The U.S. economy hangs on a fragile edge, with manufacturing, a crucial engine for the lower and middle classes, caught in the midst. Tariffs, viewed with optimism, aim to revitalize American industry by safeguarding jobs and encouraging investment. However, concerning trends in consumer spending, perceived negatively, pose a risk of diminishing demand and disrupting growth. These conflicting factors position manufacturing and the overall economy on a knife’s edge. Former President Donald Trump’s policies, rooted in protectionism and economic nationalism, present a significant chance to guide the economy toward prosperity by enhancing working-class incomes. This analysis explores how tariffs and consumer spending influence manufacturing’s destiny and why Trump’s strategies may lead the sector in a positive direction.
Tariffs: A Catalyst for Manufacturing Revival
When applied strategically, tariffs protect U.S. manufacturing by addressing low-cost imports and unfair trade practices. By increasing the price of foreign products, tariffs encourage domestic production, draw capital investment, and generate well-paying jobs in sectors such as steel, automotive, and electronics. For the lower and middle classes, who have faced wage stagnation and job losses due to globalization, tariffs provide a route to economic stability.
During Trump’s first term, 25% tariffs on steel and 10% on aluminum revitalized U.S. producers. The American Iron and Steel Institute (AISI) reported an 8% increase in steel production capacity from 2017 to 2019, preserving thousands of jobs in states like Pennsylvania and Ohio1. The Bureau of Labor Statistics (BLS) recorded nearly 500,000 new manufacturing jobs in the same period, with real median weekly earnings for manufacturing workers rising 4.1%3. These gains bolstered communities hit by offshoring, proving tariffs’ tangible benefits.
Tariffs also generate significant revenue—$70 billion each year due to Trump-era policies—which can be allocated to infrastructure, workforce training, or tax reductions for small businesses, boosting the revival of manufacturing. By promoting “reshoring,” as demonstrated by firms like Intel and Ford, tariffs enhance supply chains. However, it’s essential that tariffs specifically target the prevention of rising costs for manufacturers reliant on imported parts, thus ensuring their competitiveness.
Consumer Spending: A Growing Threat to Stability
Consumer spending, which constitutes about 70% of U.S. GDP, fuels demand for manufacturing. However, recent data indicates a concerning trend that could hinder the sector’s advancement. Lower- and middle-income households, essential for mass-market consumption, are feeling pressure from stagnant wages and increasing expenses. By 2024, household debt soared to $18.04 trillion, with credit card balances rising 7.3% compared to the previous year5. High interest rates further diminish disposable income, restricting the ability to purchase manufactured goods like vehicles and appliances.
Disparities in spending intensify the problem. Affluent households continue to purchase luxury goods, while lower- and middle-income families reduce their spending on essential items. A report from 2025 revealed a 20% drop in E-commerce retail sales, indicating diminishing demand for manufacturing outputs6. The Manufacturing PMI from the Institute for Supply Management decreased to 48 in early 2025, having consistently fallen from a peak of 64 in early 20217. This downturn reflects a contraction caused by sluggish consumer spending. Such an uneven distribution exacerbates inequality and hampers economic growth, as widespread consumption is crucial for the manufacturing sector's advancement.
The negative outlook on consumer spending threatens to create a vicious cycle: reduced demand leads to lower production, fewer jobs, and further spending cuts. For the lower and middle classes to stricter budgets and limited opportunities for the lower and middle classes, which undermines the wage increases that tariffs intend to achieve. In the absence of strong consumer demand, the resurgence of manufacturing may falter, steering the economy toward a recession slowdown.
Manufacturing on a Knife’s Edge
The relationship between tariffs and consumer spending puts manufacturing in a fragile situation. While tariffs can initiate a revival in factories, generating jobs and increasing incomes, their effectiveness depends on robust domestic demand, which current consumer spending data indicates is declining. If cost increases from tariffs are passed onto consumers who are already financially burdened, the demand for manufactured goods could weaken further. Conversely, sluggish spending threatens to negate tariff benefits by limiting orders and investment. This balancing act defines the knife’s edge for manufacturing and the economy at large.
Trump’s policies present a solution to this challenge. His tariff approach, which targets industries like semiconductors, steel, and agriculture, can stimulate a manufacturing resurgence. Implementing higher tariffs—for example, a 10% duty on Chinese electronics—would encourage domestic production and shield workers from international competition. Pairing tariffs with pro-manufacturing initiatives, such as factory modernization tax incentives or new technology incentives, would accelerate growth. Trump’s “Buy American” campaign may redirect consumer preferences towards U.S.-made products, enhancing demand even amidst spending limitations.
To counter consumer spending weaknesses, Trump could focus on income-boosting measures. Expanding the Earned Income Tax Credit or cutting payroll taxes would put more money in workers’ pockets, encouraging spending on manufactured products. By linking tariff-driven job creation to consumer confidence, Trump can ensure manufacturing thrives.
Trump’s Chance to Restore Manufacturing
Manufacturing’s future depends on harnessing tariffs’ potential while stabilizing consumer spending. Trump’s policies, if carefully executed, can tip the scales toward prosperity. His first term demonstrated a willingness to confront global trade imbalances; a renewed focus could prioritize industries critical to economic and national security. By fostering manufacturing growth and boosting working-class incomes, Trump can create a virtuous cycle where higher wages fuel sustainable demand.
The lower and middle classes stand to gain the most. Manufacturing jobs, with skilled roles potentially paying $30/hour, offer financial security and community pride. A robust manufacturing sector strengthens industrial towns and urban centers, restoring opportunity to those sidelined by globalization. With tariffs driving production and policies enhancing purchasing power, Trump can deliver an economy where workers thrive.
The knife’s edge appears intimidating yet conquerable. Tariffs have the potential to strengthen the foundation of manufacturing, while reforms aimed at income can maintain demand. Trump has a rare chance to increase incomes, rejuvenate factories, and demonstrate that the American Dream remains vibrant. By focusing on manufacturing and the working class, he can turn danger into opportunity, ensuring both the sector and the country thrive.
Conclusion
Due to the weakness in economic data and the actions Trump is taking to fix the economy, we need to be cautiously optimistic and position our portfolios in a way that could take advantage of either direction. We agree with Trump that the data has shown the Federal Reserve needs to lower interest rates to help support demand and ease the debt burden on the consumer. We are in a wait-and-see stance and will make portfolio changes once a clear economic direction is clear.
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References
- Economic Policy Institute. Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures. www.epi.org
- Reuters. As trade wars raged, the U.S. collected nearly 73% more duties in fiscal 2019. (2020). www.reuters.com
- Bureau of Labor Statistics. (2019a). Employment, hours, and earnings from the Current Employment Statistics survey (National) (Series CES3000000001). https://www.bls.gov/ces
- Federal Reserve Bank of New York. (2024). Household debt and credit report: Q4 2024. www.newyorkfed.org
- U.S. Department of Commerce. (2025). Quarterly retail e-commerce sales, Q1 2025. www.census.gov
- YCharts. (2025). US ISM Manufacturing PMI. May 2025. ycharts.com/indicators
These opinions are based on Jakob Fries, CFP® observations and research and are not intended to predict or depict performance of any investment. These views are as of the close of business on 06/04/2025 and are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities. Past performance does not guarantee future results.