President Donald Trump’s call to reindustrialize the United States taps into a widely shared sense that something fundamental has gone wrong in the American economy. Manufacturing employment has collapsed, entire regions have been hollowed out, and supply-chain disruptions during the COVID era revealed how dependent the United States has become on foreign production for even basic goods. Trump’s proposed remedy—high tariffs on imports combined with subsidies and industrial policy at home—aims to reverse decades of deindustrialization by forcefully redirecting capital back into domestic manufacturing.

The goal is not irrational. The United States does face strategic vulnerabilities from industrial dependence, and the post-Cold War faith that global markets would automatically allocate production in socially optimal ways has proven naïve. But the means Trump proposes are unlikely to work. The reason is not merely political incompetence or poor policy design, but something deeper and more structural: the role of the U.S. dollar in the world economy and the global system that has been built around it.

At the heart of Trump’s program lies a belief that tariffs can correct trade imbalances by making imports more expensive and domestic production more attractive. In a conventional national economy, this logic might hold. But the United States does not operate within a conventional monetary framework. It issues the world’s dominant reserve currency.

Because the dollar serves as the primary medium for international trade, finance, and savings, global demand for dollar-denominated assets remains persistently high. Foreign governments, central banks, corporations, and investors all seek dollars—not primarily to buy American goods, but to hold American financial assets. This constant capital inflow pushes up the value of the dollar relative to other currencies.

An overvalued dollar has predictable consequences. Imports become cheap. Exports become expensive. Domestic manufacturing struggles to compete, not because American workers are unproductive, but because the exchange rate systematically favors foreign producers. Tariffs may raise the sticker price of imported goods, but they do not address the underlying exchange-rate distortion. In many cases, they simply strengthen the dollar further by attracting even more capital inflows in anticipation of higher domestic prices and returns.

In short, tariffs attempt to fight a monetary problem with a trade instrument. The result is frustration rather than reindustrialization.

This outcome is not accidental. The dollar’s global role was the product of deliberate postwar design. After World War II, U.S. policymakers sought a system that would stabilize international trade, prevent competitive devaluations, and anchor global finance. The Bretton Woods system placed the dollar at the center of this architecture, initially linked to gold and later floating freely but retaining its privileged status.

The benefits to the United States were enormous. Dollar dominance allowed Washington to borrow cheaply, run persistent deficits, and exercise extraordinary geopolitical influence. It also insulated the U.S. economy from the kinds of balance-of-payments crises that routinely afflict other countries.

But this system came with a cost. In classical trade theory, persistent deficits trigger adjustment: currencies depreciate, imports fall, exports rise, and industrial capacity rebalances. The dollar system short-circuits this mechanism. Because the world demands dollars regardless of U.S. trade performance, deficits do not self-correct. They accumulate.

Surplus countries can continue exporting without allowing their currencies to rise significantly, while the United States absorbs the imbalance through deindustrialization. The normal pressure that would force change simply never arrives.

American deindustrialization, then, was not merely the result of market failure or corporate greed. It was also the byproduct of strategic choice. Over successive decades, U.S. planners prioritized security, alliance cohesion, and global influence over industrial self-sufficiency.

Manufacturing capacity was gradually offshored to allies and strategic partners in an asymmetrical arrangement that saw free access to the American market for states like West Germany and Japan, while their own markets remained protected, in exchange for hosting U.S. bases and marching to the beat of Washington’s drum. Thus, Germany and Japan were rebuilt as industrial powerhouses within the American security umbrella. Later, China was integrated into global production networks as part of a broader strategy of engagement and containment. Cheap imports also lowered consumer prices at home, enabling loser monetary policy, while financial surpluses abroad flowed back into U.S. assets, funding deficits and military expansion.

The United States did not so much lose its industrial base as spend it. Industrial capacity was exchanged for geopolitical reach, financial dominance, and strategic flexibility. This tradeoff made sense within the logic of Cold War and post-Cold War planning. But it also locked the United States into a system where reindustrialization became increasingly difficult without dismantling the very order that sustained American global power.

If the problem is structural, could it be reversed? In theory, yes. A gradual de-dollarization—reducing the dollar’s role as the world’s primary reserve currency—would allow the exchange rate to fall, rebalance trade, and make domestic manufacturing more competitive. Capital inflows would slow. Exports would rise. Industrial investment sans government support would once again make economic sense.

In practice, such a transition faces overwhelming resistance. Dollar dominance benefits powerful domestic constituencies. The financial sector thrives on global demand for U.S. assets. Asset holders benefit from elevated valuations. The federal government benefits from cheap borrowing to finance deficits. Consumers benefit from low import prices.

Reindustrialization would require redistribution; from finance to production, from consumers to producers, from asset holders to workers. It would also involve higher interest rates, lower asset prices, and reduced fiscal flexibility. These costs are politically toxic. Even modest steps toward de-dollarization provoke intense opposition from those who benefit most from the current system.

As a result, U.S. policy oscillates between rhetorical nationalism and structural inertia. Tariffs are imposed, subsidies announced, and industrial strategies proclaimed—but the critical monetary foundation remains untouched.

In this context, tariffs function less as a tool of reindustrialization than as an additional tax on American consumers. They raise prices without resolving the underlying imbalance. When combined with subsidies and deficit spending, they also contribute to sustained inflationary pressure.

Absent a fundamental reordering of the dollar system, tariffs cannot restore manufacturing at scale. They can shift supply chains at the margin, reward favored firms, and generate political theater. But they cannot overcome the structural forces that made deindustrialization rational in the first place.

The likely result is a continuation of large trade deficits, modest reshoring at high cost, and inflation persistently above the Federal Reserve’s 2% target. Americans will pay more—not to rebuild an industrial economy, but to sustain a monetary and strategic order incompatible with one.

The central contradiction of contemporary American economic nationalism is this: the United States seeks to revive its industrial base while preserving the monetary and geopolitical system that undermined it. Tariffs cannot resolve that contradiction. They merely obscure it.

Without confronting the role of the dollar, the political economy of financial dominance, and the strategic tradeoffs embedded in the postwar order, reindustrialization will remain an aspiration rather than a reality. The United States can have a global reserve currency, persistent deficits, and financial primacy—or it can have a balanced trade regime and a robust manufacturing base. It cannot have both.