The Madness in the Method: The Self-Defeating Impact of Tariffs, "Chainsaw" Budget Cuts, and "Bringing Back" Outsourced Jobs

By Mariano Bernardez, Kaufman Center Think Tank

What if the very policies meant to "Make America Great Again" in a second Trump term end up making everything more expensive, less competitive, and more unstable?

In 2025, Trump’s proposed economic policies—aggressive tariffs, deep budget cuts, and forced reshoring of outsourced jobs—aim to protect American industries, cut government spending, and bring jobs back home. But will they actually work as intended? Or will they backfire, making life harder for American businesses, workers, and consumers?

• Will tariffs bring back jobs—or just raise prices and trigger a trade war?

• Can broad, indiscriminate budget cuts reduce waste without damaging critical services, defense, and economic stability?

• Will forcing jobs back to the U.S. strengthen the economy—or push companies to automate, raise costs, and hurt global competitiveness?

This paper dives into real-world economic data, historical examples, and insights from top economists like Larry Summers and Robert Rubin to reveal a pattern of self-defeating consequences.

Just like past protectionist policies and austerity cuts that had to be walked back, these new policies will likely cause inflation, job losses, supply chain chaos, and market volatility—forcing an inevitable reversal within a year.

For business leaders, investors, and policymakers, understanding these risks isn’t just an academic exercise—it’s a warning. How will these policies impact your industry, your investments, or your cost of living? And more importantly, can the U.S. economy withstand another round of “economic experiments” before the damage is too great to reverse?

Find out why the economic strategy of 2025 may end up undoing itself—and what that means for the future of American business and prosperity.

Introduction

Economic policies often have unintended effects that can undermine their original goals. Sociologist Robert K. Merton noted that “self-defeating” prophecies occur when actions taken to achieve a prophecy’s fulfillment instead produce the opposite result (The Self-Defeating Prophecy (and How it Works)) (The Self-Defeating Prophecy (and How it Works)).

In the context of public policy, a government may implement a strategy to strengthen the economy, only to find that the policy’s side effects force a reversal – a classic case of unanticipated consequences (2002 United States steel tariff - Wikipedia) (2002 United States steel tariff - Wikipedia).

This report analyzes three policy approaches potentially pursued in a second Trump administration—tariffs and trade restrictions, broad budget cuts, and reshoring mandates—and how each could backfire economically.

Drawing on historical precedents (from Reagan to Biden) and expert analyses, we examine how these policies could ignite inflation, disrupt supply chains, erode jobs, or dampen growth, ultimately compelling policymakers to undo them. We apply Merton’s concept of self-defeating prophecy to illustrate why each policy, despite its intent, might defeat itself and require reversal due to its damaging consequences.

1. Tariffs and Trade Restrictions

Policy Overview: In a bid to protect American industries and reduce trade deficits, President Trump has favored tariffs on imported goods – essentially taxes on foreign products. A second term could see continued or new tariffs on key imports (steel, aluminum, autos, electronics, etc.) and other trade barriers. The intended goals are to encourage domestic production, safeguard jobs from foreign competition, and gain leverage for U.S. negotiating objectives. However, history shows that tariffs often carry unintended and self-defeating economic consequences ('This is a self-inflicted wound to the American economy' - POLITICO) ('This is a self-inflicted wound to the American economy' - POLITICO).

1.1 Inflationary Pressure from Tariffs

Tariffs raise the cost of imported goods. U.S. businesses often pass these higher costs to consumers, pushing up prices on everyday products. Economist Lawrence Summers warns that tariffs act as a “self-inflicted” supply shock, effectively taxing foreign supplies and causing “higher prices and lower quantities” for consumers ('This is a self-inflicted wound to the American economy' - POLITICO) ('This is a self-inflicted wound to the American economy' - POLITICO). In early 2025, Summers cautioned that new tariffs would quickly boost inflation for “three or four months” by directly lifting price levels ('This is a self-inflicted wound to the American economy' - POLITICO) ('This is a self-inflicted wound to the American economy' - POLITICO). In essence, tariffs behave like a sales tax on imports, making goods ranging from food to appliances more expensive for American families.

• Evidence of Price Increases: Research confirms that the full burden of tariffs often falls on U.S. purchasers rather than foreign exporters.

For example, nearly the entire cost of the 2018–2019 Trump tariffs on Chinese goods was passed through to U.S. importers and consumers, raising the prices of affected goods (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector) (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector).

A Federal Reserve study found that in tariff-impacted manufacturing industries, factory-gate prices (producer prices) jumped by about 4.1% due to higher input costs from tariffs (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector). Another analysis showed that tariffs on imported washing machines in 2018 led to a sharp spike in laundry appliance prices, with consumers paying $86 more per washer on average – a roughly 12% increase – as well as higher dryer prices, even though dryers weren’t tariffed (manufacturers bundled the cost) (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector) (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector).

These examples illustrate how tariffs fuel inflation, undermining consumers’ purchasing power.

• Impact on Overall Inflation: While the direct contribution of tariffs to broad inflation indices (like the Consumer Price Index) may appear modest, it can be significant for certain sectors.

 The American Enterprise Institute noted that after tariffs were imposed, consumer prices rose notably for goods heavily reliant on imports (e.g. furniture, electronics), even as overall inflation remained near target in 2018-2019.

By 2025, amid already high post-pandemic inflation, new tariffs could exacerbate price pressures. Summers predicted that Trump’s tariff strategy would “drive up prices” further ('This is a self-inflicted wound to the American economy' - POLITICO), complicating the Federal Reserve’s fight against inflation.

Notably, former Treasury Secretary Robert Rubin also flagged tariffs as inflationary, calling them a “serious risk” to price stability and productivity (What Trump's tariffs mean for markets | Reuters) (What Trump's tariffs mean for markets | Reuters). In effect, a policy aimed at strengthening the economy can perversely spur a cost-of-living increase, eroding real incomes and consumer confidence – clearly at odds with growth goals.

1.2 Supply Chain Disruptions and Retaliation

Tariffs and trade restrictions can jolt the complex web of global supply chains. Modern U.S. manufacturers often rely on imported raw materials and components. When tariffs make these inputs costlier or harder to obtain, production can slow or even halt, disrupting the supply chain from factory to consumer.

Summers described tariffs as creating a “self-inflicted supply shock,” meaning the policy itself chokes off some supply of goods ('This is a self-inflicted wound to the American economy' - POLITICO).

This can manifest as shortages of critical components and delayed deliveries, prompting companies to scramble for alternative suppliers or to scale back output.

• Case: 2018–2019 Trade War: During Trump’s first term, tariffs on Chinese inputs (like semiconductors, circuit boards, and machinery) disrupted manufacturing supply chains.

Businesses' surveys reported delays and increased uncertainty in procurement. By taxing intermediate inputs, the tariffs raised production costs across U.S. industries – from autos to electronics – making domestic producers less competitive (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector) (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector).

The Federal Reserve’s analysis attributed much of the 1.4% decline in U.S. manufacturing employment in 2018–2019 to this input-cost shock and to foreign retaliation (discussed below), which together outweighed any protective benefit from tariffs (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector) (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector).

In other words, tariffs hurt the manufacturing workers they intended to help by upending supply chains and raising input prices.

• Retaliatory Tariffs: Trade is a two-way street – when the U.S. raises tariffs, trading partners often retaliate with their own tariffs on U.S. exports. This international tit-for-tat can sharply hit export-dependent sectors.

A prominent example was the retaliation against U.S. agriculture in 2018: China, Canada, and Mexico (among others) imposed heavy tariffs on American farm products like soybeans, pork, and dairy in response to U.S. tariffs. The result was a plunge in U.S. agricultural exports. American farmers lost significant market share in China as buyers switched to Brazilian soybeans and other foreign suppliers (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO) (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO).

The American Farm Bureau detailed “immense fallout” for rural America, noting that new tariffs “may inadvertently create financial hardships for U.S. farmers and ranchers who are already operating on very thin or negative margins” (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO) (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO). In fact, farm incomes fell, and many growers were left with surplus crops they couldn’t sell abroad. To stave off a farm crisis, the Trump administration had to authorize $28 billion in bailout payments to farmers in 2018-2019 (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO) (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO) – ironically spending most tariff revenue to compensate those hurt by foreign retaliation (92 Percent of Trump's China Tariff Proceeds Has Gone to Bail Out ...).

Thus, tariffs aimed at helping one industry (say, steel) often boomerang onto other industries (like agriculture or manufacturing exporters), creating economic distortions that require policy reversals or costly offsets (such as bailouts).

• Global Trade War Scenario: If Trump were to broaden tariffs to major trading partners (as hinted by threats in 2025 to tariff Mexico and Canada over unrelated issues (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO)), the retaliation could be widespread.

In 2002, President George W. Bush’s steel tariffs provoked the European Union to threaten targeted counter-tariffs on iconic U.S. exports – from Florida oranges to Michigan autos – calculated to inflict political pain in key states (2002 United States steel tariff - Wikipedia) (2002 United States steel tariff - Wikipedia).

Faced with the prospect of a major trade war and a World Trade Organization ruling authorizing $2 billion in sanctions, Bush backed down and lifted the steel tariffs after only 20 months (2002 United States steel tariff - Wikipedia) (2002 United States steel tariff - Wikipedia).

This episode underscores how retaliation can nullify a protectionist policy: rather than saving jobs, the Bush tariffs nearly sparked a trade war and had to be reversed to avoid broader economic damage.

The lesson is clear – once trade partners retaliate, the expected gains (for protected industries) are often outweighed by losses in export sectors and higher costs economy-wide.

1.3 Employment and Industry Effects

One of the main justifications for tariffs is to protect domestic jobs from foreign competition. Tariffs can indeed provide temporary relief for some industries – for example, U.S. steel producers saw a modest uptick in output and employment following tariff protection in 2002 (2002 United States steel tariff - Wikipedia) (2002 United States steel tariff - Wikipedia). However, these gains are often short-lived and dwarfed by job losses in downstream industries that rely on imported inputs or face foreign reprisals.

Tariffs create a classic economic trade-off: they save jobs in sectors shielded from imports but cost jobs in sectors that either use those now-costlier inputs or depend on export markets now closed off.

Unfortunately, the latter effects frequently dominate, meaning the net job impact of tariffs is negative (2002 United States steel tariff - Wikipedia) (2002 United States steel tariff - Wikipedia).

• Net Job Losses from Protection: Studies of Bush’s 2002 steel tariffs found that while U.S. steel mills saw employment stabilize, companies that use steel (such as auto parts, machinery, and construction) were hurt by higher input prices.

A seminal analysis by the Trade Partnership (CITAC) estimated that roughly 200,000 jobs were lost in 2002 in steel-consuming industries as a result of the steel tariffs – a number greater than the total employment of the steel industry at the time ([PDF] The Unintended Consequences of U.S. Steel Import Tariffs) (2002 United States steel tariff - Wikipedia).

In other words, protecting 170,000 steelworkers came at the expense of 200,000 workers in steel-using sectors, for a net loss to the economy. (The U.S. International Trade Commission later debated the exact figure but acknowledged that steel-consuming sectors had experienced significant job declines in that period (2002 United States steel tariff - Wikipedia) (2002 United States steel tariff - Wikipedia).)

Similarly, the Federal Reserve’s research on the 2018 tariffs found a 1.4% decline in manufacturing employment in more tariff-exposed industries relative to less exposed ones (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector) (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector).

Rising input costs and foreign retaliation were the key drivers of these losses, more than offsetting the small employment boosts in protected industries (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector) (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector).

These empirical findings contradict the notion that tariffs broadly “bring back jobs”.

Instead, tariffs redistribute jobs away from efficient, downstream industries toward a smaller number of less competitive jobs in protected industries, often at a net cost.

• Productivity and Competitiveness: 

Shielding industries from competition over time can reduce the incentive to innovate and improve productivity.

Robert Rubin cautioned that extensive use of tariffs “means less productivity” in the long run (What Trump's tariffs mean for markets | Reuters) (What Trump's tariffs mean for markets | Reuters). U.S. firms facing less competition may slow their efficiency gains or technological adoption.

Meanwhile, higher input costs make U.S. exports more expensive, reducing competitiveness in global markets. This dynamic was evident in U.S. manufacturing during the trade war: many firms reported that tariffs on components made their products pricier and less competitive abroad, leading to lost sales.

In agriculture, once U.S. soybeans became pricier due to China’s 25% retaliatory tariff, South American producers captured market share that U.S. farmers may struggle to reclaim (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO) (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO).

Such long-term shifts illustrate how tariff policies can backfire: instead of revitalizing industries, they may undermine export competitiveness and accelerate foreign competition.

• Historical Parallels: The self-defeating employment effects of protectionism have ample historical precedent.

In addition to the Bush steel episode, economists often cite the Smoot-Hawley Tariff of 1930, which provoked global retaliation and deepened the Great Depression as world trade contracted – hurting, not helping, American workers.

A less extreme example comes from the Reagan administration. While President Reagan spoke in favor of free markets, he also implemented selective trade barriers (e.g., tariffs on imported motorcycles to save Harley-Davidson and “Voluntary Export Restraints” limiting Japanese car imports).

These measures provided breathing room for some industries but at a cost to consumers and other sectors.

The early 1980s Japanese auto import quotas, for instance, raised the price of Japanese cars by roughly $1,200 per vehicle (about a 10% increase) for American consumers (Voluntary export restraint - Wikipedia) (The Cost of Trade Restraints: The Case of Japanese Automobile ...), and invited Japan to invest in U.S. production instead.

While Detroit automakers benefited in the short term, consumers paid more, and U.S. auto parts suppliers still faced competition as Japanese firms built U.S. plants.

The mixed outcomes from Reagan’s limited protectionism reinforce that even targeted tariffs have diffuse costs – and broad tariffs (like Trump’s) can have far wider, unintended job impacts.

1.4 Self-Defeating Prophecy of Tariffs

The tariff-heavy policy under Trump is a textbook case of a self-defeating prophecy.

The administration expects that raising trade barriers will strengthen U.S. industry and workers (the “prophecy”).

In practice, the policy triggers countervailing forces – inflation, supply chain snarls, retaliation, and net job losses – that undermine the economy, forcing policymakers to recalibrate or abandon the approach. We saw this with Bush’s swift reversal of steel tariffs once their damage became apparent (2002 United States steel tariff - Wikipedia) (2002 United States steel tariff - Wikipedia).

Trump’s own first-term trade wars had to be partially walked back.

By 2019, the administration issued hundreds of product exclusions to tariffs (to relieve pressure on importers) and negotiated a truce with China (the “Phase One” deal) that stopped further tariff escalation. In effect, reality compelled adjustments to the policy prophecy.

According to Merton’s theory, a public prediction (e.g. that America will restore its industrial glory by closing off trade) can fail because the actions taken to fulfill it alter the situation (The Self-Defeating Prophecy (and How it Works)) (The Self-Defeating Prophecy (and How it Works)).

Here, Trump’s tariffs were meant to create a stronger manufacturing base, but by harming downstream industries and raising living costs, they created economic stress that made the policy politically and economically unsustainable.

Indeed, by 2020, U.S. manufacturing was in a mild recession, and job growth had stalled, contributing to pressure to end the trade war (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector) (Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector).

If tariffs were expanded in a second term, a similar pattern would likely ensue: initial applause from protected industry workers would be followed by price spikes and foreign reprisals, leading to broader employment declines and public dissatisfaction.

Eventually, to prevent further damage (or in response to legal challenges), the administration would need to suspend or roll back the tariffs – negating the original intent.

The tariff policy thus defeats itself: it seeks to revitalize the economy but instead sows conditions (high inflation, angry farmers, sluggish growth) that force a reversal.

Lessons from Past Administrations: 

Past presidents' experiences offer a clear lesson: durable economic growth is rarely achieved via broad trade barriers.

Reagan and Clinton eventually embraced freer trade (e.g., Reagan pushed for GATT trade liberalization after temporary restraints, and Clinton passed NAFTA) when it became evident that competitive exposure, paired with domestic support (job retraining, R&D), was a better recipe for prosperity.

By contrast, protectionist spurts (Bush’s steel and Obama’s brief tire tariffs) were usually reversed within a few years after their unintended side effects materialized.

President Biden’s approach has been to largely avoid new tariffs (he maintained most of Trump’s China tariffs but refrained from expanding them) and instead pursue industrial policy via investments and Buy American rules.

This reflects a lesson learned: while tariffs can be politically appealing as tough-on-trade postures, their self-defeating consequences mean they cannot be a sustained strategy for economic growth.

2. Broad, Quantitative Budget Cuts

Policy Overview: 

Another potential policy direction in Trump's second term is an aggressive reduction in federal spending through across-the-board budget cuts.

This could manifest as a mandate to cut most agency budgets by a fixed percentage (a “horizontal” cut) to shrink government outlays.

Trump has hinted at targeting so-called “wasteful” spending, and some allies advocate cuts to domestic programs – even previously untouchable entitlements like Medicare and Medicaid – to rein in deficits.

Defense spending might also face cuts if a more isolationist stance is adopted.

The intended goal of broad cuts is to reduce the federal deficit and debt and, ostensibly, to refocus resources on the private sector, thus boosting long-term growth.

However, indiscriminate or overly broad budget cuts can be self-defeating: they may undermine economic growth, hurt public services, and create social costs that ultimately compel a policy reversal or offsetting measures.

We analyze these unintended consequences and draw analogies to cost-cutting in the corporate sector (such as Elon Musk’s actions at Twitter and Tesla) to illustrate potential pitfalls.

2.1 Impacts on Social Programs and Public Services

A sizable share of federal spending goes to social safety net programs – notably Medicare (healthcare for seniors), Medicaid (healthcare for low-income Americans), and Social Security (retirement benefits).

While Trump has at times vowed to protect Social Security and Medicare, some in his party have proposed trimming these programs to address budget imbalances.

Broad cuts to such programs can have far-reaching effects:

• Reduced Healthcare Coverage: Cutting Medicare and Medicaid budgets by, say, 10% across the board would likely reduce payments to hospitals, doctors, and nursing homes.

This can prompt healthcare providers to limit services or exit certain markets, affecting millions' access to care. Fewer covered services or tighter eligibility for Medicaid means more people are uninsured or facing higher out-of-pocket costs.

The economic consequence is not just a human one but also financial: uninsured individuals often delay treatment and then end up needing expensive emergency care, which ultimately costs the system (and taxpayers) more.

Moreover, a less healthy workforce is less productive. If workers lose Medicaid coverage, some may face health issues that hinder their ability to hold a job, paradoxically reducing labor force participation—the opposite of the goal of boosting employment.

A historical parallel is the early 1980s when some state-level cuts to Medicaid led to hospital closures in rural areas, contributing to local job losses and poorer health outcomes.

• Lower Consumer Demand: Social program benefits are typically spent immediately by recipients on goods and services (food, medicine, housing). Thus, they have a high “multiplier effect” on the economy.

For instance, according to economists, every dollar of Social Security benefits tends to generate about $1.50 in economic activity because retirees spend that income.

If broad cuts trim these benefits, seniors and low-income families will have less to spend, directly dampening consumer demand.

Reduced consumer spending can hurt local businesses, leading to a negative feedback loop of layoffs and further demand contraction.

This is especially true in regions with many beneficiaries (e.g., states with older populations or higher poverty rates).

The post-2009 austerity measures in Europe demonstrated this effect: abrupt cuts in public benefits and government salaries led to slumps in consumer demand, stalling the recovery and, in some cases, increasing debt-to-GDP ratios as GDP growth faltered.

• Strain on Public Services: 

An across-the-board cut might also hit education, transportation, and public safety budgets. That could mean fewer teachers or larger class sizes (harming future workforce skills development), deferred maintenance on infrastructure (leading to potholes, bridge issues, and slower logistics), and reduced staffing for services like policing or disaster response.

While the goal is fiscal saving, the unintended result could be a decline in the quality of foundational services that underpin economic activity. For example, inadequate infrastructure and education can make a country less attractive for business investment, countering the intended pro-growth narrative of budget cuts.

In summary, slashing social and public good spending can contradict the objective of strengthening the economy.

If cuts go too far, the administration might face public backlash and eventually be forced to restore funding (as happened when sequestration cuts in 2013 led to public outcry over airport delays and Congress swiftly reversed cuts to air traffic control).

This reactive backtracking exemplifies a self-defeating outcome where the pursuit of smaller government undermines social stability and economic momentum, necessitating policy reversal.

2.2 Defense Cuts and Economic Trade-offs

Broad budget cuts could also encompass the defense budget, especially if Trump’s foreign policy prioritizes less overseas engagement. While defense might seem ripe for trimming after decades of growth, significant cuts carry their own economic consequences:

• Job Losses in the Defense Sector: 

The U.S. defense industry is a major employer, directly and indirectly. Large contractors (e.g., Lockheed Martin, Boeing) and their supplier networks employ hundreds of thousands of engineers, technicians, and factory workers.

A 10% cut in defense spending could lead to contract cancellations or scale-backs (for example, fewer jet fighters ordered or a shipbuilding program delayed). This, in turn, would likely result in layoffs of skilled workers.

Past drawdowns illustrate the risk: after the Cold War, defense budget cuts in the early 1990s caused significant job losses in aerospace and military manufacturing – an estimated 1 million defense-related jobs were lost from 1990–1995 as the “peace dividend” was realized.

Communities dependent on military bases or defense plants experienced localized recessions.

Similarly, if a Trump budget slashed defense procurement, states like California, Texas, Virginia, and others with big defense footprints could see higher unemployment. This would undermine one of Trump’s key promises – to be a job creator – making the policy politically and economically self-defeating.

• National Security vs. Economic Security: 

On the other hand, maintaining robust defense spending can conflict with deficit reduction goals. In Reagan’s era, defense was increased massively while domestic programs were cut, leading to large deficits that proved unsustainable; Reagan ultimately had to support tax increases in later years to offset the red ink.

Trump might face a similar bind: cutting defense too much could draw fire for weakening the military, but sparing defense means deeper cuts elsewhere or failing to reduce the deficit.

If defense contractors lose business, some might pivot to commercial markets. Still, others could shut down specialized production lines (e.g., for submarines or advanced semiconductors used in defense) that have no civilian equivalent, potentially eroding the defense industrial base.

Rebuilding that capacity later (if cuts are reversed in response to security needs) is costly and slow. Thus, indiscriminate defense cuts could harm both employment and long-term security, requiring future administrations to spend heavily to reverse the damage – a pyrrhic victory for short-term frugality.

• Multiplier Effects: 

Like social spending, defense spending has spillover effects on the economy. It funds R&D (much of today’s tech – the internet, GPS – began as defense projects), and it supports small businesses in the supply chain.

Cutting it across the board could reduce these positive externalities. Economists debate the exact multiplier for defense outlays, but during recessions, defense cuts are seen as contractionary.

The 2013 sequestration, which cut roughly $42 billion in defense in that year, was estimated by the Congressional Budget Office to have lowered GDP growth by about 0.6 percentage points and cost around 750,000 jobs by year’s end compared to no cuts (2013 United States budget sequestration - Wikipedia) (2013 United States budget sequestration - Wikipedia).

This shows how quickly budget cuts can translate to slower growth and employment losses.

Those sequestration cuts were eventually eased in subsequent budget deals because both military and domestic constituencies found them too painful – again highlighting that overly broad cuts tend not to last.

2.3 Macro-Economic Consequences: Austerity’s Paradox

Broad budget cuts are essentially an austerity policy. The theoretical rationale is that lower government spending frees up resources for private investment and avoids burdening future generations with debt. However, the evidence suggests that if done when the economy is not at full strength, austerity can be counterproductive.

• Growth and Employment: 

Cutting government spending reduces aggregate demand, as discussed, which can slow GDP growth. If growth falters, tax revenues also fall (people earn and spend less), which can undercut the deficit reduction effort.

This paradox was evident in the U.K. during 2010–2012 when large-scale budget cuts led to near-zero growth and a higher debt-to-GDP ratio, forcing a partial policy reversal.

In the U.S., the 2011 Budget Control Act’s automatic cuts (sequestration) were projected by the CBO to reduce 2013 GDP by ~$90 billion (2013 United States budget sequestration - Wikipedia) (2013 United States budget sequestration - Wikipedia).

In real terms, the U.S. economy grew only 1.8% in 2013, a slower pace partly attributed to these fiscal cuts. Such slower growth makes it harder to achieve deficit reduction because the economic base is smaller. This dynamic illustrates how broad cuts can defeat their stated purpose: intending to improve fiscal health, they may actually weaken it if the economy stumbles.

• Labor Market Effects: 

The labor market has an indirect effect apart from direct government job losses (federal workers furloughed or laid off).

Reduced spending can lead to private sector layoffs in industries that depend on government contracts (construction firms building roads, IT companies servicing agencies, etc.). Moreover, as mentioned, cuts to benefits might push some individuals out of the labor force (due to health or financial instability).

A stark example can be drawn from Elon Musk’s rapid cost-cutting at Twitter in late 2022.

Musk fired roughly 80% of Twitter’s staff to slash costs (Twitter Layoffs: The Before and After of Elon Musk's Staff Cuts - Aura) (Twitter lays off staff, Musk blames activists for ad revenue drop | Reuters), an unprecedented downsizing.

While this cut expenses also hollowed out the company’s capabilities – content moderation and engineering teams were gutted.

The immediate aftermath saw a “massive drop in revenue” as advertisers, alarmed by the chaotic environment and reduced content oversight, pulled their ads (Twitter lays off staff, Musk blames activists for ad revenue drop | Reuters) (Twitter lays off staff, Musk blames activists for ad revenue drop | Reuters).

Musk himself admitted in July 2023 that Twitter’s advertising revenue was down 50% since his takeover (Musk says Twitter losing cash amid advertising revenue drop of nearly 50% | The Times of Israel) (Musk says Twitter losing cash amid advertising revenue drop of nearly 50% | The Times of Israel), leaving the company in financial distress despite the cost savings.

This corporate saga is an analogy for broad government cuts: Slashing vital functions (content moderation, air traffic controllers, or food safety inspectors) can create larger problems that erode fiscal gains. In government, that could mean economic disruptions that reduce tax revenue or necessitate emergency spending (for example, if cutting public health funds leads to an undetected outbreak that then requires a costly response).

• Consumer and Business Confidence: 

A government embarking on large-scale cuts might also unsettle consumers and businesses. If people fear loss of benefits or jobs, they may spend less as a precaution (higher saving rate), further reducing demand.

Businesses contracting with the government might delay investments due to uncertainty.

Analysts noted this confidence effect during discussions of entitlement reform – talk of cutting Medicare can cause seniors to cut back spending in anticipation. Thus, a poorly timed austerity push could tip the economy towards recession, which is the ultimate self-defeat for a policy originally aiming to bolster economic fundamentals.

2.4 Case Study Analogies: Elon Musk’s Cost-Cutting

Elon Musk’s approach to cost-cutting provides a microcosm of what broad austerity might look like and why caution is warranted:

• Twitter (2022-2023): 

Musk’s immediate layoffs and cost reductions at Twitter were meant to stabilize the company’s finances. In the short run, expenses plummeted by cutting payroll, free meals, office perks, etc. However, the platform’s reliability and trust took a hit – increased outages, longer response times to issues, and a surge in hate speech/spam due to fewer moderators were reported.

Major advertisers (Twitter’s main revenue source) fled, citing content and brand safety concerns. Twitter’s U.S. ad revenue dropped by 59% year-over-year in one quarter of 2023 (Musk says Twitter losing cash amid advertising revenue drop of nearly 50% | The Times of Israel) (Musk says Twitter losing cash amid advertising revenue drop of nearly 50% | The Times of Israel).

Musk had to hire a new CEO and plead for advertisers to return, essentially scrambling to reverse some of the unintended outcomes of his cuts. 

This demonstrates a key point: cuts beyond a certain point impair the core mission. For a nation, the “core mission” includes providing security, infrastructure, and social stability. If budget cuts impair those, the economy suffers, and public pressure builds to restore funding.

• Tesla (2018-2019): 

At Tesla, Musk also employed aggressive cost discipline. In early 2019, he announced a 7% reduction in Tesla’s workforce to lower costs and enable production of a $35,000 Model 3 sedan (Tesla: Elon Musk Announces Layoffs Amid Model 3 Production Ramp - Business Insider) (Tesla: Elon Musk Announces Layoffs Amid Model 3 Production Ramp - Business Insider).

While Tesla achieved cost reductions, layoffs were a one-time measure, and the company had to continue investing heavily in automation and manufacturing improvements to meet its goals. Musk’s letter admitted “there isn’t any other way” than cutting staff and increasing output to make the affordable Model 3 viable (Tesla: Elon Musk Announces Layoffs Amid Model 3 Production Ramp - Business Insider).

Following the cuts, Tesla’s stock initially fell, as markets worried the company was in financial strain (Tesla: Elon Musk Announces Layoffs Amid Model 3 Production Ramp - Business Insider). Tesla eventually reached its production and profit targets.

Still, notably, Musk reversed course on some infrastructure cuts—for example, after saying Tesla would close most retail stores to save money, the company backtracked and kept many stores open due to customer backlash and sales impact.

The takeaway is that even in a business, across-the-board cuts have limits and can necessitate partial reversal if they overshoot and threaten the enterprise’s competitiveness or customer base.

These analogies underscore that indiscriminate cuts can be self-defeating. In both cases, the initial cuts achieved savings but created new issues (revenue loss, customer backlash) that had to be addressed with partial policy reversals or additional measures.

A government implementing broad budget cuts could face analogous scenarios. For instance, cutting funding for unemployment insurance might save money initially. Still, it could lead to a spike in hardship and crime or health problems, forcing increased spending in law enforcement or emergency healthcare later.

Cutting scientific research funding might save dollars now, but slow innovation and growth will reduce future revenues.

This whack-a-mole of problems is precisely what Merton’s unanticipated consequences theory predicts when actions are taken with a narrow view (immediacy of interest) without fully considering systemic effects (The Self-Defeating Prophecy (and How it Works)) (The Self-Defeating Prophecy (and How it Works)).

2.5 Self-Defeating Prophecy of Austerity

Applying Merton’s concept, the broad budget cuts represent a prophecy of fiscal rejuvenation—envisioning a future where deficits shrink and the economy soars due to a leaner government.

The administration’s actions (mass budget cuts) are meant to fulfill that prophecy. But if those actions induce an economic slowdown, public discontent, or national security risks, they can force a policy U-turn, thus defeating the prophecy.

We saw aspects of this in U.S. history: The Reagan administration came into office predicting that tax cuts and domestic spending cuts (supply-side economics) would unleash robust growth so that deficits would shrink. Instead, deficits ballooned to then-record levels (nearly 6% of GDP in 1983) (2013 United States budget sequestration—Wikipedia).

Concern over these deficits led Reagan and his successor, President George H.W. Bush, to reverse course by enacting tax increases (1982, 1984, 1990) and slowing defense spending growth – effectively undoing some of the initial fiscal course to control the debt.

Likewise, the extreme sequestration cuts of 2013 were partially reversed in subsequent bipartisan budget acts (2014–2015) once the negative impacts became evident. In both cases, the expectation that cuts would painlessly fix fiscal issues proved false, and the policies had to be adjusted to avoid greater harm.

Under a renewed Trump tenure, if across-the-board cuts were pursued rapidly, a similar outcome seems likely. Public opposition would be fierce if Medicare benefits or veterans’ benefits were cut (these programs are highly popular), potentially costing political capital and leading to policy retreat.

Even staunch cost-cutters like Elon Musk learned that certain cuts were unsustainable (he had to restore some moderation at Twitter and bring back staff to handle critical functions).

A government cannot easily sustain policies that sharply and visibly degrade citizens’ well-being or safety. Thus, as a self-defeating prophecy, sweeping budget austerity would paradoxically undermine the administration’s other goals (like economic growth and “America First” strength), forcing a rethink.

Lessons from Past Administrations: 

President Reagan’s experience taught that targeted efficiency reforms have merit, but broad-brush cuts can undermine strategic priorities (he famously said “defense is not a budget issue” and protected it, though later had to slow its growth as deficits mounted).

The Clinton administration in the 1990s achieved a balanced budget through a mix of spending restraint and revenue increases, but it targeted waste and made investments in areas like tech, showing that cuts must be selective and paired with growth-friendly policies.

President Biden, conversely, has favored higher spending on infrastructure and social programs, arguing that investing in people and systems yields more sustainable growth – a direct counterpoint to austerity.

The Biden team often cites the slow recovery from the Great Recession (when stimulus was withdrawn too quickly and budget tightening in 2011 dampened growth) as a cautionary tale; by avoiding premature cuts, the post-COVID recovery in 2021-2022 was much faster (albeit with inflation side effects).

The overarching lesson: drastic budget cuts may satisfy a political ideology, but they risk economic self-sabotage. Responsible budgeting tends to involve nuanced trade-offs and gradual adjustments rather than blunt, across-the-board reductions that invite unanticipated fallout.

3. Reshoring Mandates and Job Relocation Costs

Policy Overview: 

A core theme of Trump’s economic agenda is bringing manufacturing and other outsourced jobs back to American soil – “reshoring” jobs that moved overseas.

In a second term, Trump might double down on this by using mandates or incentives to force companies to relocate production to the U.S. (for example, via import penalties on firms that outsource, stricter “Buy American” rules for government procurement, or even direct mandates under emergency economic powers for critical industries).

The intended goal is to boost domestic employment, reduce reliance on foreign supply chains (especially in strategic sectors like semiconductors, pharmaceuticals, and electronics), and correct perceived unfair trade practices.

While increasing U.S. manufacturing is a laudable objective, forcibly reshoring jobs from low-cost countries can incur significant economic costs: higher production expenses (and prices), transition disruptions, and competitiveness challenges.

These costs may outweigh the benefits, making such policies counterproductive and ultimately unsustainable – in line with the self-defeating prophecy framework. We examine the likely effects and historical examples of reshoring efforts.

3.1 Higher Costs and Inflationary Effects

Outsourcing became widespread in past decades largely because of cost differentials. Labor, materials, or regulatory costs are often lower in countries like China, Mexico, or India than in the United States.

Forcing a reversal – bringing those operations back – typically means higher operating costs for businesses.

Companies must pay higher U.S.-level wages, comply with stricter regulations, and bear potentially higher input costs domestically.

These higher production costs will manifest as higher prices for consumers unless firms are willing to accept lower profit margins (which shareholders resist).

Thus, a major wave of reshoring, if mandated, is likely to have an inflationary impact similar to tariffs, as goods that were once produced cheaply abroad now carry a Made-in-USA premium.

• Labor Cost Gap: To illustrate, manufacturing wages in China might be around $5 per hour (even lower in some sectors), whereas in the U.S. manufacturing wages average about $25 per hour including benefits. That 5x difference means a product assembled in the U.S. could cost significantly more.

The Carrier factory case is instructive: Carrier had planned to move furnace manufacturing to Mexico, where workers earned roughly $3/hour versus about $18/hour in Indiana (More layoffs at Indiana factory Trump made deal to keep open | Reuters) (More layoffs at Indiana factory Trump made deal to keep open | Reuters).

Trump’s intervention in 2016 prevented some of that offshoring (with subsidies), but by 2018 Carrier still moved hundreds of jobs to Mexico due to the cost pressure (More layoffs at Indiana factory Trump made deal to keep open | Reuters) (More layoffs at Indiana factory Trump made deal to keep open | Reuters).

This highlights a fundamental challenge – unless the wage gap is closed by productivity or other savings, firms will struggle to remain competitive while paying drastically higher wages.

If forced to reshore, many companies will pass those costs onto consumers via price hikes. Essentially, it acts like an internal tariff: instead of taxing a cheap import, you remove it and compel use of a more expensive domestic product.

• Price Impacts: Certain goods could see substantial price jumps if suddenly made exclusively in America.

Tech devices are a prime example – iPhones, for instance, are assembled in China with a vast supply chain of components from Asia. Analysts have estimated that a U.S.-assembled iPhone might cost $100-$150 more per unit for Apple, which could mean a higher retail price for consumers unless Apple accepted lower margins.

Automobiles are another area: if parts currently sourced globally (wire harnesses from Mexico, chips from Taiwan, etc.) all had to be American-made, the cost to build a car would rise.

We might expect a few thousand dollars increase in average car prices, exacerbating inflation in the auto market that has already seen supply-driven price surges. In summary, reshoring by fiat would likely lead to cost-push inflation – raising prices in manufactured goods categories and beyond, contrary to the policy’s intent to help consumers and workers.

• Who Bears the Cost: 

In theory, companies might absorb some increased costs through lower profits. But competitive pressures and investor expectations often mean costs are pushed to consumers.

If a company can’t raise prices (due to competition from imports that still exist or because consumers won’t pay more), they might then look to cut costs elsewhere – often by automating or reducing labor.

This introduces a paradox: forcing jobs back may simply force companies to eliminate jobs by investing in machines.

For example, if labor in the U.S. is 5x pricier, a company might prefer to spend on advanced robotics to do the work with fewer people. That achieves reshoring in a nominal sense (the product is made domestically) but without the boon to employment – an unintended outcome that defeats the purpose of the policy.

We saw glimmers of this in some industries: when manufacturing began returning in the 2010s (for reasons like rising Chinese wages and automation), the factories that opened in the U.S. were often highly automated and did not recreate the thousands of jobs of earlier eras.

A case in point is a 2012 GM engine plant in New York that brought back some work from Mexico but used state-of-the-art automation, employing a fraction of the workers that a similar operation would have in the past.

3.2 Supply Chain and Transition Disruptions

Global supply chains are finely tuned systems. When companies suddenly shift production locations, especially under pressure, there can be significant transition costs and disruptions:

• Rebuilding the Supply Chain Domestically: Many U.S. manufacturing operations offshored not just final assembly but entire supplier networks.

Over years, clusters of suppliers developed in places like China – providing everything from small screws and circuit boards to complex LCD panels. If a policy forces a company to relocate assembly to the U.S., it also needs a network of suppliers either domestically or via imports.

In some cases, those suppliers do not exist in the U.S. at the necessary scale. For example, Foxconn’s attempted LCD factory in Wisconsin (touted by Trump in 2017) struggled in part because none of the crucial upstream suppliers (glass, chemicals, component makers) were located nearby or had U.S. facilities (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters) (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters).

The original plan envisioned a massive 20-million-square-foot complex for display manufacturing (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters), but industry experts were skeptical from the start due to the lack of a local supply ecosystem (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters).

Ultimately, Foxconn scaled the project down to a small fraction of its initial scope (from 13,000 promised jobs to about 1,454 jobs in a revised plan) (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters) (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters).

The Wisconsin case underscores how forcing a supply chain into a new geography can fail if the complementary pieces aren’t there. The company cited “changed global economics” and was effectively released from many of its commitments (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters) (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters).

Wisconsin had spent over $150 million acquiring land and making site improvements (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters) (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters), only to see a downsized project – illustrating the waste that can result from an unrealistic reshoring effort.

• Initial Shortages and Learning Curve: 

Even in sectors where domestic capability exists, ramping up production in America can take time. Factories must be built or retooled, workers hired and trained, regulatory approvals obtained. During this ramp-up, there could be shortages or delays if imports are simultaneously restricted.

Consider a scenario where the administration mandates that a certain percentage of pharmaceutical ingredients must be produced in the U.S. If enforcement outpaces the actual capacity build-up, pharmaceutical companies might find themselves short of key ingredients, risking drug shortages or quality issues.

A real-world near-miss happened in 2018 when tighter U.S. sanctions disrupted supply of ingredients from China for antibiotics, leading to concerns about medical shortages.

That was resolved by temporary waivers – essentially a reversal – to keep supplies flowing. The broader point is that shifting supply sources is not like flipping a switch; it carries risk of production downtimes and unforeseen technical hurdles.

Companies often experience a learning curve when they launch production in a new location – yield may be low at first, costs higher than expected.

If multiple industries undergo this concurrently due to government edict, the economy could see a period of turbulence with erratic supply of certain products.

• Business Uncertainty: A forced reshoring policy injects uncertainty in business planning.

Companies thrive on stable rules; if they fear that at any moment their supply chain choices could be upended by a new mandate or tariff, they may adopt a cautious stance – delaying investments or holding extra inventory as a buffer.

Uncertainty can thus hamper the very investment in U.S. facilities that the policy is trying to spur (a contradiction). CEOs might take a wait-and-see approach or divert investment to more predictable regions.

In the late 1970s, frequent changes in trade policy and price controls were cited as reasons businesses held back on expansion, contributing to economic stagnation. A chaotic push for reshoring could replicate that environment of uncertainty, chilling the investment climate unless there are clear, consistent guidelines and support.

3.3 Competitiveness Challenges

Perhaps the biggest long-term concern is that forcing jobs back regardless of cost could erode U.S. competitiveness globally. In a global economy, being competitive means producing high-quality goods efficiently.

If U.S. firms are compelled to use higher-cost structures, they may lose out to foreign rivals not under the same constraints:

• Losing Export Markets: If U.S. products become more expensive, foreign buyers might prefer alternatives from other countries.

For example, if the U.S. forces domestic production of, say, electronics, those electronics might cost more; while Americans would have to buy them (if imports are curtailed), overseas consumers would likely stick with cheaper Asian-made devices. U.S. firms could see their export sales decline, which hurts American jobs in export sectors.

This is analogous to what happened to U.S. farmers when China shifted to Brazilian soybeans during the trade war (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO) (Republicans eye bigger farm bailout amid Trump trade wars - POLITICO) – a market once dominated by Americans was ceded to a competitor.

In manufacturing, a reshoring policy that raises costs could inadvertently hand market share to factories in Vietnam, Mexico, or India that continue to operate at lower cost to serve global demand (and even U.S. demand if loopholes exist).

• Foreign Investment Response: Other countries won’t stand idle. They may double down on attracting industries that the U.S. is pushing to reshore, using their own incentives to lure companies.

For instance, when the U.S. started pushing for domestic semiconductor fabrication via the CHIPS Act (incentivizing U.S.-based fabs), the EU and China also rolled out semiconductor subsidies to capture any industry movement.

If the U.S. policy is seen as too forceful or expensive, some firms might choose to invest in friendlier locales and simply forego the U.S. market (or serve it via exports until or unless banned). This competitive dynamic can diminish the effectiveness of the reshoring effort and isolate the U.S. market – potentially reducing consumer choice and innovation domestically.

• Quality and Innovation Concerns: A rushed reshoring could also impact quality. Factories abroad have honed certain expertise (for example, China is renowned for rapid electronics prototyping and scale-up).

U.S. facilities might initially lag in those specific process innovations. Companies could find that initially their U.S.-made products are more expensive and not as refined, which hurts brand reputation.

Over time they may adapt, but during that period they could lose ground to foreign competitors who didn’t have to overhaul their operations.

Moreover, if resources are poured into recreating existing industries at higher cost, that may crowd out investment in future-oriented innovation. In other words, if billions are spent to build essentially duplicate supply chains in the U.S., those are billions not spent on next-generation tech or research.

The opportunity cost could be significant, leaving the U.S. a step behind in cutting-edge industries – a perverse outcome for a policy intended to enhance economic leadership.

3.4 Case Studies of Reshoring Efforts

History provides a mix of cautionary tales and some mild successes regarding bringing jobs back:

• Foxconn in Wisconsin (2017–2021): This was one of the highest-profile attempts to “reshore” high-tech manufacturing, heavily promoted by Trump as proof that his policies would reverse offshoring.

The state of Wisconsin offered a whopping $3 billion in subsidies for Foxconn to build a plant and employ 13,000 workers making LCD panels (Wisconsin Foxconn Deal Cost Taxpayers Millions—And It Will ...). As noted, the project faltered – by 2021, Foxconn had largely abandoned the original plan, reducing investment to $672 million and job targets to about 1,500 (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters) (Foxconn mostly abandons $10 billion Wisconsin project touted by Trump | Reuters).

The cost to taxpayers per job would have been astronomical (initial estimates were over $200,000 subsidy per job even under the big plan ([PDF] Costs and Benefits of a Revised Foxconn Project - Upjohn Research)).

The Foxconn saga demonstrates how government-forced or -induced reshoring can fail if economics don’t align. Despite political will and huge incentives, market forces prevailed – it simply wasn’t economically viable to make certain products in Wisconsin.

This left a lesson: sustainable reshoring needs to be rooted in economic fundamentals (either automation to lower cost, or a highly skilled niche, or very high transportation costs that offset labor differences) rather than just political theater.

• Carrier Corporation (2016–2018): 

Trump intervened to stop Carrier from moving HVAC jobs to Mexico, hailing the deal as a victory for keeping jobs in America. The company got $7 million in state incentives to stay (More layoffs at Indiana factory Trump made a deal to keep open | Reuters). In the short term, roughly 700 jobs that would have left were saved.

However, within a year, Carrier announced over 600 layoffs anyway as it automated some processes and still moved certain lines to Mexico (Three Years Ago, Trump Broke His Promises To Carrier Employees) (Trump campaigned on saving jobs at Carrier. What it's like there now.). By 2018, employees who initially thanked Trump felt betrayed as they lost jobs despite the promises (Three Years Ago, Trump Broke His Promises To Carrier Employees) (More layoffs at Indiana factory Trump made deal to keep open | Reuters). The plant remained open but with far fewer workers than before.

This case shows that even when jobs are forced to stay, companies may adapt in ways that reduce the labor count (automation) or wait for the political spotlight to fade before cutting costs.

It suggests that mandate-driven reshoring might deliver a short-term headline (“Jobs saved!”) but not a lasting reversal of offshoring trends, especially if the underlying cost incentives favor moving jobs out.

• 1980s Auto and Electronics: 

As mentioned earlier, Reagan-era policies encouraged foreign automakers to build in the U.S. (via voluntary export restraints). This did result in Japanese and European auto companies setting up U.S. factories, creating tens of thousands of American jobs over time. However, it’s worth noting these companies are often located in lower-cost states (e.g., Toyota in Kentucky) and have adopted advanced manufacturing techniques.

Foreign-made cars in the U.S. sometimes cost slightly more initially than imports (due to startup costs), but over the years, they localized supply chains and achieved cost parity.

This is a more positive example: it shows that with a cooperative approach (encouragement rather than outright forcing), reshoring can happen in a way that companies commit to making it efficient.

It took time and significant capital investment, and consumers indirectly paid higher prices during the transition (Japanese car prices rose during the quota period (Voluntary export restraint - Wikipedia)). Still, it laid a foundation for the domestic transplant industry.

The key difference is that these were business decisions nudged by policy, not solely compliance with a mandate—thus, they were done with a view to profitability.

• Biden’s Industrial Policy (2021–2023): The Biden administration took a carrot-heavy approach to reshoring critical industries, offering subsidies and contracts rather than blunt mandates. The CHIPS and Science Act provided $52 billion to encourage semiconductor fabrication in the U.S., and the Inflation Reduction Act provides large tax credits for EVs and batteries made domestically.

Early signs showed companies responding – e.g., TSMC (Taiwan Semiconductor) is building a fab in Arizona, and multiple EV battery plants are under construction in the U.S. However, even with subsidies, challenges have emerged: TSMC’s Arizona plant has faced delays and higher-than-expected costs, in part due to difficulties finding skilled workers and the learning curve of a new operation in the U.S.

Some estimates suggest the cost of making chips in the U.S. could be 40-50% higher than in Taiwan, even with subsidies.

If true, that means either chip prices will be higher, or taxpayers will continuously cover the gap. The long-term viability of such reshoring will depend on whether productivity gains and innovation can bring U.S. costs down or whether geopolitical necessity justifies permanent subsidies.

For our analysis, the Biden approach indicates that even the incentive method comes with cost and efficiency hurdles—how much more so would a forceful approach without sufficient incentives?

The outcome would likely be even more severe disruptions and pushback from the industry.

3.5 Self-Defeating Prophecy of Forced Reshoring

Reshoring is a policy that, if mishandled, can encapsulate Merton’s self-defeating prophecy concept.

The “prophecy” or expectation is that mandating the return of jobs will rejuvenate manufacturing and make America stronger. The “force” used to fulfill it (heavy-handed rules or penalties) can lead to such economic strain – higher inflation, supply chaos, competitive loss – that the policy must be softened or reversed, thus negating the initial promise.

How might this play out in a second Trump term? Perhaps an executive order is issued that any company offshoring jobs will lose federal contracts or face a special tax.

Companies might comply for fear of penalties, but as costs rise and profits fall, they lobby for exemptions or find loopholes.

The administration, faced with rising consumer prices and angry businesses (and perhaps stock market declines as profit margins erode), starts granting waivers or carving out exceptions – effectively unwinding parts of the policy.

This is analogous to what happened with tariffs: the Trump administration quietly exempted hundreds of Chinese imports from tariffs when they realized certain industries couldn’t cope without those inputs. Each exemption is a small retreat from the prophecy of complete decoupling.

Ultimately, if the damage is widespread – say, inflation jumps a full percentage point due to reshoring costs and key exports suffer – the government might suspend the policy entirely or flood the affected industries with subsidies to offset the damage. Those subsidies (like bailouts) then eat away at the supposed fiscal or economic gains of reshoring.

Ultimately, the policy is reversed, or it remains only on paper, not in practice.

The net effect: the intended big resurgence of jobs does not materialize as envisioned, and the country is left grappling with the fallout.

Robert Merton would recognize this as an outcome where the initial belief (“we can bring all these jobs back and be better off”) is undermined by the consequences of acting on that belief (The Self-Defeating Prophecy (and How it Works)) (The Self-Defeating Prophecy (and How it Works)).

Comparative Lessons: In the late 1960s, Britain attempted to mandate local content requirements in industry to protect jobs, but the inefficiencies caused British-made goods to lag in quality and cost, contributing to the UK’s economic malaise and forcing policy reversals in the 1970s as the country opened up again to modernize.

 The lesson learned was that isolation for the sake of jobs can backfire.

On the flip side, countries like Germany and Japan rebuilt strong manufacturing bases post-WWII not by shutting out trade but by focusing on high quality and process improvement, leveraging global markets.

The U.S. historically championed free trade and comparative advantage, which helped drive its economic growth.

 A sudden reversal of that strategy is likely to encounter the same issues that led past administrations (from Reagan to Obama) to avoid going too far with protectionist or interventionist job repatriation schemes.

By contrast, smart policy can encourage reshoring in targeted areas (like critical technologies) with support to mitigate costs – but even then, as we see under Biden, it requires significant taxpayer funds and time and is not a panacea for broad job growth in sectors where the U.S. lacks a cost advantage.

In short, a forced, broad reshoring policy is prone to self-negation: it aims to deliver economic security and jobs. Still, it may instead raise costs and disrupt the economy so much that it is untenable. The likely endgame is a partial or full retreat, with policymakers acknowledging that global integration, managed carefully, is preferable to blunt economic nationalism.

Conclusion

Each of the three policies examined – tariffs, sweeping budget cuts, and forced reshoring – showcases the principle of unintended consequences.

What begins as a well-intended strategy to strengthen the economy and fulfill political promises can morph into a self-defeating prophecy, where the policy’s adverse effects undermine its goals and compel reversal.

Trump’s first term provided a testing ground: tariff-driven trade wars led to higher prices and bailouts, aggressive cost-cutting proved politically sensitive, and attempts to micromanage industrial location had mixed results at best. A second term doubling down on these approaches would likely rekindle the same dynamics.

Tariffs and trade barriers, meant to protect jobs, would raise costs for consumers and producers, invite retaliation, and likely result in a net job loss – forcing either carve-outs or a policy U-turn (2002 United States steel tariff - Wikipedia) (2002 United States steel tariff - Wikipedia).

Austerity budgets, aimed at fiscal health, could stifle growth and anger the public as services erode, prompting emergency spending or policy reversals (as happened post-sequestration) (2013 United States budget sequestration - Wikipedia) (2013 United States budget sequestration - Wikipedia).

Reshoring mandates intended to restore employment could increase inflation and hurt competitiveness, such that exemptions and subsidies pile up, effectively undoing the mandate. In Merton’s terms, each policy contains the seeds of its own undoing – ignorance of complex interdependencies, zeal for immediate results, and neglect of systemic feedbacks turn bold predictions into self-negating outcomes (The Self-Defeating Prophecy (and How it Works)) (The Self-Defeating Prophecy (and How it Works)).

Historical comparisons reinforce these warnings.

President Reagan’s blend of tax cuts and initial spending cuts had to be moderated to curb deficits; his selective protectionism gave way to global trade pacts – pragmatism trumped prophecy.

President Bush’s steel tariffs and Trump’s first-term tariffs both ended earlier than planned once their drawbacks became apparent (2002 United States steel tariff - Wikipedia) (2002 United States steel tariff - Wikipedia).

While pursuing parts of Trump’s agenda (e.g., Buy American, supply chain resilience), President Biden opted for gradualism and incentives, cognizant that drastic moves can backfire. The patterns are clear: policies that “over-correct” often must be corrected themselves.

The lesson for policymakers is to heed the law of unintended consequences. Economic systems are complex; tugging one lever too hard (be it trade, spending, or industrial location) can set off chain reactions.

A successful policy requires adaptability, moderation, and evidence-based calibration. Otherwise, as this analysis shows, the policies of a potential Trump 2.0 could repeat past mistakes – igniting inflation, costing jobs, slowing growth, and harming America’s competitive edge – thereby defeating the very objectives they sought to achieve.