Manufacturers Plan Price Increases as Tariff Costs Rise, Most Avoid Reshoring

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. The survey reveals that 32% of manufacturing leaders plan to pass on all of their tariff-related cost increases to customers. In comparison, another 42% intend to combine price hikes with 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, while 64% don’t intend to bring production to the U.S. to avoid tariff costs. This response was split between companies that don’t intend to change their supply chain partners and those seeking alternative trade partners in less tariff-impacted countries.

Pricing Strategies Reflect Cost Pressures

Tariffs and trade matters have risen to the top of manufacturers’ minds, according to Susan Spence, chair of ISM’s Manufacturing PMI, a sentiment echoed in other recent manufacturing surveys from the group and from advisory firms such as KPMG. The shifting nature of tariffs has halted decision-making throughout the year for many manufacturers. Many put large capital expenditures and hiring plans on hold as they awaited more clarity on trade considerations.

The uncertainty is starting to settle as legal reviews proceed through the court system. With greater certainty ahead, manufacturers are beginning to make decisions about their supply chains and how to handle increased import costs. Manufacturing panelists, by and large, have decided to pass costs along to customers due to the direct impact of material costs.

The survey revealed 86% of manufacturers plan to pass on at least some of their cost increases. Raw material prices increased an average of 5.4% in 2025 and are projected to rise 4.4% in 2026. These increases reflect ongoing cost pressures from tariffs on imported materials and components used in production.

For manufacturers managing pricing strategies, understanding how competitors respond to input cost increases affects market positioning and customer relationships. Producer price indexes for manufacturing inputs have risen as tariffs affect the costs of imported materials. Companies must balance the need to maintain margins against the risk of losing business to competitors who absorb more costs.

Understanding how to manage pricing decisions during periods of input cost volatility requires careful analysis of cost structures, customer price sensitivity, and competitive positioning. Our team helps manufacturers analyze cost structures, evaluate pricing strategies, and manage margin pressures amid rising input costs. Visit our Manufacturing Services page to see how we support manufacturers managing cost challenges.

Reshoring Remains Limited Despite Trade Pressures

Despite expectations that tariffs would drive manufacturing to reshore operations, the survey indicates that for many manufacturers, it’s still more cost-effective to go offshore or diversify into a different geographic area. The 64% of manufacturers not planning to reshore reflects the significant capital investment, time requirements, and operational complexity involved in relocating production facilities.

Reshoring manufacturing operations requires substantial capital investment in facilities, equipment, and workforce development. Lead times for facility construction, equipment installation, and production ramp-up typically extend across multiple years. For manufacturers serving markets with ongoing demand, the extended timeline and upfront costs of reshoring may outweigh potential savings from avoiding tariffs.

Alternative strategies include diversifying supply chains to countries with lower tariff exposure or negotiating with existing suppliers to share cost increases. These approaches allow manufacturers to respond more quickly to changing trade conditions without committing to major capital projects with uncertain returns.

The decision whether to reshore production depends on multiple factors, including current facility utilization, available capital, workforce availability in potential domestic locations, total cost comparisons including logistics and overhead, and expected duration of current tariff structures. Manufacturers must evaluate these factors carefully before committing to major supply chain restructuring.

Modest Optimism Emerges for 2026

The year 2025 has been challenging for manufacturers overall. 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 in 2025.

Capital expenditures are expected to rise 3% next year. One factor that hasn’t meaningfully boosted expenditures, however, is recent legislation affecting corporate tax rates and machinery investment deductions. When asked what effect provisions under recent tax legislation had on manufacturers’ planned capital spending, 59% said no effect, and 20% said they are actually reducing capital expenditures.

Lingering trade and economic uncertainty appears to be limiting confidence in expenditures despite favorable tax treatment. Manufacturers facing uncertain demand conditions and volatile input costs tend to delay major capital commitments even when financing costs and tax incentives are favorable. The combination of trade uncertainty and economic questions creates a cautious environment for long-term investment decisions.

For manufacturers evaluating capital investment timing, the survey results suggest that many competitors are taking a wait-and-see approach despite expectations of revenue growth. Companies with strong balance sheets and clear market opportunities may gain competitive advantages by investing during periods when competitors delay capital commitments. Want more clarity on how tariff costs and pricing pressures affect your manufacturing operation? Our team helps manufacturers analyze cost structures, evaluate capital investment timing, and develop strategies for managing through uncertain trade conditions. Contact us today to discuss how to strengthen your manufacturing operation’s financial position.

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