Tariff policies in 2025 increased input costs for key U.S. industries, threatening growth and investment

Key takeaways

A handful of key U.S. economic sectors—construction, manufacturing, mining, and repair and maintenance—face disproportionately large first-order tariff costs, complicating growth and investment in these sectors.Across nearly all of the U.S. economy, estimated tariff rates ballooned in the first half of 2025 and remained elevated through the end of the year, with little apparent relief for cost-burdened businesses.Developments in trade policy through the first quarter of 2026 suggest a deepening uncertainty around the duration, magnitude, purpose, and legal basis of the current tariff regime. This uncertainty slows growth and investment just when the U.S. labor market already faces threatening headwinds.

Overview

All tariffs are not created equal. Throughout U.S. history, policymakers have imposed import taxes for a variety of economic and ideological reasons, with varying impacts. Targeted tariffs have been effective in some cases at supporting domestic industries facing competition from low-cost imports.

But the large and volatile tariff regime in place since early 2025 is far from targeted. Instead, broad tariffs have been imposed on nearly every U.S. trading partner and nearly every imported commodity, increasing input costs across the economy. Retaliatory tariffs have been imposed on exports from the United States, diminishing the competitive advantage of U.S. import tariffs for some businesses.

The U.S. Supreme Court’s recent decision invalidating the president’s tariff-setting authority under the International Emergency Economic Powers Act should not be taken as a sign that the tariff regime will be rolled back. Instead, after the court’s decision was released, the Trump administration immediately announced broad tariffs under a different, unprecedented legal authority and signaled the continued use of targeted trade investigations to impose commodity-specific tariffs. Lawsuits over these newly imposed tariffs are already winding their way through U.S. courts, while businesses are fighting in the U.S. Court of International Trade for refunds for tariffs they paid under the now-invalid IEEPA authority.

Together, these developments suggest continued volatility in U.S. tariff policies in 2026. To better understand the effects of this broad and volatile policy environment, Equitable Growth’s tariff project has sought to estimate costs for U.S. industries importing intermediate goods used as inputs in production processes. Through this focus on input costs, our model seeks to isolate one of the channels through which tariffs impact the U.S. economy.

U.S. importers can respond to elevated tariff costs in a few ways. They can reorient supply chains toward domestic sources or cheaper imports. They can pass costs down to purchasers of their goods and services. And they can contain other business costs by suppressing wage growth and new hiring. Equitable Growth’s tariff model informs all three mechanisms through estimates of commodity- and industry-level tariff exposure weighted by employment.

Our model, however, is not comprehensive. It does not address the potential benefits of tariffs for U.S. businesses whose final goods are in competition with low-cost imports. Nor does it address the competitive disadvantages of retaliatory tariffs imposed by trading partners on U.S. exports. Rather, our focus on first-order input costs can be combined with other estimates of second-order costs and competitive advantages and disadvantages to reach a more holistic picture of tariff impacts.

Construction, manufacturing faced higher tariff costs than other sectors

This update to Equitable Growth’s tariff tracking project corroborates results from the earlier work, finding that certain key economic sectors faced relatively high tariff rates and first-order costs in 2025. Indeed, the U.S. construction sector faced the highest estimated tariff rate1 in 2025, peaking at higher than 19 percent in October. Mining and other extractive activities faced the next-highest estimated tariff rate, peaking at more than 15 percent in October.

Manufacturing faced a relatively lower average estimated tariff rate, peaking at more than 11 percent in October, but this sector was burdened by the largest tariff costs measured as a fraction of all inputs.2 On average, the manufacturing sector imports nearly 19 percent of all its inputs, so even a middling tariff rate can cause a substantial increase in tariff costs relative to total input costs. (See Figure 1.)

Figure 1

Across U.S. sectors, tariff rates and fractional costs skyrocketed from February to the early summer, with initial peaks recorded in May 2025. A second spurt of rapid growth in estimated tariff rates occurred from June to the early fall. Most sectors faced peak estimated tariff rates in September and October before a slight tapering off in the final two months of the year.

Disaggregating exposure to tariffs by subsector reveals nuance in their impact

Disaggregating broad sectoral categories into subsectors reveals important variation in the impact of tariffs in 2025. While the manufacturing sector faced average tariff costs of about 2 percent of total inputs—higher than any other sector of the U.S. economy—some manufacturing subsectors faced costs as high as 4 percent of all inputs while others experienced much lower costs as a percent of their total inputs.

The most tariff-impacted manufacturing subsectors in 2025 were machinery, furniture, apparel, and primary metals production, followed closely by fabricated metals and transportation equipment—two of the most significant manufacturing employers in the country. Meanwhile, food production and chemical production, two of the other significant manufacturing employers, faced relatively low tariff costs of less than 1 percent of inputs.

Food production firms import a significantly smaller share of their inputs compared to chemical production, but key tariff exemptions—particularly an exemption for pharmaceutical imports—means chemicals firms enjoy a fractional tariff cost on par with foods. The petroleum and coal production subsector similarly imports a significant portion of its inputs, but exemptions for energy imports mean it enjoys one of the lowest estimated tariff rates of any subsector. (See Figure 2.)

Figure 2

Further disaggregation of two of the highly impacted manufacturing subsectors, machinery and metals, yields interesting results. In the machinery production subsector, the most impacted industries are agriculture, construction, and mining machinery production and general purpose machinery, which includes production of industrial furnaces, packaging machinery, powered hand tools, pumps, cranes, elevators, and a range of other industrial-oriented machines. (See Figure 3.)

Figure 3

This uneven distribution of tariff costs within the machinery production subsector implies an uneven pass-through of tariff costs to purchasers of those machinery products. In other words, agricultural and construction firms likely faced higher second-order tariff costs when purchasing machinery, compared to, say, purchasers of service-sector or metalworking machinery.

Large tariff costs across the machinery manufacturing subsector—and, in particular, for machinery in industrial, construction, and mining settings—also suggest elevated capital costs for businesses in these downstream industries. Elevated capital costs make it harder for firms to invest in new production and hire more workers, slowing overall growth.

Higher capital costs also can complicate the competitive advantage produced by tariffs for firms whose final goods directly compete with low-cost imports. Those firms, seeking to capitalize on the tariff-induced cost advantages, face their own elevated downstream costs when investing in new machinery to boost production. This is not to say that downstream costs entirely offset the competitive advantage gained by some firms from tariffs. Rather, business leaders and policymakers should be creative in supporting firms that stand to gain from tariffs but face elevated cost burdens from those very same tariffs.

Disaggregating the two metals manufacturing subsectors, primary and fabricated, also reveals important differentiation in estimated tariff rates by industry. By far the most impacted metals industry is steel product manufacturing from purchased steel, with estimated fractional tariff costs consistently higher than 6.4 percent since July 2025. Aluminum, the next most-impacted metals industry, reached a fractional tariff cost peak of 5.3 percent in October. Other metals industries with above-average fractional tariff costs include production of boilers, tanks, and shipping containers, as well as production of springs, wire, and miscellaneous hardware. (See Figure 4.)

Figure 4

Particularly notable in this disaggregation is the difference in tariff costs between steel mills manufacturing and steel production from purchased steel. This difference is attributable primarily to differences in the use of scrap metal inputs. BEA data show us that scrap inputs comprise more than 45 percent of all inputs for the steel mills industry and only about 11 percent of inputs for production from purchased steel. The two industries import only a small portion of their total scrap inputs—roughly 4 percent each—and faced an average scrap tariff rate of less than 1 percent in 2025.

The reliance of steel mills on domestic scrap inputs makes it substantially less import-exposed and suggests a path forward for some heavily tariffed steel producers. In a sign of resilience for the overall metals production subsectors, output from steel mills is roughly four times greater than output from purchased steel production, and employment is almost 50 percent larger.

As was the case with machinery production, the uneven distribution of first-order costs within the metals subsectors suggests differentiation in second-order costs incurred by purchasers of primary and fabricated metals products. Buyers of industrial spring and wire products, for example, may face higher tariff cost pass-throughs, compared to buyers of coating and engraving products, all else held equal.

Industry exposure to tariffs may affect certain states more

Linking these measures of national industry tariff exposure to state- and county-level employment can illustrate variations in estimated tariff impact across the country. This geographic disaggregation can be useful for policymakers and advocates representing regions where employment is particularly concentrated in tariff-exposed industries.

Equitable Growth’s project produces an “employment exposure score,” weighing an industry’s tariff exposure against its share of state and county employment. This score is useful in indicating where tariff pressures on the U.S. labor market are likely to be concentrated, and where policymakers could be most supportive. (See Figure 5.)

Figure 5

As Figure 5 shows, Michigan and Indiana register the highest in the employment exposure score metric alongside Wisconsin and other Midwest and Southern states with above-average employment in tariff-exposed industries. In Michigan and Indiana, the disproportionately large scores are attributable to large employment shares in auto and related manufacturing, construction, machine shops, and other manufacturing industries.

While aggregate state economies could face headwinds from tariff costs, disaggregating impact by county can reveal potential hotspots in states that, overall, face average exposure levels. Below, we explore this county disaggregation for Washington state and Georgia, though this exercise could be done for any other U.S. state.

Washington state

The U.S. aerospace industry is one of the most import-exposed of all manufacturing industries. According to the U.S. Bureau of Economic Analysis, the national aerospace products and parts industry imports roughly 30 percent of all its inputs—well above the average industry import share of 12 percent. Those imports are mostly engines and engine parts, communication and navigation equipment, and other aircraft parts. Tariffs on these specific commodities increased throughout 2025, with engines and parts (representing the bulk of aerospace imports) reaching a peak rate of about 7.8 percent in August.

Navigation and related equipment (a smaller but still meaningful portion of aerospace imports) faced a tariff peak of more than 11 percent in September. The aerospace industry altogether saw its average tariff rate increase throughout 2025, accelerating particularly in April and hitting a peak in September of more than 9.6 percent, or nearly 2.7 percent of all industry inputs. It has remained elevated since.

In Washington state, the aerospace industry is one of the five largest employers, behind restaurants, software developers, company management, and hospitals. Aerospace employment is concentrated in a handful of counties, the overwhelming majority of which is in King and Snohomish counties. Aerospace employment as a percent of overall county employment—a key measure of industrial concentration—is most meaningful in Snohomish County, where around 13.5 percent of all nonfarm private-sector workers are employed in the aerospace industry. The next-highest aerospace concentration is in King County, where about 2.4 percent of nonfarm private-sector jobs are in aerospace.

Aerospace, construction, and restaurants have the highest employment exposure scores in Washington state, meaning tariff costs in those industries could suppress wage growth and investment more than in other industries. Equitable Growth’s county-level data show high exposure scores for aerospace in Snohomish County specifically, as well as for navigational and other instrument manufacturing in Whitman County, where this industry comprises nearly a quarter of all nonfarm private employment.

These findings are important not only for mapping potential labor market implications, but also because U.S. aerospace producers seeking to domesticate their supply of navigational equipment may find domestic producers of such equipment passing down substantial tariff costs to consumers and downstream businesses.

Georgia

Georgia’s industrial composition makes it relatively less tariff-exposed compared to other state economies, but there are some areas of concern. Construction is responsible for a substantial portion, about 5.5 percent, of the state’s total nonfarm private employment and is one of the more tariff-exposed sectors nationally, with an estimated tariff rate climbing above 17 percent in the fourth quarter of 2025. Nationally, the construction sector imports about 10 percent of its inputs.

Even more Georgia workers, about 6.2 percent, are employed in manufacturing. Nationally, on average, the manufacturing sector imports about one-fifth of its inputs and has faced an estimated tariff rate above 10 percent since September 2025.

Disaggregating manufacturing sector employment in Georgia reveals important variations. A little higher than 10 percent of Georgia manufacturing workers are employed in the transportation-equipment production subsector, which, nationally, imports nearly 23 percent of its inputs and has faced an estimated double-digit tariff rate since May 2025. The fabricated-metal production industry employs a similarly substantial portion of Georgia manufacturing workers.

While, on average, the fabricated-metal production industry imports a smaller fraction of inputs, compared to the transportation equipment subsector, it faces a larger estimated tariff rate. Other notable manufacturing subsector employers in Georgia include textile product mills (facing an estimated tariff rate of 18 percent in December 2025), machinery manufacturing (with estimated tariffs of about 20 percent), and plastics and rubber product manufacturing (estimated tariffs of roughly 12 percent).

Drilling down to the county level can reveal geographic hotspots where employment is especially concentrated in tariff-exposed industries. Warren County, for example, is home to a Georgia-Pacific lumber operation that employs more than 150 people and supports other jobs in the area. While the imported share of lumber used in the United States has decreased over the past couple of years, tariff rates on imported lumber increased dramatically throughout 2025, from around 2 percent at the beginning of the year to about 11 percent by December.

Georgia-Pacific is a privately held company, which means they are not subject to SEC filing requirements that might shed light on the company’s tariff incidence. But the company’s facility in Early County was closed in April 2025 in anticipation of reduced competitiveness, possibly a result of retaliatory tariffs imposed by China on U.S. exports. Other Georgia counties with meaningful wood-product manufacturing employment include Atkinson, Jeff Davis, Jasper, Jefferson, and Putnam counties.

Downstream industries are also important to the Georgia economy, including:

Retail dealers of motor vehicles and parts alone comprise about 1.8 percent of all private state employment and face an estimated tariff rate that has remained above 10 percent through the second half of 2025.

Truck transportation firms—essential for the movement of industrial goods—comprise around 1.7 percent of all state employment and face an estimated tariff rate that reached a peak of nearly 12 percent in September 2025.

Automotive repair and maintenance employs more than 30,000 workers in Georgia and is particularly sensitive to tariff policies, with higher than 12 percent of the industry’s inputs being imported. The industry’s estimated tariff rate ballooned from about 3.6 percent in February 2025 to 15 percent in May, reaching a peak of higher than 17 percent in October.

Conclusion

First-order tariff costs are distributed unevenly across U.S. industries, with manufacturing and other key sectors facing disproportionately large increases to input costs because of import duties. These direct tariff costs are compounded by the cost of volatility in tariff policies, as businesses struggle to plan around uncertainty. The Supreme Court decision invalidating many of the Trump administration’s 2025 tariffs, followed by the imposition of time-limited 10 percent tariffs (with an increase to 15% swiftly threatened) under Section 122 of the Trade Act of 1974, all add further uncertainty to business projections of the duration and magnitude of the current tariff regime.

Equitable Growth will continue to monitor developments in trade and tariff policies and publish updates to our data project. Researchers can find data and code files on the Equitable Growth GitHub to reproduce our analysis or create unique datasets of interest.

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