Tariffs and Reindustrialization

How America Wins in the Short and Long Term

Last week I wrote about monopolies and innovation. This week, we’re talking about the hot topic of tariffs and reindustrialization. Because who doesn’t love some macroeconomics sprinkled in with their favorite early stage hard tech blog ;)

If you’ve followed the American Dynamism, Global Resilience, or Reindustrialization themes in venture over the last few years, you know that rebuilding our industrial base is an urgent problem, and technology is the long-term solution.

In recent weeks, a more near-term solution has started to come into focus under the new administration—tariffs. Tariffs make domestic production immediately more competitive. They incentivize investment in manufacturing, increase demand for domestically manufactured goods (vs imported ones), and (likely) help increase American real wages. It’s likely these changes have a positive short to medium impact on the American middle class, albeit at the short-term expense of low cost imported products and raw materials¹

But tariffs are a blunt instrument. They’re a means to an end, not a long-term solution. In the long term, there are only two sustainable (tariff-free) paths to global competitiveness for American manufacturing:

1. Specialization (ie we make a specific thing or category of things comparatively better than anyone else). Specialization is sort of how we got into this mess, choosing to outsource production of certain goods to countries with a comparative cost advantage. This came at the expense of domestic manufacturing resilience.

2. Technology-driven productivity gains that offset our comparative labor and raw input cost disadvantages.

Number 2 will be a long road. There’s no one magic piece of tech. We need order of magnitude improvements. We’re excited to invest in innovators accelerating tech-driven productivity gains in manufacturing, with a focus on companies that can capture a disproportionate amount of the value their tech, product, or services creates. These companies are more than simple automation of currently manual processes, but in many cases a complete rethink of engineering, manufacturing, and quality that dramatically increases output per dollar of capital invested and unit of labor consumed.

1. There’s also geopolitical considerations to tariffs on goods imported from specific international trade partners, but that’s a longer post for another day. More on that and the chess game of import tariffs from @kevin_b_b6 here.