Q1 2026 M&D Update: Reshoring Slowdown and What the Latest Tariff Decisions Mean for Manufacturers

1. Have Manufacturers Started to Rethink Reshoring? Or is it Something Else?

Manufacturing construction activity is slowing, at least according to the official construction data from the Census Bureau.  Through October (the latest available at the time of writing due to the government shutdown) showed manufacturing construction activity down 9.6% Y/Y and it was down 1.0% M/M between September and October.

The US Administration believes that it has more than $18 trillion in commitments for investments and expansion in the United States. Some estimates put the influx of capital and spending at closer to $5 trillion. Whichever is correct, this is a historically significant investment volume considering that the best year thus far for spending on manufacturing construction was $235B. And if the OBBBA has an influence on timing for this spending (because of the front-loaded 100% Bonus Depreciation tax benefit), most of those projects will have a 3-5 project duration period and will need to be started in 2026 or 2027 to hit benefit deadlines.

Thus far however, that spending is not materializing in manufacturing. It could be that firms have already adjusted to tariff pressures and there is no need to reshore operations. It could also be that the Supreme Court ruling may have been a critical waypoint that was holding up some investment. Some projects are delayed due to inadequate power availability and material/product shortages (electrical transformers and panels for instance). And lastly, and the prevailing theory, is that many projects could simply be following a slower path, and they simply haven’t gotten through the planning and design process.

In any event, the differences between promises and commitments for spending and real spending on the street are light years apart. One suggests a return to pre-pandemic norms while another trend forecasts record spending on the way. This condition makes it difficult to plan.   

Additional Reading: https://www.census.gov/construction/c30/current/index.html

2. How Will the Tariff Decision Impact Import Costs?

As everyone knows by now, the Supreme Court (SCOTUS) struck down IEEPA tariffs, finding that the administration had used its powers wrongly in the application of “reciprocal tariffs”. There are several important operational factors to note.  First, this will not impact legal tariff agreements that have been struck since April 1^st, and 19 nations are currently running under those new agreements. Some agreements have provisions in them that allow a renegotiation based on this ruling, and this is creating some early uncertainty on forward-looking tariff rates. Second, there are other tariffs that can be applied to replace IEEPA tariffs, namely section 122, 232, 338, and 301 applications. As of 2/20, that administration stated that it will impose Section 122 tariffs of 10% “across the board”.  There are questions as to whether these will “stack” on top of current negotiated tariffs or if the administration will grant exclusions to those countries that leave their current legal trade agreement in place.

Third, refunds will be complex to recover, especially since the Federal refund will be issued to the importer of record (which is often a distributor) and is not necessarily eligible to end users. But there will be many questions about those that are eligible for the refunds and how those funds might/might not pass from the importer of record to any firm downstream in the tariff process. It will likely have to be adjudicated case-by-case privately by the firm that feels that it is owed a refund (they will have to collect from the importer of record).

In practical terms, manufacturers should not expect significant changes in material costs in the interim. All of the Section 232 and 331 tariffs remain unchanged, and new tariffs under those national security designated tariffs can be applied (it just takes longer for an “investigation” and application of the tariff). Many trade agreements struck with the US will remain in place and it appears that a tariff of 10-15% can be expected across most materials ongoing. There is still much to sort out across the board on the tariff front, and it will take much time.  

Additional reading:   https://budgetlab.yale.edu/research/state-tariffs-february-21-2026