In this article, originally published on LinkedIn, John Stewart of MiddleGround Capital shares his take on how 2025 trade policies are impacting industrial manufacturing and why disruption presents opportunity.

As many of you are aware, the start of 2025 has been filled with global economic drama, creating a landscape marked by uncertainty. Driven by the current U.S. administration’s focus on escalating trade tariffs, supply chain dynamics have shifted and companies are looking to localize and shorten supply chains.

In less than 40 days, we’ve seen a range of evolving trade policies. On April 7th, 2025, the Trump administration implemented a series of reciprocal tariffs that sent shockwaves through global financial markets, and by April 9th, the position was reversed by a 90-day pause outside of a reciprocal tariff capped at 10% and a Chinese import tariff of 125%. The recent measures, layered atop the previous Trump administration trade policy specifically targeting China, have created volatility within global markets. For some, the current environment may seem chaotic. Sun Tzu proclaimed, in his pivotal work The Art of War, that “in the midst of chaos, there is also opportunity”

Similar to the first Trump administration policies, we see an opportunity within the chaos for investors focused on investing in North American manufacturing companies, particularly those in the business-to-business (B2B) sector offering shorter, more reliable supply chains. Disruption has historically been a fertile ground for investment in core industrial products, and today’s environment is no exception.

During Trump’s first term, tariffs on Chinese steel and aluminum were levied, yet the U.S. trade deficit grew.  There are various reasons for this, but the heart of it is that U.S. consumers demand imported products, and the economy depends on them.  When you combine the demand for imports with positive pressure on consumer demand, such as increased consumer spending and increases in the number of consumers, demand outstrips supply capable from U.S. manufacturers alone.  Another factor impacting the trade deficit is the demand for U.S. products overseas.  Although U.S. demand and imports increased alongside the implementation of unfavorable trade policies and tariffs, exports uplifted the U.S. economy rather than falling.

Exports of manufactured goods did rise 9% in the first Trump administration, from $1.28 trillion in 2016 to $1.39 trillion in 2018 (BEA data). Steel production, for instance, climbed 6% in 2018 (USGS), and some firms, like Nucor, credited tariffs for leveling the playing field against cheap imports. The renegotiation of NAFTA into the United States-Mexico-Canada Agreement (USMCA) pushed for more North American manufacturing content, which led to a robust increase in North American manufacturing output.

The big loser in the first Trump administration from a trade perspective was China.  U.S. imports growing rather than declining seems like a bad thing, but a shift from overseas production to production closer to the point of delivery (nearshoring) is a trend that has driven an increase in North American manufacturing and is a direct benefit of the China-focused tariffs and the implementation of the USMCA.  Mexico overtook China as the top U.S. import source in 2023, with imports rising 85% from $256 billion in 2017 to $475 billion in 2023 (U.S. Census Bureau). This aligns with the USMCA (effective 2020), which incentivized North American production. For example, auto manufacturing rules of origin rose from 61% to 75% regional content. Additionally, U.S. imports of transportation equipment from Mexico grew 74% from $93 billion in 2017 to $162 billion in 2023, while imports from China plummeted by more than 50%, per BEA data.

Another aspect of nearshoring is reshoring. Reshoring gained momentum as firms increasingly relocated operations closer to their primary markets to mitigate supply chain-related risks and increase efficiency. The Reshoring Initiative reports that 1.3 million jobs returned to the U.S. from 2010 to 2023, with 300,000 in 2022 alone, most of which are manufacturing jobs. A third hit from 2017 – 2023, reshoring has added $23 billion in annual output since 2017, based on BLS productivity data showing $230,000 in output per manufacturing worker.

The consistent focus on tariffs from the first Trump administration to the second reflects a broader trend prioritizing domestic production and reducing reliance on imports. According to a report from the Economic Policy Institute (EPI), updated on March 7, 2025, these tariffs could reduce U.S. consumers’ purchasing power by raising the cost of imported goods, with an estimated per capita impact varying by state but averaging significant losses in disposable income (Hersh & Bivens, 2025). Similar to the previous administration, the current policy poses challenges for consumers and import-dependent industries, simultaneously creating a tailwind for manufacturers capable of producing goods domestically or regionally.

The EPI notes that unbalanced trade has long suppressed U.S. manufacturing employment, with imports outpacing exports in this sector for decades. Tariffs are not a silver bullet for closing the trade deficit, but incentivize a shift toward nearshoring and localized production by making imported inputs more expensive. This shift mitigates risks and costs associated with long, complex supply chains.

Disruption and chaos have a history of creating investment opportunities in manufacturing. The post-World War II era, the 1970s oil crises, and the early 2000s globalization wave saw industrial firms adapt and thrive by meeting emergent needs. Today, the tariff-driven policy of the current U.S. administration has parallels to these periods by exposing vulnerabilities in global supply chains, which result in delays, cost increases, and geopolitical risks while benefiting companies that offer stability and proximity.

Regionally focused B2B industrial manufacturers stand out. Unlike consumer-facing firms battling rising costs and shifting demand, B2B companies serve a more predictable customer base: other businesses with ongoing needs for core industrial products like steel, machinery parts, or chemical intermediates. A Deloitte Insights report highlights that manufacturers are increasingly investing in digital tools and regional hubs to balance cost and resilience, with Mexico overtaking China as the U.S.’s top trade partner due to nearshoring (Deloitte, 2024). This pivot reduces transit times and exposure to tariff-related disruptions, offering customers a shorter, more certain supply chain.

For example, consider the typical MiddleGround portfolio company, an industrial manufacturer in the U.S. Midwest supplying components to regional original equipment manufacturers (OEMs). With tariffs raising the cost of Canadian or Chinese parts, this company can capture market share by offering competitively priced, locally made alternatives. The shorter supply chain not only cuts transportation costs but also minimizes delays, a critical advantage in an era where supply chain bottlenecks remain a concern, as noted in the Thomson Reuters Institute’s March 12, 2025, analysis of global trade challenges (Thomson Reuters, 2025).

Investing in times of disruption requires identifying sectors and companies that can turn uncertainty into an advantage. MiddleGround’s core focus of investing in regionally focused industrial B2B manufacturers fits this profile for several reasons:

• Resilience to Tariff Impacts: Unlike retailers or e-commerce giants reliant on imported consumer goods, industrial B2B firms often source raw materials and produce goods within a single region. IBISWorld notes that industries with diversified or localized supply chains—such as manufacturing—can better absorb tariff shocks compared to agriculture or retail (IBISWorld, 2024).
• Growing Demand for Core Products: Industrial manufacturing companies, especially those producing machinery, components, and materials essential to other businesses, are particularly well-positioned. Core industrial products—think pumps, valves, or structural steel—are the backbone of infrastructure and production. J.P. Morgan Private Bank’s outlook predicts that tariffs will benefit the industrial sector by spurring domestic investment in manufacturing capacity (J.P. Morgan, 2025). This demand is less cyclical than consumer goods, providing a stable revenue base.
• Shorter Supply Chains as a Competitive Edge: Tariffs force businesses to reevaluate supplier networks, favoring those with operational flexibility and proximity to customers (Supply Chain Brain, 2025). B2B manufacturers serving local or regional clients can deliver faster, cheaper, and with less risk, enhancing their appeal to risk-averse buyers.
• Historical Precedent: McKinsey’s 2024 guide for CEOs shows that tariffs often prompt firms to onshore production, as seen with the 2018 washing machine tariffs that added U.S. jobs (McKinsey, 2024). Investors who backed adaptable manufacturers during past trade upheavals reaped outsized returns as those firms gained market share.

No investment thesis is without risks. Further escalation of trade wars could slow global growth, and inflation might squeeze margins if costs can’t be passed on. Tariffs could spark retaliatory measures, slowing global growth and dampening industrial demand, as warned by EY’s July 18, 2024, trade policy analysis (EY, 2024). Inflation from higher input costs might also squeeze margins for manufacturers unable to pass costs to customers. However, MiddleGround’s focus on regionally focused firms mitigates these risks by relying less on international trade and more on established local relationships, which provide a buffer against global volatility.

The current economic environment, punctuated by trade tariffs and supply chain upheaval, should not be a barrier but should be a catalyst for smart investors who can see through the chaos.  During times like this, I am reminded of a classic quote attributed to Warren Buffett: “Your time horizon is your greatest asset, commit for the long haul, and the market will reward you”.  Now is not the time to pull back the reins on investing entirely; now is the time to invest in North American-focused industrial manufacturing companies. B2B firms offering core products through shorter, more certain supply chains are uniquely positioned to thrive amid disruption. As the World Economic Forum noted on January 14, 2025, industrial policy shifts create both costs and opportunities, those who adapt will win (World Economic Forum, 2025). For smart investors, now is the time to steady your nerves.  Who wants to find themselves in the situation of looking back and saying, “I could have invested in MiddleGround’s strategies at the opportune time”?  The chaos of 2025 is like a bell that is ringing.  Some hear the bell and are looking for a place to “duck and cover,” while others hear the bell and recognize it as a call to arms, recognizing that amidst the chaos, there is an opportunity for those who are willing.

References

• Deloitte Insights. (2024, November 19). 2025 Manufacturing Industry Outlook. www2.deloitte.com
• Economic Policy Institute (Hersh, A. S., & Bivens, J.). (2025, February 9, updated March 7). Tariffs—Everything you need to know but were afraid to ask. www.epi.org
• EY. (2024, July 18). 2025 and beyond trade policy. www.ey.com
• IBISWorld. (2024, October 30). The Impact of US Tariffs: Which Industries Are Most and Least Affected. www.ibisworld.com
• J.P. Morgan Private Bank. (2025, January 14). Tariffs on the rise: Implications for your portfolio. privatebank.jpmorgan.com
• McKinsey & Company. (2024, December 18). Tariffs on the move? A guide for CEOs for 2025 and beyond. www.mckinsey.com
• Supply Chain Brain. (2025, January 1). From Tariffs to Talent: How 2025 Economic Policies Could Impact Supply Chains. www.supplychainbrain.com
• Thomson Reuters Institute. (2025, March 12). Global trade in 2025: Readying your company’s supply chain in a time of tariff wars. www.thomsonreuters.com
• World Economic Forum. (2025, January 14). Risk or opportunity: How businesses can win in the new era of industrial policy. www.weforum.org