| The US Postal Service last month agreed to cut 10,000 people from its payrolls over a 30-day span, one component of a broad Trump administration plan to shrink the size and spending of the federal government and give greater space for private-sector led economic growth. A century ago, the USPS played a very different economic role. It was the pivotal actor in creating the entire American airline industry. A Republican congressman, Clyde Kelly, championed legislation in 1925 letting the USPS contract with private airlines to deliver mail. Buying planes and setting up route networks was (and is) costly, and aircraft weren’t built yet to take many passengers, so the mail contracts helped to jump-start airlines. Even then, the government had to subsidize carriers’ operating losses. As the industry developed, the government used regulation to promote safety and technology, and guide the development of airlines and aircraft. In 1930, Washington switched to 10-year contracts, giving airlines the certainty they needed to invest and grow. Those contracts also wound down USPS payment rates over time, weaning the industry off of subsidies. Today, US airlines take in roughly $300 billion of operating revenue a year, and form a vital part of the nation’s economic structure. That history is instructive in considering prospects for President Donald Trump’s endeavor to fire up investment in US manufacturing, to replace the imported goods that he’s now subjecting to the highest tariff rates since before Americans flew on airlines. The administration’s plan assumes the price incentive alone will trigger a boom in capital spending. But economic history suggests that’s unlikely to be enough.  The James A. Farley Building post office in New York City. US Postal Service mail-delivery contracts were crucial in nurturing the American airline industry. Photograph: Victor J. Blue/Bloomberg This week in the New Economy | One facet of the airline industry example is those long-term contracts. Large capital investments are easier to decide on when companies have confidence in the operating environment over time. But Trump has reveled in uncertainty as a key deal-making tool. Keeping the other side off-balance about what you are prepared to agree to may be an effective strategy in the real-estate business. But it’s arguably less suited to large-scale outlays such as the construction of factories. The 78-year-old Republican has said repeatedly that companies will “very quickly” ramp up investment and production in the US in response to his tariffs, but in many cases that’s just not possible. Take shipbuilding, which both Republicans and Democrats want to bring back to the US. New-York based Genco Shipping is the largest American dry bulk shipper, transporting such things as iron ore and grain. Chief Executive Officer John Wobensmith said this week that his company is “very much in favor of building and revitalizing” US shipbuilding. It’s a “fantastic goal,” he said on Bloomberg TV.  A cargo ship of China's COSCO Shipping Holdings at the Port of Long Beach, California, on Feb. 20. The US is weighing fees for the use of Chinese-constructed vessels as a means of reviving American shipbuilding. Photographer: Kyle Grillot/Bloomberg But it could take decades, he warned. The head of the nation’s busiest trade hub — the Port of Los Angeles — agreed. “This is a huge undertaking, to shift the world’s balance with one policy,” Executive Director Gene Seroka said this week. “To stand up a shipbuilding interest like that across the globe is going to take time. More than a decade, maybe decades.” That would require consistency in policy. Trump, for his part, said Friday in a social media post that his economic policies “will never change.” But he’s scheduled to depart the White House in less than four years, and most of his measures have been done via executive orders — which can be rescinded or reshaped, and in many cases challenged on legal and constitutional grounds. None of that offers certainty. “I think you will see some manufacturers, some producers that will say ‘gosh the cost differential is significant, I will bring some of my operations back here,’” Rick Rieder, chief investment officer for global fixed income at BlackRock, said Friday, citing conversations with corporate executives. “But I think in the near term, people are sitting on their hands in epic proportion.” Trump and his allies highlight a slew of announcements by Apple and others on planned investments. But plans can change (see the Microsoft story in “This Week” above.) And Bloomberg analysis suggests not all of those plans are new. Besides policy certainty, federal money can be a powerful incentive for business investment. The Trump administration champions low tax rates as an incentive for businesses. But modern economic history suggests more may be needed. Subsidies were vital for the airline industry a century ago. Federal semiconductor contracts tied to the 1960s space program played a role in nurturing Silicon Valley. More recently, the Biden administration’s renewable-energy and semiconductor subsidy and tax-credit legislation had a clear impact in stoking US factory construction. It’s also not clear that erecting a tariff wall will foster new lines of business. American innovation and the application of emerging technologies have drawn on federal support for a very long time — at least since the land-grant universities first authorized in the 1860s. (That legislation was also pioneered by a Republican, Justin Morrill.) After World War II, bipartisan support ensured the establishment of the National Science Foundation, which was championed by a New Deal opponent, Vannevar Bush. The National Institutes of Health are another American lodestar for pushing the envelope of human knowledge, and played an important role in the development of Covid vaccines. Trump has ordered mass firings at both agencies. Rather than embrace federal support for research, however, Trump and his lieutenants are squeezing that money. “You are destroying the seed capital that is vital for innovation,” says John Haigh, a former executive at AT&T who’s now a lecturer in public policy at the Harvard Kennedy School and co-director of the Mossavar-Rahmani Center for Business and Government. Harvard University is among the institutions now battling to retain its federal funding under threat from Trump. The bottom line: a tariff wall based on executive orders, even if combined with congressionally approved low tax rates, would not seem sufficient to ensure the “golden age” that Trump has promised. —Chris Anstey | 
