Tariffs are creating demand uncertainty, higher costs and margin pressures for businesses.
Middle market manufacturers may find it especially hard to navigate current trade volatility.
Companies should take proactive steps to adapt to evolving trade conditions.
A central goal of the current U.S. administration is to bring back and expand domestic manufacturing and rebalance global trade to reduce the country’s trade deficits with key partners. Since January, the administration has pursued this agenda by introducing sweeping tariff measures, including broad-based 10%−25% tariffs on imports from Canada and Mexico that do not fall under the United States-Mexico-Canada Agreement; sector-specific tariffs on steel, aluminum and autos; 10% reciprocal tariffs on most countries; and a 145% tariff (reduced to 30% in May) on Chinese goods, alongside the elimination of the de minimis exemption for low-value imports from China.
These measures raised the average tariff rate on imported goods from 2.5% in 2024 to over 20% as of the end of April 2025. A 90-day pause on higher reciprocal tariffs and a temporary exemption on certain goods aim to give room for negotiation, but it is evident that an environment of significantly higher tariffs is intended as a long-term policy.
The scale and unpredictable rollout of these policies have already begun to disrupt global supply chains. Companies have stockpiled inventories despite demand uncertainties, while market volatility is delaying business decisions, halting capital investments and dampening consumer confidence.
The broader economic impact across all industries is far-reaching. Tariffs are creating demand uncertainty, higher costs and margin pressures for businesses, while also fueling inflation and causing supply disruptions for consumers. These developments raise key questions: Will protectionist trade measures truly boost domestic manufacturing? Do such measures justify the risk of stifling growth and investments?
Bringing back domestic manufacturing is a worthy objective, but tariffs alone won’t make it happen. Reigniting domestic manufacturing will require a holistic approach that builds industrial capacity through stable investment, regulatory and market conditions. Other key elements include a skilled workforce prepared for the new realities of smart manufacturing ecosystems, access to raw materials and components, upgraded energy and transportation infrastructure, and reliable trading partners and export markets.
At the same time, not all manufacturing needs to return; global trade based on trading nations’ comparative advantages still has a place in a balanced global economy.
The current global manufacturing footprint and trade imbalances are rooted in structural shifts over the last two decades. Since China entered the World Trade Organization in 2001, the United States and other countries have shifted production to low-cost countries. While this allowed countries to benefit from an abundant supply of goods and lower prices for domestic consumers, it hollowed out the domestic industrial base and contributed to growing trade deficits—including a record $1.2 trillion goods trade deficit in the U.S. in 2024, of which approximately $300 billion was with China.
In recent years, the vulnerabilities of global supply chains have become increasingly apparent, further justifying the case for reshoring some domestic manufacturing capacity. But this effort should focus on strategic, high-value sectors that are critical for national security and economic resilience, such as semiconductors, advanced machinery and electronics, clean energy, and pharmaceuticals. Growing these industries will support high-paying jobs, reduce U.S. dependency on other countries, spur the development of intellectual property, and drive the build-out of the entire ecosystem of the technology, service and adjacent manufacturing sectors.
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Effective reshoring requires addressing significant barriers, including:
Another challenge is that a strong U.S. dollar makes domestic production and export more expensive.
Tariffs, while intended to protect domestic producers, may exacerbate these challenges by raising input costs and suppressing economic growth, impacting the demand for goods and creating market volatility that makes long-term planning difficult. Constructing and commissioning a production facility with new supply chains takes years of planning and requires a greater level of certainty and long-term predictability.
Middle market manufacturers may find it especially hard to navigate current trade volatility. Without the fiscal capacity and pricing power of larger players, midsize businesses need to balance sustained production, sales and profitability while reevaluating sourcing, pricing and production strategies. Many are caught between rising costs and uncertain policies, underscoring the need for scenario planning, partnerships with suppliers and customers, and advocacy for trade policies that would support the long-term competitiveness of North American manufacturing overall.
Bringing back domestic manufacturing is a worthy objective, but tariffs alone won’t make it happen. Reigniting domestic manufacturing will require building industrial capacity through stable investment, regulatory and market conditions.
Bolstering domestic manufacturing would require a holistic, coordinated policy strategy that includes:
On the business side, companies should take proactive steps to adapt to evolving trade conditions, assess their supply chain strategies, and understand the viability of reshoring or regionalizing parts of their production capacity. Proactive measures include:
Competitive manufacturing and trade should not be a zero-sum game; efficient global trade can coexist with strong domestic industrial policy. Tariffs may offer short-term protection, but rebuilding the U.S. manufacturing base will require a long-term strategy that includes a stable policy and economic environment conducive to long-term planning; modernization of infrastructure; skilled-labor development; and targeted support for high-value sectors.
