Dive Brief:
- Manufacturers are planning to pass along cost increases and raise sales prices as input costs rise due to tariffs, according to the Institute for Supply Management’s December 2025 Supply Chain Planning Forecast published Tuesday.
- Among the manufacturing leaders surveyed for the forecast, 32% said they plan to pass on all of their tariff-related cost increases into sales prices. Another 42% intend to employ a combination of price hikes and absorbing costs into their margins. Only 6% said tariffs won’t affect their costs.
- By contrast, reshoring production to the United States to avoid tariffs and associated cost increases is a less common strategy. Just 36% are actively looking to shift production domestically.
Dive Insight:
Tariffs and trade policies have risen to be top of mind for manufacturers, according to Susan Spence, chair of ISM’s Manufacturing PMI — a sentiment echoed in other recent manufacturing surveys from the group as well as advisory firms such as KPMG.
The shifting nature of the tariffs has halted a lot of manufacturers’ decision-making throughout the year, Spence said during a call with reporters Tuesday. Many put large capital expenditures and hiring plans on hold as they awaited more clarity on trade policies. The dust, however, is starting to settle as the Supreme Court reviews the legality of the tariffs.
“The fact that the tariff decisions are now in the highest court of the land...I think folks are trying to be optimistic that the chaos is possibly going to be over,” Spence said.
With the expectation of more certainty ahead, manufacturers are starting to make decisions about their supply chains and how to handle increased costs from import duties.
“The manufacturing panelists by and large have decided, we're just going to have to pass it on,” Spence said. “They have such a direct impact from the cost of these materials.”
In fact, the survey revealed 86% of manufacturers plan to pass on at least some of their cost increases. Raw material price increases averaged 5.4% for 2025, but are projected to see an overall increase of 4.4% in 2026.
Meanwhile, 64% don’t intend to bring production to the U.S. to avoid tariffs costs, “despite the hope of the administration that this would drive manufacturing to reshore,” Spence added, noting that for many manufacturers it’s still cheaper to go offshore or diversify into a different geographic area. This response was split between companies who don’t intend to make any changes in their supply chain partners and those who are “looking for alternative trade partners in less tariff-impacted countries.”
2025 has been a tough year overall for manufacturers. The sector contracted for the ninth consecutive month in November. ISM’s forecast, however, indicates the pattern may reverse in the first half of 2026.
Manufacturing revenues are expected to rise 4.4% in 2026, and more than half of survey respondents expect greater revenue in 2026 than 2025.
“It’s not huge optimism. It’s slight optimism. So we’ll take it,” Spence said.
Capital expenditures are expected to rise 3% next year. One factor that hasn't meaningfully boosted expenditures, however, is the One Big Beautiful Bill Act. The tax law, signed in July, locked in a 21% corporate tax rate and allowed businesses to deduct the full cost of qualifying machinery investments. At the time, manufacturing leaders applauded the legislation, and tax experts expected cash flow benefits for the industry.
But in ISM’s latest survey, when asked what effect the provisions under OBBBA had on manufacturers’ planned capital spending, 59% said no effect, and 20% said they are actually reducing capital expenditures.
Spence suspected that lingering trade and economic uncertainty is “still muting any other confidence in the expenditures.”
