Who Needs the World Anyway? (American Innovators Do)
The Trump administration appears to be on the verge of erecting a tariff wall around the United States, including in advanced industries such as pharmaceuticals and semiconductors. The administration appears to believe that U.S. markets alone will prove to be of sufficient size to support all U.S. industries, including advanced-technology industries.
The objective of promoting greater U.S. manufacturing activity almost entirely through tariffs is likely to lead to several unintended consequences, such as U.S. firms losing global competitiveness. Leading U.S. advanced technology industries export more than half a trillion dollars annually and depend upon global markets for a significant portion of their revenues, measured both as exports from U.S. operations and foreign revenues from overseas production.
Increasing U.S. tariffs will encourage retaliatory tariffs, making U.S. products less competitive in foreign markets. This may also compel U.S. companies to maintain more of their manufacturing activity abroad to service those markets, counteracting the administration’s objective of increasing domestic manufacturing. As such, the administration should seek alternatives to expand U.S. manufacturers’ footprint in the United States without compromising their market share in foreign markets. If America wants to be attractive to its own successful companies, it needs a smarter approach than tariffs alone.
The United States exported more than $1.7 trillion of manufacturing products in 2023, according to the Census Bureau’s Profile of U.S. Importing and Exporting Companies. Since it is not possible to determine the exact volume of exports from large, advanced manufacturers using publicly available data, ITIF uses this dataset as a proxy by focusing on specific products—including chemical manufacturing products; computers and electronics; electrical equipment and components; machinery; transportation equipment; and other manufacturing products—and then omitting exports from small and medium enterprises (SMEs). Based on this information, large, advanced manufacturing companies in the United States exported over $550 billion in 2023. (See figure 1.)
Figure 1: Large U.S. companies’ exports in selected product categories, 2023
In addition to the revenues they earn from exporting products made in America, U.S. companies are also highly reliant on revenues they earn from foreign operations. Those foreign revenues total $6 trillion across all U.S. industries, representing 13 percent of their total revenues. For manufacturers, it’s even more lopsided: They brought in $1.9 trillion from overseas operations, or 22 percent of their revenue. Larger companies are more globally integrated. Firms with 250 employees or more earn a full quarter (25 percent) of their revenue outside the United States.
The National Science Foundation reports these revenues based on companies’ operating locations. So, if a U.S. firm has both domestic and foreign operating locations, the revenues it generates from those locations are counted separately, as domestic and foreign operating revenues, regardless of whether the domestic production is exported and the sales revenue associated with that production comes from abroad. By this measure, the share of production revenues U.S. companies generate from foreign operations is, on average, nearly half for some high-tech manufacturers. Figure 2 shows the share of production revenues generated from large U.S. firms’ foreign operations in a selected group of advanced manufacturing industries. These firms reported $1 trillion of revenues from operations outside the United States. Pharmaceuticals and semiconductor components led this share in 2022, with 48 percent and 43 percent of revenues, respectively.
Figure 2. Share of revenue large U.S. firms earn from foreign operations, 2022
Another way of seeing companies’ dependence on global markets is by going directly to the source, company by company, capturing what publicly traded firms report to the Securities and Exchange Commission (SEC) in their annual 10-K forms. Figure 3 shows the share of non-U.S. revenues for a select group of 20 firms headquartered in the United States. These companies were selected because they are the 20 largest companies whose core business models are most similar to the products shown in figure 2. All these firms are among the world’s 100 largest publicly traded companies.
More than half of the revenues in this sample come from sales outside the United States. The global revenues for these 20 firms in 2024 were $1,495 billion, of which 52 percent came from sales outside the United States. Non-U.S. markets represent, on average, 68 percent of American semiconductor revenues, 55 percent of the three technology firms’ revenues, 40 percent for the U.S. health-care and biopharma companies, and 32 percent for the aerospace and defense firms. The overall picture is that these U.S. manufacturing companies need global markets to succeed.
Figure 3. Non-U.S. revenue as a share of total revenue for selected U.S. companies, 2024
The companies shown in figure 3 will continue to participate in global markets, and they will adapt to retain non-U.S. revenues. However, retaliation against U.S. tariffs would make these revenues less likely to come from U.S.-situated operations. Tariffs represent an incomplete approach to onshoring manufacturing, as they ignore the fact that the potential import-substitution effect might not offset the benefits of accessing global markets. While some companies eventually could expand their revenues from domestic sales due to the reduction of imports from competitors, others, such as those listed in the technology or aerospace sectors, are already facing a saturated U.S. market.
President Trump is right to call out the irritants from U.S. trading partners. Hopefully, his goal is to use tariff threats as a tool to persuade these nations to eliminate their trade barriers against U.S. firms and industries. If that occurs, then both low-tech and high-tech American firms will benefit. However, if the objective is to establish a tariff wall, the United States will lose its global share in advanced manufacturing.
