President Donald Trump is wrong about the causes of the United States’ trade deficit. He is wrong that the U.S. is no longer a manufacturing powerhouse. He is wrong about economic history. He is wrong that the U.S. economy has been pillaged by the global trading order. And he is blind to a major reason why the U.S. manufacturing sector, though remaining globally competitive, lags in the race for global manufacturing dominance. 

The trade deficit is largely a function of the deficient national savings rate. The U.S. must import capital to sustain investment and consumption. The massive fiscal deficit reduces aggregate savings; therefore, the U.S. imports capital. Our capital surplus in international transactions is the mirror image of our deficit in tradable goods. 

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For the past several decades, the U.S. economy has grown substantially faster than the economies of our closest neighbors and the economies of Western Europe. During this same period, the U.S. has consistently run a trade deficit in goods. Importantly, the U.S. runs a large surplus in services and intellectual intangibles.

It is an oxymoron to assert that the U.S. has been taken advantage of when our economy has been growing faster than any other large economy save for China. China is a special case, an extreme authoritarian state where workers’ rights are abused. China is an enemy of the U.S. Trump should tariff China to the max.

Still, Trump should also recognize that the U.S. continues to be a powerhouse in manufacturing. 

After China, the U.S. is No. 2 in global manufacturing as a share of total global manufacturing. The U.S. is No. 1 in real value added per worker. U.S. manufacturing workers are extraordinarily productive. “Measuring manufacturing value added on a per-worker basis shows Americans to be the world leader at over $141,000. That’s 45%  higher than second-place South Korea and over seven times that of workers in China.” The manufacturing sector of the U.S. economy would rank 8 in global GDP if manufacturing were a single global economic sector. 

While China leads in global manufacturing output, the U.S. remains a significant manufacturing powerhouse, holding the second-largest share and boasting high productivity and innovation in the sector. Contrary to popular sentiment, the U.S. is a global leader in the aerospace sector, heavy industry, processed chemicals, and even automobiles. To assert that the U.S. manufacturing sector is in terminal decline is demonstrably wrong. 

Moreover, the U.S. is investing heavily in artificial intelligence (AI) so that domestic manufacturing can become even more competitive. AI can increase productivity, and when manufacturing becomes more productive, it becomes more globally competitive. The future for the American manufacturing sector is bright. 

But the skies for the manufacturing sector would be even bluer and brighter if the U.S. labor force were more globally competitive. The U.S. suffers from a major labor shortage in manufacturing and in the construction skills necessary to expand the domestic manufacturing footprint. The manufacturing sector is short 500,000 qualified workers.

Our military industrial base suffers because of a deficient labor supply. 

There are two major reasons for the unsatisfactory state of the domestic labor supply. American society is plagued by a very elevated out-of-wedlock birth rate. When fathers are absent from the household, children, particularly males, suffer socially and educationally. Young males do not gain the necessary skills of self-responsibility and discipline. They do not learn to defer gratification. They fail to understand the value of education. 

In addition, the U.S. public education system is failing America. Too many young Americans lack basic skills in math and reading. U.S. manufacturing is characterized by high value added, which means the melding of technology and manufacturing. Without math and reading skills, too many young Americans cannot operate the advanced manufacturing systems that characterize American manufacturing. 

The data is clear: unemployment is higher in geographies where the out-of-wedlock birth rate is elevated. The data is beyond debate that educational outcomes are lower for single-family households.

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The decline of social structures and a deficient public education system are major reasons why up to 4 million young Americans are not in employment, education, or training. They have dropped out of the workforce. Imagine how much stronger the U.S. manufacturing sector would be if 4 million skilled workers were magically added to the available labor supply. Output, productivity, and national prosperity would all accelerate. 

President Trump and his economic advisers need to stop blaming others and examine the basic fabric of American culture if they truly want to make the country the global leader in manufacturing.

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be reached at [email protected].