A new industrial revolution?

Raymond James Washington Policy Analyst Ed Mills examines the tool kit that is reshaping industries and driving the next wave of economic transformation.

Over the last decade, a series of policy decisions in DC support the reindustrialization of the United States. Key policy movers include investments in infrastructure, tax policy that allows significant tax benefits for corporate capital expenditures (capex) and domestic research and development, the CHIPS & Science Act and tariff policies, especially the sector-specific 232 tariffs. Recent data is promising, but it is concentrated in the buildout of AI; longer-term questions remain on the impact on inflation and continuity of government policy for businesses to make these investments.

Tax policy driving capex and R&D?

The 2025 tax bill, known as the One Big Beautiful Bill Act, included significant tax incentives for businesses investing in the United States. The law includes a permanent 100% bonus depreciation for capital expenses (capex) and immediate expensing for domestic research and development (R&D) costs.

Both provisions had been features of the 2017 Tax Cuts and Jobs Act but had expired. Supporters of these provisions argue that they will incentivize corporations to invest in the United States and focus more of their R&D expenditures domestically, promoting innovation. According to data compiled by the Federal Reserve (Fed), capex investments rose to an annual rate of 11% in the first quarter of 2026, following a 5.5% increase in 2025. Much of this growth is tied to building the infrastructure to support AI technology, especially the construction of data centers. The Fed notes that outside AI-related categories, capex investment, particularly for offices and manufacturing structures, has “been fairly weak.”

While the robust increase in headline annualized capex expenditures is promising, the longer-term impact of these tax provisions will need to be closely monitored to determine their impact on the reindustrialization of the US. This will be particularly important to monitor given the significant increase in data center moratoriums, which could slow some of the annualized increase in capex observed by the Fed.

Tariff policy driver of US investment?

Traditionally, tariffs have been used as a tool to protect domestic industries, but can a tariff policy promote the onshoring of manufacturing and increase production of key goods and services?

The trade deals that the Trump administration has been negotiating call for significant investments in the US, tariff reductions by other countries, reduced trade barriers and increased market access for US-made goods. The Trump administration argues that these trade deals will make US-made goods more competitive globally, increasing the incentives for expanded domestic production.

The sectoral tariffs, known as Section 232 tariffs, are targeted at industries that the Trump administration has determined have a strategic and/or national security importance to the US. We have described the Section 232 tariffs as the industries needed for the US economy to function if key trading partners shut off access to these products. The supply chain shocks of COVID-19 brought many of these issues to the forefront and the increased tensions between the US and China have exposed significant vulnerabilities.

The industries covered by the Section 232 tariffs include: steel, aluminum, automobiles, auto parts, copper, timber, lumber and wood products, medium- and heavy-duty trucks, truck parts, critical minerals, pharmaceuticals and pharmaceutical ingredients, semiconductors and semiconductor equipment, aeronautics, polysilicon, robotics and industrial machinery, personal protective equipment and medical equipment.

While we are still waiting for final decisions on some of the Section 232 tariffs, announced tariffs range from 25% to 100%. However, these tariffs can be avoided if an importer is committed to onshoring production. These onshoring plans require Commerce Department approval, which comes with strict benchmarks and penalties for non-compliance. Recently, the Trump administration has included provisions in Section 232 tariff announcements that would allow manufacturers to import tariff-free all the equipment needed to support these onshoring plans.

One criticism of this approach is that US production is significantly more expensive than the cost of production in other countries, even when the new tariff rate is applied. In an attempt to respond to this concern, President Trump recently established price floors as part of the polysilicon 232 tariffs via a minimum import price (MIP). The goal of the MIP is to level the playing field between US producers and imported products. In the case of polysilicon, it is a base material to produce semiconductors. Semiconductor manufacturing capacity has become a significant national security focus, as seen by the passage of the bipartisan CHIPS & Science Act in 2022, providing for more than $50 billion in funding to support the expansion of the domestic semiconductor industry.

Lower production costs by using forced labor and excess capacity are the focus on the Section 301 tariff investigations. The Trump administration has argued that the use of forced labor artificially lowers foreign production costs, resulting in competitive distortion. For the excess capacity investigation, the Trump administration has argued that foreign government policies that create or sustain production capacity beyond domestic and global demand distort (lower) pricing, displace US production and deter investment in US production. President Trump has declared a tariff rate of 10% or 12.5% as a result of the 301 investigation into forced labor, which covers 60 economies, covering more than 99% of imports to the US. The tariff rates for the Section 301 investigation into excess capacity are not yet finalized.

Critical and rare earth minerals: a cautionary tale

In 2025, after President Trump imposed hefty tariffs on Chinese goods, Beijing responded with restrictions on the export of magnets derived from rare earths. These magnets are vital components for products ranging from aircraft to MRI machines. These restrictions, if not reversed, would have had a crippling impact on US industrial production. The 100% import reliance on key critical and rare earth minerals is a clear national security risk and there are efforts to correct this through 232 tariffs and other investments. The US and China have a temporary deal to keep these minerals flowing, but longer-term self-reliance and trade pacts with key allies are key to preserving access and protecting the industrial and military capacity of the US.

Stickiness of US policy and inflation

While tax and tariff policy are seeking to incentivize the onshoring of manufacturing, the political volatility in the US will limit some of this success. The ability of President Trump to unilaterally impose or change tariff policy and the legal limits he has exceeded make it hard for businesses to know the longer-term industrial policy of the US government. While President Trump and his administration are hopeful that these tariff policies support the onshoring of manufacturing and expanded domestic production, the impact on American consumers and businesses also needs to be addressed. We have seen persistent inflation in recent years, remaining higher than the 2% target set by the Federal Reserve. Onshoring production, while beneficial to domestic manufacturing, could also add to inflationary pressures.

Bottom line

Support for the increase in domestic industrial production is a clear bipartisan policy goal that has been supported by Democratic and Republican administrations and congresses. However, it is too early to know the longer-term success of these policies and the continued volatility in DC policy outcomes further cloud the picture.

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