Key Takeaways
- Although manufacturing activity showed some improvements in August, a survey of manufacturing managers showed that tariffs are pressuring their businesses.
- Manufacturers said import taxes were impacting supply chains, and the uncertainty of changing tariffs kept many customers from making purchases.
- Higher material costs caused by tariffs made it more challenging to fabricate products in the U.S., survey respondents said.
One benefit of U.S. tariffs on foreign imports is that they are supposed to spur an increase in domestic manufacturing. So far, tariffs seem to be having the opposite effect.
A closely followed survey of manufacturers indicated that the sector contracted for the sixth straight month in August, despite some signs of improvement. However, the data also showed that manufacturers struggle to handle the impact of tariffs while contending with higher prices for materials and lower spending from cautious buyers.
The Institute of Supply Management (ISM) manufacturing sector Purchasing Managers’ Index (PMI) improved to 48.7 in August, but still fell short of the 50 mark that indicates growth. The data showed that high input prices and elevated supply pressures from tariffs helped to wipe out improvements in new orders and employment levels.
“Uncertainty around tariff policy is limiting activity,” wrote Wells Fargo economists Shannon Grein and Tim Quinlan. “While the higher costs associated with tariffs are a challenge, the uncertainty around where tariffs ultimately land is likely more so limiting current activity today.”
High Costs Weighing on Domestic Manufacturing
Business leaders who responded to the survey said they’re feeling the impact of tariffs. Some businesses said the higher costs made domestic manufacturing more difficult, despite the goal of bringing factories back to the U.S.
“Tariffs continue to wreak havoc on planning/scheduling activities,” a respondent from a computer and electronic products business said. “Plans to bring production back into the U.S. are impacted by higher material costs, making it more difficult to justify the return.”
Some tariffs target goods from a certain nation, like the recently enacted 50% tariffs on India. Others have targeted materials like metals and wood.
“‘Made in the USA’ has become even more difficult due to tariffs on many components,” an electrical equipment and appliances manufacturer said in the survey, noting that the company has laid off about 15% of its U.S. workforce. “The administration wants manufacturing jobs in the U.S., but we are losing higher-skilled and higher-paying roles. With no stability in trade and economics, capital expenditures and hiring are frozen.”
Economists said the manufacturing industry would likely remain in slow-growth mode throughout the year. However, recent court rulings against tariffs could provide manufacturers with some relief if upheld.
“If tariff pressures were to ease with the unwind of some levies due to the court’s recent ruling on the reciprocal tariffs illegality, the outlook for manufacturing could brighten further,” wrote Scott Anderson, BMO chief U.S. economist.
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