American industry may feel the worst effects of the administration’s recently announced tariffs, researchers have found, despite restoring the U.S’s manufacturing prowess being among the key aims of these policies.
According new report from Oxford Economics, the expanding list of tariffs announced by President Donald Trump are expected to result in “a shallow recession in global industry.” The report went on to state that the largest forecast downgrades in industrial output have been made for the U.S, this now expected to shrink by 0.8 percent in 2025 and 2026.
“Tariff-induced price increases will weaken goods demand and elevated uncertainty will weigh heavily on investment-led sectors,” the authors wrote. “Sectors reliant on imported inputs, like automotives, will also see activity weaken sharply.”
Why It Matters
Alongside redressing global trade imbalances, providing an additional source of revenue and acting as a punitive measure against certain nations, boosting American manufacturing has been one of the key arguments made by the administration in favor of its tariff plans. A sharp downgrade in expectations for U.S. industry therefore undermines one of the central justifications for their implementation.
What To Know
President Trump’s tariffs—incorporating the 10-percent baseline, automotive duties and China’s effective, 145-percent rate—will “weigh disproportionately on manufacturing activity,” according to the report, US Tariff Hikes to Cause Global Industrial Recession.
“Industry will lose out disproportionately from the tariff hikes while services will be more insulated. But service sectors that support manufacturing and trade, like ocean freight and logistics, will also decline,” the authors wrote. “And in the US especially, broader economic weakness caused by higher inflation and weaker consumer and business confidence will hit all sectors.”
As well as having a “scarring impact on global industry,” they said that manufacturing activity in the U.S. is expected to contract by 0.9 percent in 2025 and 1 percent in 2026, the largest forecast downgrade.
Stephanie Scarbrough/AP Photo
The researchers added that a substantial contraction in U.S. imports will result in damage to export demand among America’s key trading partners, setting off a “negative chain reaction in global trade and manufacturing,” hitting China, Japan, Canada, Mexico and South Korea particularly hard.
China’s official purchasing managers’ index (PMI) was released on Wednesday morning, revealing a sharp decline in manufacturing activity in April. The PMI fell to 49.0 from 50.5 in March, now below the 50-point threshold separating growth from contraction. This marks a 16-month low for the sector, and below consensus forecasts of 49.8.
This follows a dramatic increase in cancelled shipping routes between Asia and the U.S, which experts told Newsweek would impact not just Chinese exporters but also numerous Chinese import-dependent sectors in the U.S.
Oxford Economics’ Sean Metcalfe told Newsweek that, while China and the U.S. have imposed substantial tariffs on each other, these will be more damaging to the American side as “it will be easier for China to find alternative buyers than for U.S. to find alternative suppliers.”
“Roughly 38 percent of the $460bn in U.S. imports (or $175bn) from China show a high dependency on Chinese manufacturers,” he said. “At the same time, only around one-fifth of total Chinese exports to the U.S. (or $120bn) consists of items with a concentrated US-consumer base.”
What People Are Saying
Researchers at Oxford Economics wrote: “Some US manufacturing sectors, including steel and electronics, may benefit from reduced import competition and increase production. Additionally, some multinational firms may increase investment in U.S. production capacity to avoid tariffs. But the elevated level of trade policy uncertainty means businesses are likely to adopt a ‘wait and see’ approach before making any major investment decisions. Furthermore, the U.S. is a relatively small player in many of the sectors affected by the tariffs and is unlikely to boost domestic output materially in these cases (e.g., in textiles production).”
They added: “In the case of China, though the U.S. tariff hikes are exceptional, we expect the Chinese authorities to offset some of the tariff-induced weakness by implementing more aggressive policy stimulus.”
Sean Metcalfe, Associate Director and economist at Oxford Economics, previously told Newsweek: “Some U.S. manufacturing sectors may benefit from reduced import competition and raise their production levels. But on net, any positive impetus from reshoring is unlikely to outweigh the negatives from the tariffs, especially in the near-term. The exceptional level of policy uncertainty means that firms cannot be certain that tariff policies will be what they are a month from now, let alone a year from now. Hence, the benefits of waiting before deciding to invest in U.S. production capacity will be difficult to resist. Additionally, investing in U.S. manufacturing capacity now carries the risk of cost overruns and delays as imported inputs have become more expensive and global supply chains are going to be tested.”
Treasury Secretary Scott Bessent, during a press briefing on Tuesday, said: “I think that tariffs will bring back American manufacturing and generate substantial revenue.”
Ryan Young, senior economist at the Competitive Enterprise Institute, previously told Newsweek: “Tariff-related shipping slowdowns will cause a regional cascade effect in the U.S, a little like when Covid-19 first hit.
“More than half of U.S. imports aren’t consumer goods, they’re intermediate goods that U.S. businesses use to make their products here in America,” he added. “Retail shoppers will notice higher prices and fewer goods, and that will get most of the headlines. But businesses, especially smaller ones, will be paying more for components, machinery, and raw materials used in everything from cars to musical instruments to lighting fixtures.”
Political economist Veronique de Rugy told Newsweek: “Most of what we import are inputs used in domestic production. It means higher costs for domestic companies. When fewer goods come in, truck drivers, dockworkers, warehouse employees, freight handlers, and even many small businesses that depend on imported inputs are directly at risk. Jobs tied to moving and selling goods, from logistics to last-mile delivery, will feel the pressure first.
“Most importantly, fewer imports means less capital flow into the country,” she added. “That reduces our capital stock and eventually it reduces investments, productivity and wages.”
What Happens Next?
While they forecast an industrial downturn, Oxford Economics researchers said that the overall global economy will avoid a recession. Should tariffs remain at their current rate, they added that the resulting hit to global trade will “weigh on manufacturing output over the long term.