How Trump’s tariffs and other policies are ‘raising hell,’ according to business owners

Recent surveys from the Federal Reserve, ISM, and S&P Global indicate that President Trump's trade policies, particularly tariffs, are creating significant uncertainty for businesses across various sectors, impacting inflation, hiring, and company finances. Businesses are reporting increased input costs due to tariffs, leading to price increases for consumers, while some are pausing hiring or reducing headcount due to economic uncertainty. The tariff-driven surge in retail sales observed in March appears to be waning, with some regions already experiencing a decline in auto and discretionary item sales.

Analysis

Recent business surveys from the Federal Reserve, the Institute for Supply Management (ISM), and S&P Global reveal significant economic headwinds stemming from U.S. trade policies, particularly tariffs, creating a climate of pervasive uncertainty. The Federal Reserve's "Beige Book" underscored this concern, with "tariffs" mentioned 80 times and "uncertainty" 76 times within its survey responses collected through May 23. Businesses across diverse industries report escalating input costs; for instance, a chemical products manufacturer told ISM that suppliers are passing through tariffs at full value, while a heavy construction equipment supplier in the New York Fed's region admitted to raising prices on goods unaffected by tariffs to capture extra margin. The doubling of U.S. tariffs on steel and aluminum imports to 50% is anticipated to further inflate costs for construction projects and household appliances. This trade-induced uncertainty is also impacting the labor market, evidenced by a Chicago Fed district staffing agency reporting hiring freezes and a Richmond-based business consultant planning a 20% headcount reduction due to declining revenues and future business uncertainty. While an initial surge in consumer spending, including a 1.7% month-over-month rise in March retail sales driven by strong car sales, suggested pre-emptive buying to avoid future price hikes, this trend appears to be waning. Subsequent data indicates a sharp slowdown in retail spending, with some Federal Reserve districts noting slight declines in auto sales, softening consumer demand for discretionary items, and dealerships anticipating tariff-related "sticker shock" to depress car demand starting in early June.

Key Decisions for Investors

• Investors should exercise heightened caution and consider defensive positioning, particularly in sectors highly exposed to tariffs such as automotive, construction, industrials, and consumer discretionary, given the reported slowdown in demand and rising cost pressures.
• Closely monitor upcoming macroeconomic indicators, including CPI, PPI, retail sales figures, purchasing managers' indexes, and employment data, for further evidence of the propagating economic impact of ongoing trade disputes and tariff implementations.
• Re-evaluate portfolio allocations towards companies with significant international supply chains or heavy reliance on materials like steel and aluminum, as they face heightened risks of margin compression, earnings volatility, and potential downward revisions to guidance.