Trade-Offs

Both former President Joe Biden and President Donald Trump have made revitalizing American manufacturing a central goal—whether through tariffs, subsidies, or stricter “Buy American” rules for government contracts. But the idea of using federal policy to boost U.S. industry is hardly new. Nor has it been particularly effective.

A recent study co-authored by Professor Matilde Bombardini shows past efforts have come with steep costs and limited returns. The National Bureau of Economic Research working paper analyzed more than a decade of federal procurement data under the Buy American Act—signed by President Herbert Hoover during the Great Depression to stimulate demand for domestic goods and boost employment through government purchases.  

The researchers found that from 2001 to 2016, rules favoring U.S.-made goods preserved just 50,000 to 100,000 manufacturing jobs at a cost of up to $140,000 each. In comparison, during the same period, the U.S. lost roughly 4.5 million manufacturing jobs. What’s more, new rules in Biden’s Inflation Reduction Act that raised domestic content requirements from 50% to 75% may drive the cost per job as high as $240,000. 

“These numbers represent a loss that doesn’t go to anybody—it’s essentially how much less well-off we are per job created,” says Bombardini, an international trade economist. “It’s an expensive way to save jobs.”

In the first study to isolate these effects, Bombardini, along with Haas doctoral student Chiara Motta and colleagues from Pontificia Universidad Católica de Chile and the University of Hong Kong, found little evidence that Buy American rules operate as effective industrial policy. The jobs saved were not concentrated in sectors with long-term growth potential or broader economic spillovers. Such policies also reduce international sourcing flexibility and limit access to global expertise.

“Domestic content requirements are pretty pervasive—they were in NAFTA, for example—but no one had really measured their effects,” Bombardini says.

While both tariffs and Buy American rules are protectionist tools that make foreign goods more expensive and harder to source, they differ in structure and visibility. Tariffs raise revenue through taxes on imports, while domestic content rules operate like a tax with no proceeds—driving up procurement costs while shielding certain industries from global competition. 

“Tariffs are more transparent,” says Bombardini. “They’re applied at the border, you collect revenue, and you can trace their effects. But with Buy American, the costs are buried in every government contract.”

But while tariffs may be more straightforward to administer, they can be regressive and distortionary, Bombardini explained at a spring panel discussion at Haas. “A tariff is a terrible instrument,” she said. “It’s a mix of a consumption tax and a production subsidy at the same time. You end up hurting consumers while also rewarding inefficient producers.” 

Historically, tariffs were used by developing countries that had not yet developed the ability to track and tax people’s incomes, which economists view as a more efficient and progressive way for governments to raise revenue. In today’s complex economy, a smarter approach would be to target critical sectors directly, Bombardini argues. Production subsidies for key industries—such as the CHIPS Act stimulus for the semiconductor industry—are more strategic than blanket protectionism.

“There’s a place for industrial policy,” Bombardini says. “But if the goal is to boost American manufacturing, these tools need to be carefully designed.” 

Still, she acknowledges that some voters may view the costs as worth it—especially in regions hit hardest by industrial decline. “It’s possible that we value domestic production enough to bear the costs of tariffs,” Bombardini says. “Maybe the true silver lining might be forcing political attention to the economic challenges facing the middle and working classes.”