When pharmacy chain Walgreens (WBA) replaces General Electric in the Dow Jones Industrial Average on June 26, there will be just seven companies amid the 30 represented on the index that manufacture industrial products. The rest earn the majority of their money through services, technology, retail operations or innovation—or some combination of all those things.
The components of the Dow change from time to time, to reflect the evolution of business and the US economy. When Charles Dow formed the index in 1896, all of the components were, in fact, big industrial operators. But most of the historic titans of 20th century industry have either declined in significance or disappeared. The Dow, meanwhile, now includes six tech firms, five financial institutions, three drugmakers, three consumer-product companies, three retailers and an entertainment giant. The Dow Jones Industrial Average may have brand-name familiarity, but it is definitely a misnomer.
President Trump is pursuing economic policies for the Dow Jones economy of 1975. Back then, US Steel was a member of the index. So was Bethlehem Steel, Aluminum Co. of America (later renamed Alcoa), Westinghouse Electric, Eastman Kodak, Union Carbide, General Motors, Chrysler, International Harvester, Goodrich, Goodyear, and International Paper. Trump seems to yearn for the days when smokestacks signaled prosperity and smelters employed more Americans than software.
Trump’s entire trade agenda is meant to revive a manufacturing base that has shrunk as the industrial economy has become way more efficient and cheaper overseas production has replaced some American-made stuff. Trump has imposed tariffs on imported steel and aluminum, along with some 900 categories of products from China, in a bid to prop up domestic industries competing with those imports.
He has said he might slap tariffs on an additional $400 billion worth of Chinese imports, which would be almost all of them and would include popular consumer items such as phones, TVs, toys and clothing. He might put tariffs on imported cars, as well, further raising costs on consumers. He’s also considering government intervention that would keep coal mines open, even though the market is moving away from coal, toward cleaner forms of energy.
Trump gripes repeatedly about the nation’s trade deficit, but he usually limits that to the deficit in goods. That’s misleading, because goods-producing industries account for just 18% of GDP, a portion that has been declining over time. Services account for 69% of GDP and rising, making the service sector the real giant of the US economy. You’ll never hear Trump say this, but the United States actually has a trade surplus of $255 billion with the rest of the world in services. That’s a source of economic strength.
Changes in the Dow during the last 40 years reflect the migration from a manufacturing economy to a tech and service economy. Walt Disney replaced USX Corp. (formerly US Steel) in 1991. In 1997, insurance conglomerate Travelers and drugmaker Johnson & Johnson came aboard, while Westinghouse and Bethlehem Steel left. In 1999, chipmaker Intel and software giant Microsoft joined, replacing Goodyear and Union Carbide. Telecom firm Cisco replaced General Motors in 2009. Nike bounced Alcoa in 2013.
Why is Trump so fixated on the industrial economy of the 20th century, and seemingly oblivious to the tech and service economy of the 21st? Perhaps it’s because it’s what he grew up with, or maybe he sees more political gain as champion of the downtrodden than ally of the successful.
But Trump’s protectionist policies don’t harness the nation’s growing strength in technology, finance, entertainment, entrepreneurship, health care innovation or e-commerce to raise living standards for more Americans. Instead, he’s trying to impose the economy of 1975 on 2018. A simple look at the companies of the Dow suggests it won’t happen.
Editor’s note: This story has been corrected to reflect the fact that the US trade surplus is $255 billion, not $1.6 trillion.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman