Tariffs are driving up factory costs for ‘Made in USA’ brands
When coffee syrup company Torani set out to build a new manufacturing line to make sauces, the $60 million budget was “dialed in to the penny,” said president Tai Doong.
“Then steel tariffs hit, and suddenly we were staring at a $3 million curveball,” Doong said.
The expansion was the latest update to Torani’s “Flavor Factory, its 630,000-square-foot manufacturing plant in San Leandro, California that opened up in 2020. The 100-year-old company employs more than 400 people and anticipates that the further production expansions will add another 80 manufacturing jobs by 2027.
But the cost overruns from steel tariffs that hit this spring meant the company had to retool its plans, including postponing other factory upgrades to help insulate itself from tariff-related costs and improve operational efficiencies. It is also planning to take advantage of new tax benefits for manufacturers. The line will still be commissioned mid-next year.
“We know the intent of the new tariffs is to boost U.S. manufacturing, but these types of dramatic, unplanned costs can feel like handcuffs for American manufacturers trying to invest and expand,” Doong said.
President Donald Trump’s tariff policy changes in the past nine months have led to a flurry of companies looking to nearshore their manufacturing in order to avoid higher duties on their imported products.
But the tariffs themselves mean these companies are spending more to get their factories made — even for companies like Torani that already had a U.S. presence. The Washington Center for Equitable Growth found that factory costs will increase by roughly 2-4.5% annually. Overall, construction costs have increased 2.3% year over year. Many of the increases are due to raw materials that aren’t made here, like aluminum and steel. An Associated General Contractors of America survey released in late August found 16% of firms have postponed, canceled or delayed at least one project because of tariffs, and 41% of firms say they’ve raised their prices.
Torani, for its part, has long been expanding domestic manufacturing, part of its bigger strategy to hit $1 billion in revenue by 2030. It opened its Flavor Factory in 2020, with the goal of it serving the company for a decade. But the company’s growth outpaced its own forecasts by an average of 20% each year, and it has already added an additional 100,000 square feet of overflow space, plus a 200,000-square-foot distribution center that opened this May. Doong said the distribution center is where the company can build the sauce manufacturing line, and it still anticipates adding more syrup manufacturing lines in the future.
But the curveball of tariffs is something that can “feel like a wall,” Doong said. In the case of the $3 million overage on steel tariffs, he said the company built out dozens of scenarios to figure out a way to cover unexpected costs without sacrificing its design or timeline. “We engineered new solutions, and I’m sure many other manufacturers are doing the same,” he said.
For some companies making new investments, the higher costs of building out facilities means cutting back on employee costs.
World Emblem, an online company that sells made-to-order custom patches and embroidery, already makes about 30-35% of its products in the United States. But CEO Randy Carr said the company is expanding its U.S. production capacity. Rather than shifting production from offshore to U.S. facilities, World Emblem will focus on building out “labor agnostic” facilities that can do 3D printing of some of its most popular products, which will also increase delivery speeds for domestic orders.
New projects include moving into a 200,000-square-foot Houston facility and a 100,000-square-foot Atlanta facility, plus expanding existing manufacturing capacity in California.
“We’re finding products that make economic sense to move to the states or ones that we can automate, or the ones where customers are willing to pay more for a specific type of service, and then those are getting expanded,” Carr said.
But Carr said these new U.S. factories are costing World Emblem about 50% more than they would’ve been priced at five years ago. He said it’s mostly because the United States doesn’t make the steel and aluminum needed to make factory projects work.
Put simply, “it sucks,” Carr said.
Still, World Emblem, which is up 10% on sales over last year, is ready to take a calculated risk. Houston, for instance, made sense as a place to expand because there’s an existing client base for the products that will be made there. He said the company is able to use a mix of its own cash and financing to cover the costs of its expansion. It’s also building out its international expansion capacity in the Dominican Republic, Mexico and Canada. Carr said that diversifying the supply chain helps hedge against changes in tariff and trade talks, but it also means that the company continues to employ foreign workers for products that it wouldn’t be able to make on its automated U.S. supply chains.
“There are a lot of other companies that just sit on their heels and wait for stuff to happen,” Carr said. “We want to be in a position where we can take advantage of the changing landscape.”