Import penetration into the manufacturing sector

Import penetration in the US manufacturing sector is estimated at 29.0% in 2026, down 13.6% from 2025, as shifting trade policies and Iran's continued closure of the Strait of Hormuz negatively impact domestic production. While the first refunds from the now struck down International Economic Emergency Powers Act (IEEPA) tariffs are set to come in on May 2026, they will only create short-term import increases as replacement tariffs remain in effect.

Tariffs have had a substantial impact on import penetration. Tariffs imposed by the Trump administration, in varying degrees, since Jan 2025, have kept foreign competitors on more level footing but have also contributed to weaker export growth and uneven domestic demand. Rising prices tied to tariffs have constrained consumption, so manufacturers face less pressure to expand output and have reassessed how much production capacity they truly need in this reshaped demand environment.

From 2021 to 2026, the pace of growth in import penetration in the manufacturing sector dropped at a CAGR of -2.3%, contrasting with previous decades of robust increases. However, this drop is exacerbated by volatile geopolitical conflict in 2026. This period was marked by volatility in global trade relations, with US tariffs restraining growth. Import penetration was pressured downward by policies from 2018 that continued to resonate. Imports from China, once the dominant exporter due to low labor costs and advanced infrastructure, fell to a 15.0% share by 2023. In response, Mexico and Canada increased exports to the US, aided by the United States-Mexico-Canada (USMCA) free trade agreement, surpassing China as the top source of imported goods. However, these shifts did not lead to a surge in import penetration, as tariffs and retaliatory measures constrained volumes.

Macroeconomic trends such as exchange rate movements and changes in domestic manufacturing capacity influenced import penetration. The appreciation of the US dollar supported higher import penetration by reducing imported goods' costs, partially offsetting protectionist measures. Technological advancements abroad enabled competitiveness despite trade barriers. Labor costs and the shift toward higher-value US trade products also shaped import trends.