American Manufacturing: Caught Between Tariffs, Tax Breaks, and Tough Times
When it comes to politics, Democrats and Republicans often disagree on just about everything. But here’s one thing they surprisingly do see eye to eye on: supporting American manufacturers. Whether it’s through subsidies, tariffs, or tax breaks, both sides want to help factories keep humming on U.S. soil — even if their approaches couldn’t be more different.
A Tale of Two Strategies: Subsidies vs. Tariffs
On one side, you have Democratic President Joe Biden handing out subsidies to chipmakers and electric vehicle manufacturers. Think of it as the government’s way of throwing fuel on the innovation fire — tax incentives to build new factories, ramp up production, and create jobs. Biden’s moves sparked a factory-building boom. From April 2021 through October 2024, investment in manufacturing facilities more than tripled, sparking hope of a manufacturing renaissance.
But the other side tells a different story. Republican former President Donald Trump opted for a different playbook, slapping hefty tariffs on imported goods to shield domestic manufacturers from foreign competition. Imagine a 50% tax on steel and aluminum, 25% on cars and auto parts, and 10% on a range of other imports — that’s Trump’s “build a wall of tariffs” strategy. The goal? Make foreign goods more expensive so U.S. factories get a competitive edge.
So, What’s Happening on the Factory Floor?
Despite all this back-and-forth, American manufacturing has been stuck in a bit of a rut for nearly three years. The latest numbers from the U.S. Labor Department reveal factories shed 7,000 jobs in June — the second month in a row showing decline. And if trends hold, manufacturing employment could fall for the third straight year.
The Institute for Supply Management (ISM), a group of purchasing managers keeping an eye on the factory pulse, confirms the slowdown. Manufacturing activity in the U.S. shrank for the fourth consecutive month in June. Since October 2022, factories have seen decline in 30 out of 32 months. That's a pretty grim stretch.
Eric Hagopian, CEO of Pilot Precision Products in Massachusetts — a company that makes industrial cutting tools — sums it up plainly: “The past three years have been a real slog for manufacturing. We didn’t get crushed like in the 2008 recession, but it’s been a stagnant, stationary environment.”
Inflation, Interest Rates, and the Economic Headwinds
Big economic forces didn’t help. Inflation surged after the surprisingly strong rebound from the COVID-19 pandemic. Factory expenses soared, and the Federal Reserve reacted by hiking interest rates 11 times across 2022 and 2023. Higher borrowing costs put extra pressure on factories trying to stay afloat and expand.
So, even with Biden’s subsidies fueling new factory investments, the broader economic storm pushed many manufacturers to the sidelines. Mark Zandi, chief economist at Moody’s Analytics, warns that the trend isn’t about to reverse anytime soon. “Manufacturing production will continue to flatline,” he says. “If production is flat, manufacturing employment is likely to slide. We’re probably looking at a manufacturing recession in the coming year.”
Tariffs: Friend or Foe?
Trump’s tariffs, meanwhile, are a mixed bag. They can help. Chris Zuzick, VP at Waukesha Metal Products in Wisconsin, points to a big contract bid in Texas where a foreign company offered much lower prices. “When you throw the tariff on, it gets us closer,” he says. So, tariffs can level the playing field.
But tariffs also raise costs for American manufacturers. U.S. factories import tons of raw materials — steel, aluminum, machinery, chemicals — and taxing those imports makes everything more expensive. Take steel prices, for example. Thanks to tariffs, U.S.-made steel cost $960 per metric ton in June, more than double the world export price of $440 per ton. That’s a big hike.
Pilot Precision Products still buys steel from Austria and France, paying Trump’s tariff on top. That’s how high prices have gotten.
Adding to the headaches, Trump’s tariff policies keep shifting. Deadlines get pushed back, new negotiations get announced, and factories are left scratching their heads. “Customers don’t want to make commitments with all this tariff uncertainty,” one metal products company told the ISM. Another electronics firm added, “The situation remains too volatile to firmly put such plans into place.”
The COVID Rollercoaster
To understand the manufacturing picture, you’ve got to rewind to early 2020. Factories lost nearly 1.4 million jobs in March and April alone when COVID slammed the brakes on everything. Businesses shut down, and Americans stayed home.
Then came a surprising twist. Thanks to government relief checks and a pent-up urge to shop, consumers went on a buying spree. They snapped up manufactured goods — air fryers, patio furniture, home gyms — in droves. Factories scrambled to keep up, rehired workers, and even added new jobs. 2021 saw the biggest factory hiring surge since 1994, with 379,000 new jobs. 2022 followed with another 357,000.
But the momentum didn’t last. In 2023, hiring stalled and then reversed as the economy calmed down closer to pre-pandemic levels. As of last month, factory payrolls hovered at about 12.75 million — essentially unchanged from February 2020.
Jared Bernstein, chair of Biden’s White House Council of Economic Advisers, called it “a long, strange trip to get back to where we started.”
Waiting for a Breakthrough
Manufacturers are playing a cautious waiting game. Zuzick admits that the effects of tariffs take time to materialize. “Manufacturing doesn’t turn on a dime,” he says. “It takes time to switch gears.”
Eric Hagopian remains cautiously optimistic about tax incentives in Trump’s “One Big Beautiful Bill,” hoping they might give American factories a boost. “There may be light at the end of the tunnel — and hopefully it’s not a locomotive barreling down on us,” he jokes.
Ohio State University economist Ned Hill sums up the mood: “With so much uncertainty about how the rest of the year will unfold, companies hesitate to hire workers only to lay them off soon after.”
What’s Next for U.S. Manufacturing?
The future remains unclear. Will tariffs encourage factories to reshore operations and bring production back to American soil? Or will high costs and policy flip-flops keep the sector stuck in limbo?
One thing is clear: the government’s role, whether through subsidies, tariffs, or tax breaks, will continue to be critical. But factories need a stable environment to plan, invest, and grow. Until that happens, American manufacturing may stay stuck in neutral, waiting for the next big break.
Login