While the OBBBA tries to buoy manufacturing, President Trump’s tariffs are an anvil dragging the sector down.
B arely a month after signing the One Big Beautiful Bill Act (OBBBA) into law, President Trump has doubled down on trade actions that will directly undermine his approach to tax policy.
This contradiction is clearest for manufacturers. According to Tax Foundation estimates, the OBBBA will give manufacturers a massive tax cut — $420 billion by 2034 — that is three times larger than that for the next most-favored industry in the OBBBA (information services).
As the president of the National Association of Manufacturers, Jay Timmons, put it recently, “[The OBBBA] is a manufacturers’ law through and through.”
The legislation’s provisions with the highest “bang for the buck” on growth are permanent full expensing for equipment and immediate expensing for research and development. These policies allow businesses to deduct the costs of their investments in capital equipment and research costs in the year they spend the money. Without these policy changes, businesses would have to wait many years to deduct those costs, and inflation would erode the value of those deductions.
Growing manufacturers invest heavily in new equipment, and they are always refining their products. These two tax provisions directly support that growth.
For multinational companies, these provisions encourage them to develop a manufacturing footprint in the United States.
But the OBBBA provisions don’t tell the whole story.
Manufacturers are also facing headwinds. Manufacturing employment recently peaked at nearly 13 million jobs in early 2023 — the highest it’s been since the Great Recession. Unfortunately, since then, manufacturing jobs have been on a slow decline. The most recent jobs report shows that the decline has not let up.
While the OBBBA tries to buoy manufacturing, President Trump’s tariffs are an anvil dragging the sector down.
That is because U.S. manufacturers heavily rely on imports. In 2024, more than half of U.S. imports were capital goods and intermediate inputs, including $660 billion in industrial supplies and materials; nearly $1 trillion of non-automotive capital goods; and $476 billion in cars, car parts, and engines.
Trump’s tariffs have hit these imports hard. Even if manufacturers can find domestic sources to replace imported goods, they will face higher costs.
Prices for high-value cold rolled steel, for example, have jumped 25 percent since January. As powerful as full expensing is, it won’t make up for the price hikes businesses such as these are seeing on some important inputs.
It is good that manufacturers can fully deduct the costs of their more expensive inputs, but policy-driven higher prices don’t help growth.
A U.S. manufacturer with a respectable 7 percent profit margin might want to use those profits to invest in expanded operations. But, with tariffs, those profits don’t stretch quite as far. Construction materials and new equipment are simply more expensive. The business may choose to hold onto those earnings or pay them out as dividends to shareholders rather than grow their business.
As a result, some expansion plans will be put on hold or abandoned.
My colleagues Erica York and Alex Durante have estimated that the Trump administration’s trade policies will erode two-thirds of the potential growth boost from the OBBBA. This is three steps forward and two steps back for the economy. Manufacturers will feel this every day.
Earlier this year, the National Association of Manufacturers found that 77 percent of manufacturers it surveyed were concerned about trade uncertainty, and 68 percent were concerned about increased raw material costs.
President Trump is unlikely to make a U-turn on tariffs. He simply thinks that trade is bad. For manufacturers, that means they’ll have to cling to the benefits of the OBBBA while they weather the challenges of the trade war.
This is economic self-harm. If the president wants to get the economy humming, he must pursue lower tariffs (and zero tariffs are even better). Otherwise, we will be stuck in the middle of some policies that create optimism and others that are pure headaches. Ultimately, the combination generates practically nothing.