Here's how high tariff rates would have to rise to bring manufacturing back to its glory days. Even Trump would be shocked.

By Steve Goldstein

UBS targets 7,500 on the S&P 500 for 2026

To level out manufacturing exports and imports, tariffs would need to be set at 42.5%, according to one analysis.

Tariff rates will probably fall, given recent arguments before the Supreme Court questioning the legality of country-by-country tariffs imposed by the Trump administration.

So it was interesting to read an analysis on how high tariffs would have to be to fully eliminate the trade deficit for manufacturers. Economists at UBS pointed to an analysis by the center-right American Enterprise Institute, which calculated that tariffs would have to be set at 42.5% to level out manufacturing imports and exports. That's considerably higher than the Yale Budget Lab's estimate that the effective tariff rates are currently 18%.

The AEI numbers, if anything, are generous in terms of the tariff rate needed. For example, it assumes no retaliation, that every 1% rise in price leads to a 2% drop in demand and that exchange rates would be unaffected.

And that's why tariffs so far have done little to affect manufacturing employment. The key issue is that U.S. wages are so much higher - roughly 10 times that of emerging markets, and five times higher than Chinese wages.

The UBS economists say they're not expecting manufacturing employment to achieve anything like the 25% share of jobs in the 1960s and expect only a modest improvement on the current share of 8%.

Relatively higher wages are not the only reason that those jobs have gone away. A surge in productivity thanks to technology is also a key factor, as the manufacturing sector is actually producing the same share of output it did 80 years ago.

The views on tariffs were expressed as part of the bank's 368-page outlook for markets and the economy in 2026 and 2027. They expect 14% earnings growth, half driven by tech, to send the S&P 500 SPX to 7,500 next year. But a broadening of gains would only happen once tariffs are fully passed on. They expect the dollar to hold up unless the tech sector buckles, and for the 10-year Treasury yield BX:TMUBMUSD10Y to fall as low as 3.5% before rising back to 4%.

-Steve Goldstein

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11-10-25 0818ET