US manufacturing activity has shown a notable increase in 2026, with the Institute for Supply Management's (ISM) manufacturing purchasing managers index (PMI) surging to 55.6 in July from 53.3 in June, reaching its highest level since May 2022. Production jumped to 58.5, its strongest reading since November 2021, and employment crossed 50 for the first time in 33 months. New orders, backlogs, and exports also expanded. The iShares U.S. Manufacturing ETF (MADE) has gained roughly 18% year-to-date, outperforming the S&P 500's 10.9% advance.
Despite claims from some administration officials that tariffs are responsible for this growth, evidence suggests otherwise. The Federal Reserve’s industrial production index indicates a modest run since Trump took office, but the July 2026 index of 99.3 is only slightly above February 2020 levels and about 2.5% below mid-2018 figures, when tariffs became more prominent. The pace of expansion is also not exceptional, with output up approximately 1.3 points over the last 12 months, compared to a 2001-2019 median of 1.4 points. This suggests the recovery is good but not a "renaissance."
In fact, new research highlights a negative impact of tariffs. A forthcoming paper by Michigan State economist Jason W. Miller and colleagues, titled "Paying More and Doing Less," finds that 2025 tariffs compressed US manufacturers’ gross margins by increasing input prices more than output prices. The study also concludes that the tariffs negatively affected new orders, employment, and capital investment, with particularly severe effects on employment and capital investment. While tariffs may have benefited specific sectors like metal products and some automotive components, the overall manufacturing sector, especially those relying on imported goods, has seen negative effects.
Key drivers of the current manufacturing growth appear to be non-tariff related. The boom in artificial intelligence and data center construction is significantly contributing to demand, particularly for physical infrastructure like power solutions, electrical equipment, and cooling systems. Companies supplying these components, such as Bloom Energy Corp. (BE) and Vertiv Holdings Co. (VRT), have seen substantial gains of 151% and 62% year-to-date, respectively. Other factors like lower interest rates and the war in Iran may also be playing a role in the broader macroeconomic conditions supporting this growth. The positive effects of tariffs in some sectors are often offset by job losses and increased costs in others.
