Will Trump bring back manufacturing?

Real private fixed investment in nonresidential manufacturing structures experienced a notable decline in late 2025. Real private fixed investment in nonresidential manufacturing structures fell 6.9% quarter-over-quarter (QoQ) from Q3 to Q4 2025, reaching 127.287 billion chained 2017 dollars in Q4 2025 ^[1]. This downward trend for manufacturing structures investment was also observed in nominal terms, with a 4.8% QoQ decrease from Q3 to Q4 2025 ^[2]. Broader nonresidential structures investment likewise declined during this period, decreasing from 652.766 billion real chained 2017 dollars in Q3 2025 to 640.930 billion in Q4 2025 ^[1].

Data limitations prevent a direct assessment of tariff impact on CapEx. While the Census Bureau's Quarterly Financial Report (QFR) indicated a rise in manufacturing property, plant, and equipment stocks from 4,474 billion to 4,618 billion millions between Q1 and Q3 ^[3], this metric reflects existing stock rather than a flow of new capital expenditures. Crucially, available quarterly Bureau of Economic Analysis (BEA) and Census Bureau data do not provide explicit breakdowns for capital expenditures in specific tariff-protected sectors (e.g., steel, automotive) or for declines in sectors negatively impacted by retaliatory tariffs (e.g., agriculture). Therefore, the research found no evidence to suggest that CapEx in tariff-protected sectors outpaced declines elsewhere; rather, the data on manufacturing structures capital expenditures generally showed a declining trend through Q4 2025 ^[1].

The House Ways and Means Committee proposes significant accelerated depreciation measures for businesses. The Committee's "One Big Beautiful Bill" introduces several key tax provisions, including making 100% bonus depreciation permanent for short-lived assets placed in service after January 19, 2025 ^[1]. The bill also proposes temporary 100% expensing for qualified manufacturing production property, applicable to construction beginning after January 19, 2025, and before January 1, 2029 ^[1]. Additionally, the legislation makes immediate expensing for domestic research and development (R&D) permanent and raises Section 179 expensing limits to $2.5 million ^[1]. However, the bill does not introduce new domestic production activities deductions or specific new manufacturing production tax credits; rather, existing credits like the advanced manufacturing production credit (45X) are subject to phase-outs or restrictions as part of Inflation Reduction Act repeals.

Economic models project an increase in private investment and GDP. Dynamic analyses by the Joint Committee on Taxation (JCT) and the Congressional Budget Office (CBO) forecast that these provisions will primarily boost private investment, which is projected to peak at approximately 1.2% higher in 2027 [4, 5, Web Research Results]. Consequently, manufacturing capital investment is expected to increase during the 2026-2028 period due to these accelerated depreciation measures. The nation's capital stock is anticipated to initially increase by 0.1% early in the 2025-2034 period, though it is then expected to decrease by 0.4% later in the period due to deficit crowding out [Web Research Results]. Overall real GDP is projected to increase by an average of 0.5% from 2025 to 2034, with a more pronounced 0.9% increase in 2026 [5, Web Research Results].

Specific 2028 unit labor cost projections are unavailable from key institutions. Detailed projections through 2028 for manufacturing unit labor cost (ULC) indexes from The Conference Board or Boston Consulting Group (BCG) are not readily available; The Conference Board's International Labor Comparisons program, for instance, was discontinued post-2018/2019 ^[1]. However, general analyses by BCG indicate that the United States is enhancing its relative manufacturing cost competitiveness, primarily because US productivity gains are outpacing wage growth. In contrast, Mexico and Vietnam are experiencing rising productivity-adjusted labor costs due to rapid wage increases ^[2].

US manufacturing unit labor costs show moderate, productivity-driven growth. From 2018 to 2025, the US manufacturing ULC index rose by an estimated 1-2% annually on average, reaching 134.5 by Q3 2025 (2017=100), a trend supported by consistent productivity improvements and advantages in energy costs and automation ^[3]. Conversely, Mexico's minimum wage has increased by an average of 20% annually since 2019, with further 10-20% rises projected ^[4]. Similarly, Vietnam is also facing rising wages despite its overall competitiveness ^[5]. As a result, unit labor costs in Mexico and Vietnam are rising faster due to weaker productivity offsets compared to their accelerating wage growth.

Future trends suggest a narrowing of unit labor cost gaps. Near-term analyses indicate that US ULC growth will likely slow relative to that of Mexico and Vietnam. By Q4 2028, rising costs in Mexico and potential policy shifts could further narrow these cost gaps, potentially supporting partial reshoring initiatives by balancing productivity gains against wage developments.

North American industrial robot orders experienced significant year-over-year growth. Between 2024 and 2025, industrial robot orders in North America increased by 6.6% in units. A total of 36,766 industrial robots were ordered, representing a cumulative value of $2.25 billion. Orders in the fourth quarter of 2025 also saw a 6.6% increase in units compared to the fourth quarter of 2024 ^[1].

General industries primarily drove this growth, outpacing the automotive sector. This expansion was predominantly fueled by sectors such as food and consumer goods, semiconductors and electronics, and life sciences. These general industries collectively accounted for the majority market share and demonstrated stronger growth than the overall automotive industry. While automotive original equipment manufacturers (OEMs) showed late-year improvements, orders for automotive components experienced a decline ^[1].

Growth was broad-based, not concentrated in highly tariff-protected sectors. Public data indicates that this growth was widespread across various industries and was not disproportionately concentrated in sectors typically associated with high tariff protection, such as steel or the broader automotive industry. The findings suggest a widespread adoption of automation across diverse industries, rather than a specific surge linked to sectors receiving high tariff protection ^[1].

Achieving a 13.1% manufacturing share by 2028 requires significant growth. To elevate the manufacturing-to-GDP share from its current approximately 9.5% in Q3 2025 to 13.1% by Q4 2028, the year-over-year growth rate of the Federal Reserve's Industrial Production Index for Manufacturing (IPMAN) must substantially exceed that of overall Real GDP ^[1]. Over this approximately 3.25-year period, manufacturing output needs to grow, on average, about 10.0% faster annually than Real GDP in relative terms. Based on an estimated annual Real GDP growth rate of approximately 2.1% for 2025 ^[3], this translates to a required average quarterly spread where IPMAN's year-over-year growth rate consistently surpasses Real GDP's year-over-year growth rate by approximately 10.21 percentage points.

Current manufacturing growth significantly trails the required trajectory for 2028. The current trajectory indicates a substantial divergence from this necessary growth. In February 2026, the year-over-year growth rate for IPMAN was approximately 1.4% to 2.1% [Web Research]. When compared to the estimated annual Real GDP growth rate of approximately 2.1% for 2025 ^[3], the present spread between IPMAN's year-over-year growth and Real GDP's year-over-year growth ranges from approximately -0.7 percentage points to 0.0 percentage points. This means manufacturing growth is currently trailing or merely matching overall GDP growth, underscoring the need for a significant acceleration in manufacturing's growth relative to GDP to meet the 13.1% share target by Q4 2028.

The manufacturing sector could see bullish momentum from new tariffs, such as those from the Liberation Day Executive Order in April 2025 and potential Section 122 policies post-February 2026 Supreme Court ruling, alongside OBBBA tax incentives and substantial AI and energy investments ^[1]. These policies have coincided with over $3 trillion in announced investments since 2025 and the creation of 244,000 jobs in 2024 ^[1]. A prediction market indicates a 63% probability for US GDP growth exceeding 2.5% in 2026 ^[2].

Conversely, significant bearish pressures exist. Despite the investment influx, actual manufacturing jobs have declined by nearly 100,000 since January 2025, with automation cited as a primary factor limiting job growth ^[1]. The sector also grapples with labor shortages, reporting 500,000 vacancies, and ongoing inflation concerns ^[1]. Legal challenges, including a key Supreme Court ruling on February 20, 2026, also pose risks ^[1]. Consequently, a prediction market assigns only a 21% chance for manufacturing to reach 13.1% of GDP by Q4 2028 ^[2].