has declined 7% in real terms since he signed USMCA into law. And this wage floor—which will continue eroding into complete irrelevance before Mexican wages converge on U.S. and Canadian wages—covers less than half of a vehicle’s content, meaning it is not a meaningfully binding wage standard.

Finally, not only did USMCA leave these gaping holes for non-originating content, but the agreement largely relies on these same corporate entities to self-certify their compliance with the ROO regime. This creates a clear incentive and opportunity for manufacturers to cheat compliance. The less government monitors and enforces these rules, the more incentive manufactures have to evade USMCA ROOs.

In order to improve upon these shortcomings, USTR in conjunction with the Departments of Labor, Treasury, and Commerce should maintain a real-time database of facilities certified and in compliance with all USMCA ROOs for parts content, labor value, and primary metals content. Congress should establish the capacity to investigate whether duty-free treatment for a vehicle was provided due to errors or omissions in the producer’s certifications or preference claims, and to claw back duties with penalties when found in violation. What’s more, U.S. agencies should be required affirmatively to notify the Secretary of the Treasury of any malfeasance or whistleblower violation in response to reporting fraud, in the ROO calculations, so that duty-free treatment could be revoked.

The impact of loose ROOs

Rather than working to retain production in the United States with incentives for high-quality work, the trade data already show a widening U.S. bilateral automotive trade deficit with Mexico since USMCA’s inception.

Figure 1 shows that U.S. deficit in vehicles traded with Mexico is climbing under USMCA. For light duty vehicles—passenger cars and light pickup trucks—the U.S. deficit improved moderately after 2019 with the onset of the pandemic, automotive supply-chain shortages, and shifts in demand toward higher-value vehicles—more of which are produced in the United States. As a result, the light duty vehicle deficit was cut nearly in half by 2022. In 2023, with a strengthened U.S. economic recovery, even into the headwinds of U.S. monetary policy tightening, the light duty vehicle deficit began climbing once again. For medium- and heavy-duty vehicles, Figure 1 shows that prior to USMCA the U.S. maintained a small-but-steady trade deficit with Mexico. But that all changed with USMCA: the trade deficit jumped to more than 1 million trucks by 2023 from just 123,000 trucks in 2020.

In U.S. dollar terms, the bilateral U.S. trade deficit with Mexico in light-duty vehicles reached a pre-pandemic business cycle peak of nearly $56 billion in 2019 (Figure 2). As the U.S. economy has recovered, the light-duty trade deficit is climbing once again, to $40 billion 2023. The deficit in medium- and heavy-duty trucks, which averaged less than $9 billion annually in the pre-pandemic business cycle expansion jumped to $38 billion in 2022 and $43 billion in 2023 (Figure 3).

A similar pattern can be seen in U.S.-Mexico bilateral trade in motor vehicle parts. Parts imports from Mexico showed a steadily increasing trend over the pre-pandemic business cycle, from a $7 billion deficit in 2009 to a $27 billion deficit by 2019 (Figure 4). These data cover trade in tariff codes for motor vehicle parts specified by the ITA. ii However, since the onset of USMCA, U.S. vehicle producers have gone on a shopping spree for parts from Mexico. In just three years, U.S. imports shot up to $78 billion annually from $51 billion and the parts deficit ballooned to $42 billion from $26 billion.

Widening trade deficits in vehicles and parts with Mexico reflect motor vehicle producers’ preference to sight more of the North American industry in low-wage manufacturing centers, despite tighter USMCA ROOs. But they also reflect a realignment of global automotive supply chains following 2018 U.S. Secs. 301 and 232 tariffs and a slate of antidumping and countervailing duty determinations as production and trade was rapidly reorganized to third countries. A key example of this phenomenon can be seen in the case of tire imports to the U.S. (Figure 5). In anticipation of and following ITC determinations of injury from Certain Passenger Vehicle and Light Truck Tires from China in 2015, Chinese tire manufacturers quickly expanded offshore in countries like Thailand and Vietnam, among others, substituting for Chinese production for U.S. markets.iii As a result, tire imports from these countries surged and led to subsequent ITC import injury investigations from these countries.iv

Increasing Chinese penetration of North American motor vehicle supply chains

USMCA is not equipped to handle the coming influx of automotive content originating with Chinese-owned and Chinese-affiliated firms—often the beneficiaries of robust, illegal government subsidization and regulatory forbearance. In the aftermath of U.S. tariffs and trade enforcement measures, Chinese-owned and Chinese-affiliated firms have been repositioning their global footprint to launder the origins of their production chains through countries with more favorable tariff treatment in U.S. and North American markets. Following trends in other industries including steel and aluminum products, production chains oriented around Chinese-owned and -affiliated firms are rapidly penetrating North American automotive supply chains with growing manufacturing platforms in Mexico and a range of third countries with surging auto parts exports to the U.S.

China’s ballooning outward direct investment position since 2018 indicates a rapidly expanding overseas footprint for production organized around Chinese value chains. Since 2018, Chinese outward FDI positions increased by 126% in Mexico, 40% in Thailand, 246% in India, 119% in Vietnam, 97% in Malaysia, 73% in Indonesia, and 12% in the Philippines—in total a $42 billion expansion.v At the same time, exports of Chinese-made manufacturing machinery and equipment to these emerging automotive production hubs has surged since 2017: 134% to Mexico, 92% to Thailand, 79% to India, 149% to Vietnam, 159% to Malaysia, 119% to the Philippines, and exponentially to Indonesia.

For Mexico, depending on the kind of machinery, this has meant an 8-fold to 41-fold increase of manufacturing equipment imports from China (Figure 6). Among this wave of manufacturing investment are significant projects to establish platforms in Mexico for Chinese motor vehicle and parts producers aiming to penetrate the USMCA market.vi Mexican imports of Chinese core parts—chassis fitted with engines and bodies and cabs—have increased 132-times and 670-times, respectively, over the previous business cycle.

These examples illustrate the tip of the iceberg for the potential of state-supported Chinese content to penetrate North American markets. While imports of complete vehicles from China is still limited, it won’t be long until Americans are importing Chinese vehicles made in Mexico. Subsidization rates, for example seen in BYD’s Dolphin sold at widely ranging prices in different markets, are substantial enough to dwarf the gap between USMCA duty rates and MFN rates.vii

Benchmarking ROOs impact on corporate operations

Finally, I want to offer the commission some context on ROOs for motor vehicle manufacturing operations. We should not be surprised when companies blame regulatory compliance with USMCA, among other factors, for their efforts to shift more North American manufacturing to low-wage production centers. But we also should recognize these claims ring hollow. Motor vehicle manufacturers earn more than enough to offer workers dignified pay while still enjoying healthy profits and complying with regulatory requirements. Despite last year’s UAW strike and record new contract, Big 3 automakers still made $33bn in profits and spent $14bn on share buybacks and dividend payments. This year, the Big 3 have already spent more than $7bn on share buybacks.

The reality of more moderate cost pressures on manufacturers can be seen in data covering the recent U.S. inflationary episode. Producer prices for light duty vehicles peaked at 5% annualized inflation and for heavy duty vehicles at 3.2% in 2023 (Table 1). Producer prices for imported semiconductors, which faced critical scarcity in the pandemic, reached an inflationary peak of 5.6% annually. Meanwhile, though, consumer prices for new vehicles reached 13.2% annualized inflation. These data points indicate that it was corporate profit-push rather than wage- or cost-pushes driving inflation. In other words, the behavior should be attributed to corporate greed rather than economic necessity.

Thank you.

Adam S. Hersh, Ph.D.
Senior Economist, Economic Policy Institute

Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Figure 7

Table 1

Notes

i. In 2017, EPI economists outlined 6 points for NAFTA reforms: Robert E. Scott, Josh Bivens, and Samantha Sanders, Renegotiating NAFTA: What Should the Priorities Be, Economic Policy Institute Policy, December 7, 2017.

ii. International Trade Administration (ITA). 2024. Harmonized Tariff System Codes and Schedule B Codes for Trade of Motor Vehicles; Harmonized Tariff System codes, Schedule B codes, and North American Industry Classification Schedule codes for automotive parts. Accessed September 9, 2024.

iii. See for example, “Thailand-made Double Coin tires arrive in U.S.” Fleet Owner. March 30, 2018; “Linglong opens Thailand plant.” Rubber News. March 6, 2014; “Sentury Tire in Thailand: establishing a world class tire brand.” China Daily. January 21, 2016.

iv. Passenger Vehicle and Light Truck Tires from Korea, Taiwan, Thailand, and Vietnam; Invs 701-TA-647 and 731-TA-1517-1520 (Preliminary)

v. See Table 1, https://www.epi.org/publication/us-mexico-canada-agreement/

vi. “BYD weighs 3 states for electric vehicle plant.” Mexico News Daily. August 26, 2024; Machuca, Elizabeth (2024). “China’s BYD Plans Expansion Into Mexico, Rules Out U.S.” Wards Auto. May 6, 2024; Enright, Merritt (2024). “How China became the leading car supplier to Mexico and what it means for the U.S.” August 23, 2024; Mahoney, Noi (2024). “China-based automaker to invest $3B in Mexico EV plant.” April 3, 2023; “MG Motor to build manufacturing plant, R&D center in Mexico.” Reuters. August 8, 2024.

vii. Hersh, Adam. 2024. “EPI comments to the Office of the United States Trade Representative on the US-Mexico-Canada Agreement with respect to automotive goods.” January 17, 2024.