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Around the world, politicians are fixated on factories. President Donald Trump wants to bring home everything from steelmaking to drug production, and is putting up tariff barriers to do so. Britain is considering subsidising manufacturers’ energy bills; Narendra Modi, India’s prime minister, is offering incentives for electric-vehicle-makers, adding to a long-running industrial-subsidy scheme. Governments from Germany to Indonesia have flirted with inducements for chip- and battery-makers. However, the global manufacturing push will not succeed. In fact, it is likely to do more harm than good.
Today’s zeal for homegrown manufacturing has many aims. In the West politicians want to revive well-paying factory work and restore the lost glory of their industrial heartlands; poorer countries want to foster development as well as jobs. The war in Ukraine, meanwhile, shows the importance of resilient supply chains, especially for arms and ammunition. Politicians hope that industrial prowess will somehow translate more broadly into national strength. Looming over all this is China’s tremendous manufacturing dominance, which inspires fear and envy in equal measure.
Jobs, growth and resilience are all worthy aims. Unfortunately, however, the idea that promoting manufacturing is the way to achieve them is misguided. The reason is that it rests on a series of misconceptions about the nature of the modern economy.
One concerns factory jobs. Politicians hope that boosting manufacturing means decent employment for workers without university degrees or, in developing...