Will Tariffs Actually Bring Manufacturing Back to the US?
Twelve months ago, as we entered 2025, there was cautious optimism that the Southern California industrial market was showing signs of stabilization. Vacancy appeared to be leveling off, rent compression was slowing, and deal flow was beginning to normalize. That optimism, however, was short-lived. The resurgence and expansion of tariffs — from steel and aluminum to electronics and components — became a renewed headwind for the industrial sector.
Much of 2025 became a fact-finding mission for the commercial real estate community. Owners, occupiers, and investors spent the year evaluating how these tariff policies would affect supply chains, pricing models, leasing decisions, and long-term capital deployment. Now, as we turn the page into 2026, there remains a segment of the market holding out hope that momentum will shift in a more positive direction.
The most popular optimistic narrative centers around “onshoring” — the idea that American companies will meaningfully relocate manufacturing operations back to the United States. While politically appealing, the question remains: is it reasonable to believe onshoring will be a major driver of the next industrial upcycle?
Several key considerations suggest the path is more complicated.
Cost Structure:
For most operators, cost remains the largest barrier to reshoring. Labor, compliance, utilities, insurance, and entitlement costs in the United States — particularly in California — remain materially higher than alternative global markets. Many companies report that fully reshoring operations could more than double operating expenses. As a result, rather than returning to the U.S., many are shifting production to lower-tariff countries that still offer cost advantages.
Lack of Infrastructure:
The scale of infrastructure required to support a meaningful onshoring movement is significant. Lengthy permitting timelines, power grid constraints, environmental compliance, zoning approvals, and community opposition already slow development cycles. Introducing a large influx of new manufacturers would likely compound these bottlenecks rather than accelerate growth.
Skilled Labor Shortages:
Manufacturing relies heavily on skilled labor. After decades of offshoring, the domestic labor pipeline for these roles has narrowed considerably. Workforce development efforts are underway, but rebuilding an industrial labor base is not an overnight solution. Without sufficient skilled workers, even well-capitalized manufacturing projects face operational risk.
Policy Uncertainty:
Perhaps the most difficult factor for businesses is unpredictability. Rapid tariff implementation and potential policy shifts make long-term planning difficult. Companies struggle to confidently price goods when input costs are fluid. Many U.S.-based firms are expected to pass 50–60% of higher costs on to consumers, raising inflationary concerns. Additionally, retaliatory measures from global trade partners introduce further volatility into already sensitive supply chains.
Despite these challenges, there are pockets of opportunity. Select sectors — including steel, chemicals, energy components, and solar — have seen increased domestic investment. However, upon closer examination, these projects tend to share one critical factor: alignment.
Alignment of incentives, infrastructure capacity, labor availability, supply chain integration, and timing.
That may be the central takeaway as we move deeper into 2026. Onshoring can succeed — but only where economics and infrastructure are prepared to support it. Tariffs alone do not create a manufacturing renaissance; they must follow readiness, not precede it.
Have we put the proverbial cart before the horse?
Time will ultimately determine whether the United States — and Southern California specifically — is prepared to support the level of manufacturing required to meaningfully impact the next industrial upcycle.