Executive summary
Manufacturers face a federal policy landscape that will keep evolving in 2026. Trade uncertainty, shifting tariffs, tax incentives and evolving deregulation will provide both risks and opportunities that should help shape strategic decisions. At the same time, leaders should also be ready to adapt for permit reform, energy constraints and workforce shortages.
Manufacturers can take action now by exploring their workforce alternatives, investing in automation and strengthening their scenario modeling. Clear, well-defined scenario models that integrate supply chain, regulatory and financial inputs can help leaders anticipate change, evaluate options and act with confidence as policies and other factors evolve.
Top policy issues
Manufacturers have balanced a shifting list of business risks in recent years, and some of those risks are growing.
“Effectively, ever since COVID, a new level of uncertainty has become normal and that makes agility essential,” said Grant Thornton Manufacturing Industry Head Kelly Schindler. As companies refine their agility, they are improving their ability to analyze risks and opportunities in advance.
“You need to know all the different levers that you can pull. That’s ultimately what you have to get to — but you can’t do any of that until you understand the risk factors and what the options are,” said Grant Thornton Business Consulting Principal Jonathan Eaton. “I think that’s where a lot of companies are hung up right now.”
Manufacturers get snagged on analyzing their risks and opportunities because the factors keep evolving every day. In 2026, some of the biggest factors to watch are the ongoing federal actions that affect U.S. trade policy, deregulation, permits and workforces.
U.S. trade policy
“Trade uncertainty is going to be a major theme in 2026,” said Grant Thornton Public Policy Associate Director Danielle Cook. Cook noted that the United States-Mexico-Canada Agreement (USMCA) is up for review in July, “and both President Trump and U.S. Trade Representative Jamieson Greer have suggested the possibility of the US pulling out and making separate agreements.”
“The USMCA is very pertinent to manufacturing in the U.S. because they’re our closest trading partners and our highest volume,” Schindler said.
Automotive: For automakers, the USMCA allows tariff-free trade for vehicles and parts, stabilizing supply chains and reducing costs. Its regional content and labor standards also encourage local production and innovation, supporting competition and growth in areas like electric and autonomous vehicles.
Schindler added that the agreement’s negotiations could have secondary effects, such as when Mexico announced 50% tariffs on imports from China. “I think Mexico was posturing because of the USMCA negotiations, but that might have a ripple effect. China puts a lot of goods through Mexico that make their way into the U.S., so, that could cause some significant disruption.”
Schindler said that tax incentives from OBBBA have offset the trade pressures for some manufacturers, though tariffs have kept companies from taking advantage of the incentives to the same extent as during the first Trump administration.
OBBBA broad business tax provisions
Even if manufacturers aren’t taking full advantage of tax incentives, they might be interested in recent moves to deregulation.
Deregulation
Industrials and chemicals: Deregulation is welcomed by these sectors that have been battling the additional costs of compliance with EPA regulations that are more stringent than what their competitors have in other countries, making it more difficult for them to be price competitive.
In May, the Supreme Court ruled on a case involving a National Environmental Policy Act (NEPA) review. “That redefined the scope of the review to just direct impacts, instead of upstream and downstream impacts,” Cook said. “Currently, the agency’s directives are to follow in those footsteps of narrowing what the NEPA review covers. So, we are expecting a lot of rules to be amended or eliminated this year.”
Deregulation could remove compliance requirements for manufacturers in the short term, though companies might want to stay ready for compliance in the future. “Companies would be wise to not forego their commitments to ESG and compliance,” Eaton said, “because they’re going to come back. I think companies have an opportunity to take advantage of deregulation and rollbacks that are going to occur, but this can change depending on the administration and who has control.”
Food and beverage: MAHA regulations are a concern for this sector, since some FDA-approved food currently in the market is being challenged as “ultra-processed” or containing “ultra-processed” ingredients. That term is not fully defined, and replacing ingredients can be a challenge that requires reassessing supply chains, rebalancing costs and even changing production.
Another recent change has sent regulations in the other direction, increasing regulatory scrutiny from the Make America Healthy Again (MAHA) initiative. “MAHA released their strategy report, and a lot of regulation is going to come out surrounding food and beverage ingredients — both from a regulatory and a legislative perspective,” Cook said.
Finally, some manufacturers are watching the debate over federal regulation of AI. “There have been two attempts to get legislation in other packages to say that states cannot make their own AI legislation,” Cook said, “but a lot of members on both sides don’t want to ban it without having their own federal framework — and they don’t have a framework. So, that’s the problem right now.”
In the meantime, the Trump administration plans to challenge any state-level AI regulations. Schindler noted, “I like that the reins are loose on AI in companies, but then I also fear the theft of intellectual property, where we’re seeing exact makes and models of items from the U.S. being made in other countries illegally.”
AI is the single largest innovation in manufacturing and it’s coming in with significant speed and intensity. AI is improving safety, quality, margins, and speed of doing business. Given that most manufacturers have operations across the U.S., if each state were to have its own AI regulation, it would make operations much more complicated and costly.
Permitting
Industrials: Permit reform is of particular interest to this sector, since it has a high energy demand with some estimating that it consumes more than half of the world’s total delivered energy.
For manufacturers that want to build new facilities or access new energy infrastructure, the time and complexity of permit approval can be a disincentive.
The Trump administration recognizes that disincentive and is working to improve permit processing through the Standardizing Permitting and Expediting Economic Development (SPEED) Act. “Permit reform is one of the few bipartisan issues this session, and it is expected to pass by the end of 2026, though several Senators have indicated that significant negotiations are still required,” Cook said. “Energy permitting needs to be expedited, and that’s a place where deregulation is happening and helping,” Schindler said. “Making that easier is a must, because of all the energy consumption by manufacturing.”
Eaton agreed, “The electrical grid is stressed as it is. There’s not enough electricity to go around. So, there have to be alternative sources of energy.”
He said that some manufacturers and energy companies are continuing to develop infrastructure for renewable energy, even though its incentives have been reduced. “I think the companies that are smart will consider what those options are now and try to form partnerships with companies where it makes sense. They are going to be in a better position later, if we get into a situation where energy is more constrained and there’s competition for natural resources.”
One resource that’s already in short supply is manufacturing labor. The current administration’s immigration enforcement has added another factor to that equation for manufacturers.
Workforce
“Immigration is going to continue to be one of Trump’s core platforms,” Cook said. “So, I don’t think we’re going to see an ease up on enforcement.” Immigration enforcement has had an impact on industries where undocumented workers or their families work.
Estimates vary, but most agree that the industry with the most undocumented workers is construction — and the Center for Migration Studies says that manufacturing is third on the list. With that in mind, immigration enforcement could affect the costs of both labor and construction for manufacturers.
However, the challenge of finding and keeping workers in manufacturing isn’t new. In recent years, multiple factors have forced intense competition for labor. “People will go across the street to work at a competitor for a dime more an hour,” Eaton said. “That’s $200 a year. The other complicating factor is baby boomers — they are aging out and retiring.”
As companies look for ways to balance their risks and opportunities, there are tangible actions they can take.
How we can help you
Actions to take
Manufacturers can adapt their preparations to address the risks and opportunities being driven by federal policy. For some manufacturers, the top issue is the ongoing concern about workforce.
Workforce alternatives
“Even if you don’t have undocumented workers, you might have someone with a family member that is,” Schindler said. “So, they might not show up to work one day because they’re fearful for their family member or they’re taking care of them.” She said that some companies are setting up HR programs to help proactively identify and address these potential issues.
Another way to mitigate workforce shortages is to look at recruitment from non-traditional sources. This approach might also require restructuring shifts or work. “Stay-at-home parents might be available while they have kids in school, or you might need to look at other types of workers that you didn’t before.”
Eaton agreed, “I believe that you’re going to have fewer workers, so the people who would have had a hard time getting a job could become a pool of resources.” For instance, he noted, there are federal programs to help employers consider hiring formerly incarcerated workers:
- Pathway Home Grants: In January 2025, the U.S. Department of Labor committed $25 million for pre‑release training and employment services to help people transition to connect incarcerated adults with apprenticeships, occupational training, and legal assistance before their release.
- Work Opportunity Tax Credit (WOTC): This is a federal tax credit of up to $9,600 per hire, for businesses employing eligible ex-offenders.
- Second Chance Act: This is a federal law administered by the Department of Justice’s Bureau of Justice Assistance, providing grants to organizations that support job training, placement and education for people leaving incarceration.
- Reentry Employment Opportunities: This is a U.S. Department of Labor initiative (under WIOA Section 169), funding state and local programs that test employment strategies for justice‑involved adults and youth.
Automotive: Workforce alternatives and development is an area where the automotive sector has provided leading examples of what can be done. Manufacturers in other sectors have looked to automakers for strategies that can help overcome workforce issues.
One workforce alternative that always generates discussion is automation — and OBBBA provides some incentives for tech modernization, but effective automation requires an effective strategy. “Then, you should also look at up-]skilling workers to take higher-responsibility roles as automation or AI agents take lower-responsibility roles,” Schindler said.
As manufacturers consider which strategies will enable them to capitalize on current opportunities and mitigate potential risks, whether workforces-related or otherwise, they can improve the clarity and accuracy of their planning with scenario modeling. However, effective scenario modeling can be difficult. “As you’re trying to figure out what all of your options are, you also need to determine how to model them in a way that gives you a good answer,” Eaton said. “It has to be defined the right way.”
Effective scenario modeling
The recent changes in federal policy provide an excellent reason to use scenario modeling — but they’re not the only reason. “People are already modeling,” Eaton said, “and some have been doing it for a long time.” Yet, the exercise is not always effective.
“There are a lot of leaders who feel like they’re doing scenario modeling, but they’re not getting the most out of it, or maybe they’re not doing it right,” Schindler said. “At a recent conference, there was a whole session on why scenario planning fails: The biggest reason is that people do the scenario modeling, but then they’re afraid to act on it.” This hesitation is often caused by a lack of confidence in the results.
To get the right results from your scenario models, you need the right options and inputs.
“Any talented analytical person can build the model or scenario. It’s knowing how to define scenarios and what’s an option or what’s not,” Eaton said. “The issue is that nobody’s model is the same. Even if you’re solving for the same outcome, the inputs into the model are different. So, the data acquisition and the optionality are the key.”
Eaton outlined how some companies could create scenarios for choosing suppliers that don’t incur tariffs, or that allow them to take other actions in response to evolving federal policies — if they understand those options and how to capture them. “Your model has to be defined the right way. The scenario planning is the easy part. It’s actually defining the scenarios the right way and understanding the optionality — that’s where the gold’s at.”
Eaton outlined some fundamental steps to analyze your business and build an effective model for trade and tariff issues:
- Map your supply chain: “The first step is to map the supply chain operating model and understand, from a physical perspective, where your operations are, where your suppliers are and how that impacts you from a trade perspective,” Eaton said.
- Identify your options: “Think through the optionality to address the impact of tariffs, if that’s the biggest issue,” Eaton said. “I actually think the bigger issues are often the other unmitigated risks that impact suppliers. Many companies need to have a better understanding of where the inputs into the products that they manufacture are coming from.”
- Examine regulations: “Once you understand the risk factors within your supply chain network, and where your exposure is from a trade and tariff perspective, then you can overlay the regulatory aspect,” Eaton said. It’s important for your model to help you understand when regulatory restrictions do or don’t affect potential decisions.
- Financial reconciliation: “Then, there’s the financial reconciliation,” Eaton said. “That includes what may or may not make sense from a tax perspective or from a strategic business continuity perspective.”
To manage shifting tariff impacts while weighing the opportunities presented by OBBBA tax incentives, manufacturers need to optimize their decisions with a range of factors.
This diagram shows that a tax-effective supply chain planning scenario model needs to consider factors from three areas:
- Strategic planning
- Operational and financial planning
- Tax planning
The strategic planning factors include:
- Growth strategy and scalability requirements
- Risk to supply chain operating model
- End-to-end physical supply chain networks
The operational and financial planning factors include:
- Intersection of customer segments and SKU performance
- Intrinsic supply chain cost to serve trend
- Cash conversion cycle
The tax planning factors include:
- Tax strategy and methods
- Transfer pricing
- Trade and tariff implications
- State and local tax incentives
With effective and accurate scenario models, manufacturers can adapt their decisions for emerging issues or even review decisions they’ve already made.
“How do you look at trading partners and make sure that the people you’re working with are the best for you?” Eaton asked. “How do you look at your operating model and determine if this is really the only location that you can produce a product, or if you would be better served to produce it elsewhere? Would you be better served to look at making versus buying — or to not make some products at all, just buy a finished good and resell it?”
These questions could have important answers for your business, but the inputs are complex and unique.
“It’s a matter of looking at the dimensions that affect your decisions and coming to a reconciliation of the outcome,” Eaton said. “That’s something that people have to realize: There isn’t an off-the-shelf answer.”
Adapt your answers
Manufacturers can be certain that federal policies and other business factors will continue to change at a turbulent pace. As a result, leaders will need scenario models and other tools to help them answer today’s questions — and then adapt those answers over time.
Leaders need unique models that factor in their supply chains, third parties, cost structures and other business factors. “There’s not a piece of software out there, nor will there ever be, that can consider every factor for every business,” Eaton said. “It’s a confluence to models where you need to bring different pieces of information together.” To process multiple models in an ongoing way, some manufacturers are already using AI agents that can derive decisions dynamically. “That’s where the power of an agent has the ability to read across all of those models and give you an output that’s beneficial to the business.”
Ongoing changes will continue to demand unprecedented agility, so manufacturers need to find the tools and processes that will help them adapt. “Some leaders get to a point where they think, ‘OK, this issue has calmed down, or it’s not impacting us so much. Are we done?’” said Schindler. “But really, you should never be done — you need to keep thinking.”
Contacts:
Partner, Business Consulting
Grant Thornton Advisors LLC
Jonathan is a Partner in the Operations & Performance practice.
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