Manufacturing Activity Sets the Tone for Plastics Demand

Perc Pineda, PhD
Chief Economist, Plastics Industry Association

The plastics industry’s main customer is the manufacturing sector, making changes in overall manufacturing activity an important indicator for plastics demand. The first half of 2026 closed with U.S. manufacturing activity up 0.3% in June, marking the sixth consecutive monthly increase, based on the Industrial Production Index for manufacturing. From a year earlier, manufacturing was up 1.6% in June. Manufacturing began 2025 unchanged in January and February but maintained year-over-year (YoY) growth through the first half of 2026. More recent data show manufacturing increased 0.2% in July, or 1.3% YoY. The question is whether manufacturing growth will continue and gain momentum in the second half of the year.

The challenge of rebuilding manufacturing capacity

One of the main goals of the shift in U.S. trade and tariff policy under President Trump’s second term is to revitalize U.S. manufacturing, support domestic merchandise demand, and strengthen U.S. global manufacturing competitiveness. Policies intended to reverse longstanding economic practices—such as U.S. consumers’ reliance on imported goods and manufacturers’ reliance on imported capital equipment and intermediate inputs—are likely to generate negative effects in the short to medium term before their intended benefits are realized, if at all, over the longer term. Three factors suggest why this transition is likely to be challenging.

First, the rise in the share of services in the U.S. economy has been accompanied by a decline in manufacturing’s share. The Industrial Production Index for manufacturing shows sustained growth from 1972 through June 2008, while manufacturing employment declined over much of the same period. Following the 2008–09 financial crisis, manufacturing activity recovered, but employment improved only modestly before the COVID-19 recession. The subsequent recovery in manufacturing activity was accompanied by a pickup in employment, but the longer-term trend remains clear: U.S. manufacturing has been producing more with a smaller workforce. Automation, capital deepening, and improvements in manufacturing technology have made this possible. Expanding U.S. manufacturing capacity will therefore increasingly depend on new technologies and capital equipment, much of which relies on globally sourced components and intermediate inputs. Higher tariffs on these inputs could consequently make the transition toward greater domestic production more costly and less smooth.

Second, rebuilding domestic manufacturing capacity is not simply a matter of shifting demand from imports to domestic producers. Expanding capacity requires investment in factories, machinery, skilled labor, infrastructure, and supplier networks. These productive capabilities cannot be created immediately in response to higher tariffs. In industries where domestic capacity has contracted over decades, establishing competitive alternatives to imported inputs may take years. During this adjustment period, higher input costs can be passed through to manufacturers and consumers before sufficient domestic capacity emerges to offset those costs.

Global competitiveness remains critical

Third, U.S. manufacturing competitiveness depends not only on domestic production but also on access to global markets and globally integrated supply chains. Many U.S. manufacturers operate within international production networks in which components, materials, machinery, and other inputs cross borders multiple times before a final product reaches the market. Restricting imports can therefore raise production costs even for products ultimately manufactured in the United States. At the same time, U.S. manufacturers facing higher domestic costs may become less competitive in export markets. Policies designed to increase domestic manufacturing may therefore initially create a tension between expanding U.S. production and maintaining the cost competitiveness needed to compete globally.

What this means for manufacturing and plastics

These structural realities suggest that a stronger U.S. manufacturing sector is possible, but the transition is unlikely to be immediate or costless. Higher tariffs may encourage domestic investment and eventually expand production capacity, but they can also raise the cost of the machinery, materials, and intermediate goods needed to make that expansion possible. The pace of adjustment will depend on how quickly U.S. producers can build domestic capacity, develop supply networks, adopt new technologies, and maintain competitiveness in global markets.

For the plastics industry, this means that continued growth in manufacturing activity would provide an important source of demand, but the path of that growth will matter. A sustained expansion in U.S. manufacturing could support plastics demand over the longer term. In the near term, however, higher input costs, supply-chain adjustments, and uncertainty surrounding trade policy could temper the pace of expansion. The second half of 2026 may therefore provide an early indication of whether recent manufacturing gains are the beginning of a broader acceleration—or simply a modest improvement within a more difficult structural transition.