Perc Pineda, PhD
Chief Economist, PLASTICS
Advance estimates from the Bureau of Economic Analysis indicate that the U.S. economy expanded at a 1.4% annual rate in the fourth quarter of 2025. For the full year, growth is estimated at 2.2%. Although growth moderated, it remained resilient, suggesting the economy largely withstood the uncertainties associated with higher tariffs. The latest BEA data continues to show expansion in both household spending and business activity. Annually, personal consumption expenditures (PCE) rose 2.2%, and business investment spending expanded by 5.9%.
Mixed household spending trends and implications for plastics
While the household sector’s spending appetite remained robust—rising by $96.6 billion from the previous quarter—overall personal consumption expenditures (PCE) increased 2.4%, driven primarily by a 3.4% gain in services spending. Nondurable goods consumption extended its expansion to seven consecutive quarters, though growth in the fourth quarter of 2025 was marginal at 0.4%. Meanwhile, durable goods consumption edged down 0.9%, marking the second quarterly decline in 2025 (following a 3.4% drop in the first quarter). Should this pattern persist, plastics demand in nondurable applications—such as packaging—would likely remain stable, while continued softness in durable goods could pose risks for plastics used in longer-lifecycle products.
Equipment and IP drove business investment gains
Business investment spending, as reflected by private-sector nonresidential fixed investment, remained in positive territory in the fourth quarter, rising 3.7%—a $33.8 billion increase from the previous quarter. As expected, investment in structures continued to decline, decreasing 2.4%, while spending on equipment and intellectual property advanced 3.2% and 7.4%, respectively, over the same period.
One measure of manufacturing sector sentiment is investment in industrial equipment. After five consecutive quarters of growth, investment in the fourth quarter of 2025 pulled back 4.8% from the previous quarter. On a year-over-year basis, however, the fourth quarter showed a 1.9% increase. For context, fourth-quarter industrial equipment investment grew 2.9% in 2023 but slowed to 0.7% in 2024, with year-over-year growth rates relatively mixed—virtually zero in 2023 and 2.0% in 2024.
Tariffs versus domestic manufacturing, uneven impact
It is possible that weaker year-over-year growth this year reflects the impact of higher tariffs imposed by the United States. Trade data, however, suggest that the effect of tariffs on industrial equipment imports has been uneven, particularly when considering the country of origin and the divergence of tariff rates under different initiatives—such as Section 232 on steel, aluminum, and their derivatives; Section 301 tariffs; and reciprocal tariffs that were not maintained by many countries alongside enacted trade deals.
While the goal is to strengthen U.S. domestic manufacturing, it would be unrealistic to expect rapid results—especially given the longstanding decline in domestic manufacturing over many years—and more so if higher tariffs are used as the primary tool. Historical data on domestic industrial equipment manufacturing provides useful perspective. Following its peak in October 2018, when the Industrial Production Index for industrial equipment was 6.3% above the 2017 base year, production reached its lowest level in October 2024, down 15.5% from 2017 (excluding the 19.6% drop in April 2020 due to COVID-19).
Mixed results: Tariffs and machinery trade by country
Alongside weaker domestic production, U.S. imports of total industrial machinery—not just plastics machinery—grew at a 3.7% compounded annual growth rate from 2018 to 2024. In 2024, the U.S. imported $38.8 billion in industrial machinery (Customs value).* One might expect that 50% tariffs—specifically Section 232 tariffs on steel and aluminum, and on derivative products as defined by the Department of Commerce’s Bureau of Industry and Security—would reduce imports. Yet trade data show that industrial machinery imports actually rose 2.2% from 2024 to 2025.
On aggregate, tariffs did not prevent imports from entering the U.S., though their uneven impact is evident when analyzed by country of origin. Among the top 10 sources of plastics machinery imports, the table below shows that total industrial machinery imports from most countries declined. The magnitude of these changes varies widely, with some countries seeing single- and double-digit increases or decreases. Among these 10 countries, the Netherlands recorded the largest increase in exports of industrial machinery to the U.S., at 76.5%, while Austria experienced the largest decrease, at 33.9%.
Although imports of industrial machinery increased on aggregate despite higher tariffs, they came at a higher cost. The business sector’s investment decisions—particularly capital expenditures such as industrial equipment—are generally covered by contracts stipulating price and delivery terms. It is likely that distributors of imported industrial equipment experienced margin compression on purchase orders with delivery dates in 2025. Taking that a step further, businesses with twelve-month blanket purchase agreements include contracted prices in those agreements. As such, there is a lag in the inflation impact of tariffs on downstream prices until buyer-seller prices adjust accordingly; this is not instantaneous because most business purchases are covered by contracts.
Tariff update
Following the U.S. Supreme Court’s decision on February 20, 2026, that the International Emergency Economic Powers Act of 1977 (IEEPA) does not authorize the President to unilaterally impose broad tariffs, President Trump imposed a 10% ad valorem import duty on certain imports into the United States under Section 122 of the Trade Act of 1974, effective for 150 days. Goods compliant with the USMCA from Canada and Mexico, as well as products already subject to Section 232 tariffs, are exempt from this temporary duty, along with other exemptions outlined in the President’s Executive Order. Reports have circulated that President Trump announced 15% tariffs the day after the Supreme Court ruling; however, as of writing this article, only the 10% temporary duty under Section 122 has been formally confirmed.
