Tariff turmoil: the bumpy road ahead for manufacturers

Tariffs have hit the manufacturing sector more directly than many other industries, as manufacturing leaders face the weakening economy and an increase in direct costs. To mitigate the impact of these challenges, it’s important to understand both the macroeconomic factors at play and the positioning of an individual business — since sectors, supply chains, and demand for products are never one-size-fits-all.
While global business leaders in nearly all sectors have expressed anxiety about the economic effect of the U.S. government’s tariff campaign, manufacturers are uniquely exposed to levies on both completed products and raw materials. Plus, the tariffs are expected to disrupt supply chains, affect labor availability, and slow consumer spending.
Where we are today
A bumpy launch of the tariff plan has exacerbated these obstacles for the manufacturing sector, which accounts for 10.2% of the U.S. economy. Manufacturers are struggling to interpret new tariff rates, their effective dates, and the long-term strategy for such a broad-based policy. While tariffs continue to evolve and change, in spring 2025, we saw a 10% baseline tariff on all imported goods; a 125% levy against imports from China; a 25% tariff for goods imported from Canada and Mexico; and a 25% tariff on steel, aluminum, automobiles, and auto parts. There are exemptions for some raw materials like copper, lumber, semiconductors, and energy products, but there could be even higher tariffs in place in June when the 90-day pause on reciprocal tariffs expires.
As the tariff story unfolds, manufacturers are charged with finding clarity around how these additional taxes will affect business activity — and how they should respond.
Immediate effects: Manufacturing activity slumps
The tariffs have had a swift and immediate impact on the manufacturing market. In March, the purchasing manager’s index (PMI) for the marketing sector fell to 49% and again in April to 48.7%, signifying a contraction in the market, according to the Institute for Supply Management’s monthly survey. In addition, manufacturing jobs fell in both March and April. The ISM attributed the slump to reduced consumer spending and waning sentiment caused by tariffs. In a survey conducted by ISM, manufacturers reported a deteriorating business environment with weakening demand for products and increased risk of a recession.
The manufacturing market had already weathered a 26-month contraction period caused by increased interest rates. While January and February showed signs of recovery and growth, that was before the tariffs took effect. Now, the market is not only showing a contraction, but new orders have fallen to their lowest levels since 2023. Seven industries — including machinery, wood, paper, and chemical products — reported a contraction, while nine others — including textile mills, primary metals, computer and electronic products, and transportation equipment and electrical equipment — have continued to see growth.
Tariffs hit supply chains, materials costs, and consumer spending
Disruption from tariffs is expected to touch the entire lifecycle of the manufacturing process, from supply chains that deliver both inputs and outputs, to the cost of raw materials and consumer demand. Manufacturers sourcing raw materials overseas — particularly from China — will likely need to look to less-exposed markets. In some cases, this will require suppliers to move to new markets altogether.
The uncertainty about raw materials and the increased cost of the tariffs has also disrupted new orders for raw materials and canceled orders that were already in place. The tariff-driven disruption is already showing up at the ports. In the last week of April, there was a 43% drop in U.S. import containers, a disruption not seen since the pandemic-driven supply chain halt in the summer of 2020. Many U.S. ports are also beginning to show steep declines in U.S. exports.
The higher costs of the materials will make it difficult for manufacturers to place materials orders or maintain the same level of production. To offset higher costs, the price of the final product will have to increase, destabilizing business operations. Simultaneously, the macroeconomic fallout from the tariffs — which are expected to increase core PCE from 3.5% to 4.5% this year and reduce GDP growth by 1% to 2% — will put downward pressure on consumer spending and buying power. The decrease in sales of completed goods will further upset U.S. manufacturing.
The great hope: Evaluating the promise of a future U.S. manufacturing surge
The stated long-term intention of the tariff plan is to increase domestic manufacturing and encourage the reshoring of production. However, early stages, there are mixed views on the effectiveness of tariffs boosting U.S. manufacturing activity. In one survey from CNBC, half of respondents said that reshoring would more than double costs, and that any reshoring would be built around automation, not workers. In part, that is because the U.S. already has an existing labor shortage in the manufacturing sector, with about 500,000 manufacturing jobs open before the tariffs took effect.
Some companies have already pledged specific additional investments in U.S. manufacturing because of the tariffs, including Apple ($500 billion), Johnson & Johnson ($55 million), and Hyundai ($21 billion). And yet, despite these announcements, experts anticipate tariffs will have a net negative impact on employment.
Navigating the road ahead: Finding silver linings
For manufacturing leaders, it has become essential to understand the financial nuances of any given business and each product within it. Where are the components sourced? How will the pricing compare to other competitors in the industry? For manufacturers that have already been investing in a strong domestic supply chain, there may be opportunity to offer advantageous pricing compared to competitors facing higher tariffs on their raw materials or components. If supply chains become more volatile, using financial strategies to manage risk may also become a strategic lever, whether that risk is inventory, unknown future costs, or potential M&A opportunities.
While tariff-driven challenges are real, where there is volatility, there typically lies opportunity as well. Ultimately, tariffs are a numbers game. Cost management, debt, and investment strategies can help manufacturers understand and navigate the impact of tariffs on their business and develop strategies to absorb the costs and maintain profitable operations. Any additional costs are never welcomed, particularly for domestic manufacturers. However, by partnering with financial advisors and experts in the manufacturing capital stack, leaders can strengthen their balance sheets and review assets and options to raise capital, reinvest in growth, and manage debt levels.
To learn more and to discuss specific tariff challenges your business is facing, reach out to your relationship manager or investment banker.
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