RASHAAD TAYOB: America’s future lies in innovation, not factories

US President Donald Trump has put tariffs aggressively back on his policy agenda in his second term, reigniting debates about America’s ability to reclaim its industrial past through protectionist policies. The administration argues that tariffs will level the playing field, shrink the trade deficit and restore jobs lost to globalisation. 

Yet tariffs failed to meaningfully rebalance trade or revive US manufacturing during Trump’s first term. While certain sectors briefly benefited, overall gains were undone by supply chain disruptions, retaliatory measures and rising consumer prices. Investors hoping for a renaissance in American manufacturing are likely chasing a mirage. I believe that markets are underestimating the costs of this protectionist strategy. 

The popular narrative that the US can restore its post-war manufacturing dominance is fundamentally flawed. America’s post-World War 2 industrial supremacy was never sustainable. It was a temporary anomaly created by the destruction in Europe and Asia. Once the world recovered and economies such as China and India entered global markets, America’s share of manufacturing inevitably shrank.

Much of this shift was driven by the rise of the Global South — a term used to describe emerging and developing countries, primarily in Asia, Africa and Latin America, that have industrialised rapidly and become integral to global supply chains. History teaches us that wealthy economies naturally evolve from industrial production towards high-value services and innovation. 

Today the US faces structural — not cyclical — headwinds. Tariffs won’t reverse decades of economic transformation. Instead, protectionism risks embedding inefficiency, raising prices and stifling growth. Investors should therefore be cautious about exposure to US companies depending on domestic manufacturing revival, as trade barriers may produce short-term gains but long-term losses. 

True economic prosperity lies in innovation, not protectionism. America’s historical strength has always been its ability to develop new, high-value products and services the world hungrily consumes. But domestic policy missteps are eroding this competitive advantage. Declining public investment in research & development, entrenched corporate monopolies and policy stagnation have diminished America’s innovative edge. 

Federal R&D spending as a percentage of GDP has fallen sharply — from nearly 2% in 1965 to less than 0.7% today — coinciding with the reduction of US manufacturing share globally. At the same time, established industries in finance, healthcare and education have grown powerful through regulatory capture rather than innovation and genuine competition. 

Meanwhile, the feasibility of reshoring manufacturing is highly questionable. US manufacturing wages, at nearly $6,000 a month, are more than five times higher than in China, presenting a cost challenge. More importantly, China has built world-class industrial infrastructure, including ports, logistics and power generation capacity. In 2024 alone it commissioned five nuclear power plants — the US has built one in the last decade. Decades of strategic investment have made China the world’s manufacturing powerhouse, while the US has allowed its industrial base to decay. 

Attempting to rebuild this base will be slow, expensive and inflationary. Already, the US is seeing signs of constrained supply and panic buying. Delivery timelines for consumer electronics such as the MacBook Pro have lengthened, while surveys show rising inflation expectations. Instead of bringing stability, these tariffs are introducing uncertainty. Businesses face a policy environment as volatile as the early days of the Covid crisis — undermining investment planning and increasing the likelihood of recession. 

This was confirmed by a recent Bank of America fund manager survey, which cited a sharp uptick in recession fears — with stagflation seen as a credible risk. Tariffs increase input costs and reduce supply chain flexibility. If these persist, the US Federal Reserve may find itself unable to cut rates meaningfully due to elevated inflation, even in a weak economy. 

For the US to regain a competitive advantage, it must pivot decisively towards cutting-edge sectors such as AI, biotechnology and clean energy — areas where it can genuinely lead globally. Attempting to reclaim low-cost, high-volume manufacturing from economies such as China is misguided and self-defeating. 

• Tayob is portfolio manager at Foord Asset Management.