Tariffs won't fix America's manufacturing problem — but AI might, Goldman Sachs says
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- Tech innovation is more likely than tariffs to revive the manufacturing sector.
- Chinese manufacturing has hurt the sector, but it's not the only cause of the decline, according to Goldman Sachs.
- Manufacturing productivity has slowed after the Global Financial Crisis due to weak investment.
The US manufacturing sector has been in decline for years. President Donald Trump's import tariffs are unlikely to fix it — but robots or AI could.
In a note on Thursday, Goldman Sachs analysts said that what the economy needs is a technological makeover.
"A pickup in the pace of innovation remains the catalyst most likely to reverse the long-run stagnation in manufacturing productivity," the Goldman analysts wrote.
The analysts wrote that while China's rise in manufacturing hurt US factories, fading "easy gains" from the manufacturing of computers and electronics also played a role.
While Trump's tariffs could help boost productivity in domestic manufacturing, tariffs alone won't solve the problem because costs remain far lower overseas, even after accounting for levies, the Goldman analysts wrote.
"China will likely continue to grow its exports on the back of cost advantages and industrial policy support," they added.
AI and robotics are already transforming manufacturing
The economy is in a state of upheaval, thanks to Trump's tariffs and the AI revolution.
Across industries, companies are incorporating AI and robotics into their work processes and supply chains.
Amazon has developed and deployed a robot to handle simple tasks at its fulfillment centers.
PepsiCo is using AI to improve agriculture and boost profit margins.
Tetra Pak, a Swiss food-packaging and processing company, uses AI to create optimal cheese recipes that meet US Food and Drug Administration standards.
AI's predictive capabilities are also transforming factory maintenance, helping businesses analyze historical data to prevent costly breakdowns before they occur.
However, improved productivity can come at a human cost.
As Business Insider's Aki Ito reported earlier this month, companies are trimming head count for roles that AI can perform, signaling a reshaping of the workforce.