US Manufacturing Sector Contracted in March, Report Says

The Trump administration is set to announce reciprocal tariffs on trade partners to boost domestic manufacturing.

A worker affixes labels to a baseball bat on the production line at Rawlings sporting goods in Dolgeville, N.Y., on March 1, 2017. William Edwards/AFP via Getty Images

U.S. manufacturing activity registered a decline in March, with new orders and factory production falling for the month, according to the Institute for Supply Management (ISM).

“The Manufacturing PMI registered 49 percent in March, 1.3 percentage points lower compared to the 50.3 percent recorded in February,” ISM said in an April 1 statement.

The contraction in manufacturing occurred after an expansion in January and February, which was the first such growth following 26 straight months of declines, according to Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee.

Signs of weakening demand included the index of new orders moving further into contraction and the index of backlog of orders declining at a faster rate. Factory output or production shifted from growth to contraction.

Inventories expanded for the month, which Fiore said was a “temporary move to avoid tariffs.” This is expected to fall once the trade issues get resolved. The price growth of raw materials “accelerated due to tariffs,” he said.

Nine manufacturing industries reported growth last month, including textile mills, electrical equipment, computer and electronic products, and petroleum and coal products.

Seven industries reported contractions, including wood products, chemical products, machinery, and food, beverage, and tobacco.

The S&P Global Purchasing Managers’ Index (PMI) also registered a contraction in U.S. manufacturing last month. Cost pressures intensified as input prices soared to a 31-month high.

Export orders surged from Germany, Canada, and other European markets, which S&P said resulted from companies trying to complete their orders prior to new tariffs from the Trump administration.

On the positive side, the decline in manufacturing was found to have been offset by an increase in American services activity. S&P also found that business sentiment was at the highest level in more than three years.

While markets deal with the issue of tariffs, the U.S. manufacturing sector is poised to benefit from reshoring operations over the coming year, according to a Feb. 20 report by the National Institute of Standards and Technology.

“Many manufacturers are shifting operations closer to home to reduce exposure to international disruptions and logistics issues,” the report reads.

“Small manufacturers will benefit from reshoring by accessing local or regional supply networks that can provide faster turnaround times and more flexible production.”

Reciprocal Tariffs

New reciprocal tariffs are set to go into effect immediately after they are formally announced on April 2, White House press secretary Karoline Leavitt said during a press briefing on Tuesday.

The reciprocal tariff trade policy is aimed at countering decades of unfair foreign competition that the United States has faced, she said, adding that the Trump administration plans to reward companies manufacturing in the country.

“If you make your product in America, you will pay no tariffs,” Leavitt said. “If they [businesses] want to be absolved of that tariff, then they can come here to the United States of America to do business [and] bring their jobs here.”

She pointed out that “too many foreign countries have their markets closed to our exports.”

“This is fundamentally unfair,” she said.

“The lack of reciprocity contributes to our large and persistent annual trade deficit that’s gutted our industries and hollowed out key workforces, but those days of America—beginning tomorrow—being ripped off are over.”

The U.S. trade deficit hit a record $1.2 trillion last year, according to federal data.

The Chamber of Commerce has warned about the potential negative effects of the Trump administration’s tariff policy.

A recent survey by the group showed that small business confidence dipped in the first quarter of 2025 from the previous quarter. Concern about revenue was at the highest level since the third quarter of 2021. In addition, 58 percent reported that inflation was the top concern for this year’s first quarter.

“Confidence is being shaken as small businesses increasingly worry about their revenue while at the same time confronting the possibility that tariffs will raise costs for them and their employees,” Tom Sullivan, vice president of small business policy at the Chamber of Commerce, said in the report.

Last month, the organization called for a swift end to the 25 percent tariffs on Mexican and Canadian goods.

However, the Trump administration’s plan for reciprocal tariffs has support from many business groups.

Growth Energy, the largest biofuel trade association in the United States, welcomed the administration’s consideration of reciprocal tariffs on Brazilian ethanol.

“While American biofuel producers have been almost entirely blocked off from the Brazilian market, Brazilian producers have enjoyed unfettered access to the U.S.,” Growth Energy CEO Emily Skor said. “In some cases, certain policies in the U.S. even incentivize the use of imported Brazilian ethanol instead of ethanol produced here in the U.S.

“This runs contrary to putting America first, and is exactly why President Trump is taking steps to address this issue.”

Kevin Dempsey, president and CEO of the American Iron and Steel Institute, applauded the reciprocal tariff strategy as a way to restore “fairness” in U.S. trade relationships.

“American steel producers know well the negative impact of foreign unfair trade practices, including subsidies, currency manipulation, and other unfair and discriminatory policies and practices, on domestic industries and their workers,” he said.