What a week for American manufacturing. From courtroom drama that sent shockwaves through supply chains to new data showing the sector’s continued struggle with contraction, this week encapsulated the challenges facing our 250,000 manufacturing businesses. But there were also signs of hope, particularly in how manufacturers are embracing AI to build the future.
Tariff Whiplash: Courts vs. Trade Policy
The biggest story of the week unfolded in federal courtrooms, creating the kind of uncertainty that makes it nearly impossible for manufacturers to plan ahead.
On Wednesday, the U.S. Court of International Trade ruled that most of President Donald Trump’s tariffs — including those on Chinese goods — are illegal. The judges found that the International Emergency Economic Powers Act — which Trump used to enact his tariffs — does not give him the “unlimited” power to levy tariffs.
But the relief was short-lived. Just 24 hours later, a federal appeals court temporarily reinstated the most sweeping of President Donald Trump’s tariffs on Thursday, a day after a U.S. trade court ruled that Trump had exceeded his authority. The United States Court of Appeals for the Federal Circuit issued an administrative stay of the decision while it considers Trump’s appeal.
Why It Matters: Imagine you’re running a 50-person machine shop in Ohio. On Wednesday morning, you think the tariffs that have been driving up your steel costs might disappear. By Thursday afternoon, they’re back. This isn’t just policy uncertainty—it’s operational chaos. Manufacturing is fundamentally about relationships and planning, and this kind of whiplash makes both nearly impossible.
The Bigger Picture: This legal battle highlights the tension between executive power and congressional authority over trade policy. For manufacturers, the key question isn’t who wins in court—it’s when they’ll have enough certainty to make the long-term investments that American manufacturing needs to thrive.
Manufacturing Contraction Continues, But Context Matters
The ISM Manufacturing PMI data released Monday painted a picture of a sector still struggling to find its footing. Economic activity in the manufacturing sector contracted in May for the third consecutive month, following a two-month expansion preceded by 26 straight months of contraction. The Manufacturing PMI® registered 48.5% in May, 2 basis points lower compared to the 48.7% recorded in April.
The employment picture remains particularly challenging. The Employment Index registered 46.8% in May. Since May 2022, the Employment Index has contracted in 30 of 37 months. More concerning, respondents’ companies continue to reduce head counts through layoffs, attrition and hiring freezes; an approximate 1-to-1.4 ratio of hiring versus staff-reduction comments reflects an acceleration of head-count reductions.
The Cost Reality: Price pressures are intensifying. The Prices Index registered 69.4% in May… indicating raw materials prices increased for the eighth straight month. The culprit? The Prices Index reading was driven by increases in steel and aluminum prices impacting the entire value chain, as well as the general 10% tariff applied to many imported goods.
Why This Isn’t All Bad News: These numbers reflect transition, not collapse. American manufacturers are adapting to a new reality where domestic production matters more than pure cost optimization. The question isn’t whether this transition will be difficult—it’s whether we can support our manufacturers through it.
Foreign Companies Choose America
Here’s an encouraging sign: Foreign companies eye US expansion to lessen fallout from tariffs. While the headline focuses on tariff mitigation, this represents exactly what advocates of reshoring have been hoping for—foreign companies choosing to build production capacity in America rather than simply export to us.
The Opportunity: When foreign companies build facilities in the United States, they don’t just bring jobs—they bring supply chain relationships. A German automotive parts manufacturer opening a plant in Tennessee doesn’t just employ Americans; it creates opportunities for dozens of small American suppliers to become part of that company’s network.
The Take: This is how the American manufacturing model wins—not through massive vertical integration like we see in China, but through networks of relationships. Foreign companies that invest here quickly discover what domestic manufacturers already know: the strength of American manufacturing lies in its distributed expertise and collaborative culture.
The AI Revolution in Manufacturing is Here
The most forward-looking news of the week came from the National Association of Manufacturers. The Manufacturing Leadership Council, the digital transformation division of the National Association of Manufacturers, today released a groundbreaking report, “Shaping the AI-Powered Factory of the Future,” that reveals how manufacturers are embracing artificial intelligence on shop floors.
The numbers are striking: 51% of manufacturers already use AI in their operations. Meanwhile, 61% expect investment in AI to increase by 2027. Looking further ahead, by 2030, 80% say AI will be essential to growing or maintaining their business.
What This Means for Small Manufacturers: AI isn’t just for giant corporations anymore. The tools that help with predictive maintenance, quality control, and supply chain optimization are becoming accessible to smaller manufacturers. A 75-person stamping company in Michigan can now use AI-powered cameras to catch defects that human inspectors might miss, or AI algorithms to predict when their equipment needs maintenance before it breaks down.
The Relationship Factor: The key insight here is that AI in manufacturing isn’t about replacing human expertise—it’s about amplifying it. The best AI implementations help skilled machinists and engineers make better decisions faster. They strengthen the relationships between manufacturers and their suppliers by providing better data and more reliable delivery schedules.
Looking Ahead: Resilience Through Uncertainty
This week perfectly captured the state of American manufacturing in 2025: caught between policy uncertainty and technological opportunity, dealing with near-term challenges while building long-term capabilities.
The court battles over tariffs will continue, and manufacturers will have to navigate that uncertainty. But the AI adoption data suggests that American manufacturers aren’t waiting for policy clarity to invest in their future. They’re building the capabilities that will make them more competitive regardless of what happens in Washington or Beijing.
The Bottom Line: American manufacturing’s strength has always been its ability to adapt and innovate under pressure. This week showed both the pressure and the innovation. The manufacturers who understand that this transition period is temporary, but the investments they make in technology and relationships are permanent, will emerge stronger.
The businesses that can weather the uncertainty while building AI capabilities and stronger supplier relationships are positioning themselves to thrive in whatever trade environment emerges from the courts and Congress.
