Exclusive: Tariffs have increased costs but businesses still expect growth, survey says

A recent HSBC survey of U.S. small and mid-sized businesses with international operations ($50M-$2B in revenue) reveals that 72% report tariffs have already increased operating costs, with 77% expecting further increases by year-end; however, over 90% still anticipate international growth in the next two years. This optimism contrasts with international peers and is driven by companies creatively pivoting and exploring strategies like increasing domestic reliance, adopting new technologies (64%), and re-shoring production (44%), while remaining in a "wait and watch" mode regarding long-term decisions.

Analysis

A recent HSBC survey of U.S. small and mid-sized businesses (SMBs) with international operations ($50M-$2B revenue) highlights a significant operational challenge, with 72% reporting increased costs due to tariffs and 77% expecting these costs to escalate further by year-end, driven by new duties and heightened competition for suppliers in lower-cost regions. Despite these headwinds, a striking 90% of these U.S. SMBs project international growth within the next two years, a level of optimism HSBC notes as distinctly higher than their international peers. This confidence appears rooted in proactive adaptation; over 70% are increasing domestic reliance, 44% are considering moving production domestically (re-shoring), and 64% are adopting new digital technologies, including AI, to enhance efficiency and competitiveness. Nevertheless, the prevailing sentiment, as described by HSBC, is one of cautious observation, with many companies, even those financially robust, in a "wait and watch" mode, re-evaluating supply chain structures rather than committing to major long-term strategic shifts in the current tariff environment.

Key Decisions for Investors

• Investors should assess portfolio companies, particularly U.S. SMBs with international exposure, for their vulnerability to rising tariff-related costs and their strategic responses, such as supply chain diversification or technology adoption.
• Consider opportunities in companies enabling re-shoring trends or providing digital transformation solutions, as 44% of surveyed U.S. SMBs are looking at domestic production and 64% are adopting new technologies.
• Monitor leading indicators of U.S. SMB international sales and profit margins, as the current high optimism (90% expecting international growth) could be tested if cost pressures from tariffs intensify beyond current absorption capacities.
• Factor in the "wait and watch" approach of many businesses; while optimism is high, significant capital reallocation or major strategic shifts may be deferred, potentially impacting investment timelines in related sectors until greater clarity on trade policy emerges.