The Tariff Trap: Why Protectionist Policies May Backfire for Mid-Sized Manufacturers

In an effort to bring more manufacturing and production back to the U.S., policymakers often turn to tariffs as a tool to protect domestic industries. While tariffs may seem like an effective way to support American businesses, they can have unintended consequences particularly for mid-sized manufacturers, distributors, and producers. These businesses already face significant challenges, and tariffs could further complicate their ability to survive and grow.

The Challenges Facing Mid-Sized Manufacturers

1. Leadership and Succession Crises

The average age of CEOs in mid-sized businesses is 59, while the remaining C-suite executives average 55 years old. This aging leadership poses a significant challenge: many business owners will soon face difficult decisions about selling their companies or transitioning leadership. Complicating this issue is the expected glut of baby boomer-owned businesses coming to market within a short window, with 75% to 80% likely to shut down rather than sell. Tariffs add another layer of uncertainty, making it even harder to plan long-term strategies for growth and succession.

2. Manual Labor Shortages and Rising Costs

The U.S. manufacturing sector is already struggling with a severe labor shortage. By 2030, an estimated 2.1 million jobs in manual labor sectors are expected to go unfilled due to a lack of skilled workers and younger generations’ reluctance to enter these industries. As tariffs drive efforts to reshore production, the labor shortage will only intensify, increasing costs for businesses and ultimately raising end-user prices. Higher production costs and inflationary pressures will dampen economic perceptions, making it harder for mid-sized firms to remain competitive.

3. The Need for a Strategic Transition

Reshoring production is not as simple as flipping a switch. The capacity to handle large-scale domestic manufacturing shifts does not currently exist, and most businesses are not prepared for an abrupt transition. While many assume that automation and AI will solve these challenges, the reality is that these technologies require time, investment, and expertise to implement effectively.

Solutions for a Sustainable Approach

Instead of relying on tariffs alone, policymakers and businesses must take strategic steps to build the necessary foundation for reshoring:

• Incentivizing Workforce Participation: The federal government and states should provide incentives to encourage more workers to enter manufacturing, whether through vocational training, apprenticeship programs, or tax breaks for companies that invest in workforce development.
• Investing in Automation and AI: Businesses should first target low-hanging fruit, areas where automation and AI can provide immediate efficiency gains. Once these processes are optimized, automation can then be expanded to more complex operations.
• Strategic Production Shifts: Instead of attempting to relocate all production at once, businesses should move in phases, prioritizing areas where automation and AI can enhance efficiency while addressing labor shortages through targeted recruitment and training efforts.

Conclusion

Tariffs alone will not bring back U.S. manufacturing in a sustainable way. Without addressing the underlying labor shortages, leadership succession challenges, and infrastructure limitations, reshoring efforts could backfire—leading to higher costs, disrupted supply chains, and reduced competitiveness. To truly revitalize American manufacturing, a comprehensive approach that combines workforce development, technological investment, and strategic planning is essential. Only by taking these steps can mid-sized manufacturers navigate the evolving economic landscape and position themselves for long-term success.