Trade Turmoil: U.S. Manufacturing Struggles Amid Tariff Tensions

The U.S. manufacturing sector contracted in March, affected by inflation at the factory gate and tariffs on imports. Businesses cited uncertainty and rising costs as major challenges. Dropping PMI readings and slowing labor demand reflect the broader economic impact of trade policies, raising recession risks.

In March, the U.S. manufacturing sector experienced a contraction after two months of growth, as inflation at the factory gate soared to its most elevated level in nearly three years. Rising anxiety over tariffs on imports was a major concern, according to anecdotes from the Institute for Supply Management survey. President Donald Trump's tariff policies have eroded business and consumer confidence, compounding fears of lackluster economic growth and higher inflation.

The ISM's manufacturing PMI fell to 49.0, highlighting a contraction that disappointed economists expecting a slight dip to 49.5. This downturn followed a short-lived resurgence earlier in the year, which had been sparked by the U.S. central bank's previous interest rate hikes aimed at curbing inflation. Trump's tariffs, however, have impeded the initial recovery.

Panelists from the ISM survey noted that demand and production have retreated, causing continued workforce reductions. Tariff-induced uncertainty has seen manufacturers like machinery producers witness deteriorating business conditions. Meanwhile, industries such as textiles and primary metals managed modest growth. Overall, these economic dynamics point to rising recession odds, with Goldman Sachs economists now estimating a 35% probability over the next year.

(With inputs from agencies.)