The current cost-of-living crisis – defined by the soaring cost of essential services – is not the result of excessive consumer demand or short-term inflation shocks. It is the product of decades of trade and industrial policy choices that weakened middle-class wage growth.

Although China’s accession to the World Trade Organization (WTO) accelerated global manufacturing productivity and lowered the price of tradable goods, it simply masked wage stagnation in the United States with cheap goods. It also hollowed out U.S. manufacturing and severed the link between productivity growth and broad-based wage gains.

The resulting wage polarization has left the middle and working class unable to keep pace with rising costs in labor-intensive service sectors such as housing, healthcare, education, and childcare.

A renewed industrial policy – supported by targeted tariffs – can help rebuild productivity-linked wages in tradable sectors, restoring the wage base necessary to make essential services affordable again.

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