The tariff tailwinds behind a manufacturing rebound

How it works: Normally, when companies invest in expensive new equipment, they can't write it all off as a business expense.

• Instead, the value of the equipment is considered to depreciate over the course of its natural life, usually between five years and 39 years.
• A 2002 law introduced the idea of "bonus depreciation" that allows companies to write off 30% of any investment costs in the first year.
• In 2017, the Trump tax law allowed five years of 100% bonus depreciation, which means the whole cost of machinery could be deducted in the same year it was purchased.
• That policy, combined with ultra-low interest rates, spurred a huge wave of investment.

Flashback: "People just went ham on buying machinery," recalls Oisin Hanrahan, CEO of Keychain, a company that connects brands with production facilities.

• "Anyone with a factory that was generating cash was like, this is the easiest way to stop paying tax," he said. "It created an insane increase in capacity."

Where it stands: That capacity was briefly put to use during the pandemic boom, but became idle again as Americans bought more services than goods.

• The idle capacity caused U.S. manufacturers to lower their prices to try to compete internationally, but that eats hard into profit margins.
• Manufacturers want Trump to "press the tariff button even harder," said Hanrahan, because they "have unbelievable amounts of spare capacity."

Section 321 loophole

But while Trump was complaining about Chinese trade practices, Mexican President Claudia Sheinbaum was doing something about them.

Between the lines: Until December, when Chinese companies wanted to export their goods to the U.S., they often shipped them to Mexico under its IMMEX program, where they were stored for less than 120 days, repackaged, then sent over the border in individual parcels worth less than $800 each.

• In taking that route, the goods ended up incurring no tariffs at all.

Why it matters: When Sheinbaum closed that Section 321 loophole in December, she set off a scramble by logistics companies to move their operations out of Tijuana and into U.S. warehouses.

What they're saying: By February, logistics company Stord had already hit its half-year goal for new sales, CEO Sean Henry told Axios.

• "All of a sudden we saw hundreds of companies reaching out to us, saying, hey, we need to rapidly move all of our inventory into the U.S.," he said.
• "The tariffs are great for us," he added, because any disruption to established ways of doing business allows him to step in and take advantage of the reshoring trend.
• "We are seeing a resurgence of the fight for space right now," Henry noted. "There was like two years of emptiness where you couldn't even sublease your space for half your cost. Now it's getting hypercompetitive."

The bottom line: Domestic logistics and manufacturing were doing well even before any tariffs. If these tariffs stay in place, their fortunes are likely going to improve even more.