Midsize businesses struggle with high tariff costs
Why it matters: Tariff turmoil is hitting smaller companies especially hard, raising costs they're less able to absorb than the corporate giants.
The big picture: Though it will take some time, higher tariffs will likely slow the economy and raise consumer prices, the survey authors said, even if the headline inflation number reported Wednesday still looks relatively benign.
How it works: The RSM US Middle Market Business Index fell nearly 19 points to 124.5 in the second quarter.
A number above 110 is in expansion, or positive, territory. But this was the biggest drop (outside of the pandemic) over the decade that consulting firm RSM and the U.S. Chamber of Commerce have fielded the survey.
"The trade war unleashed real, significant changes in trade policy and at best is going to result in a significant slowing in the U .S. economy," Joe Brusuelas, chief economist with RSM, said on a call Wednesday.
By the numbers: The index is based on a survey of 412 executives at middle market firms, defined roughly as those with revenue between $10 million and $2 billion.
They were asked 20 questions about their businesses, including changes in gross revenue, net earnings and capital spending.
About a quarter of executives reported declines in gross revenue and net earnings. There was also a 20% drop in capital expenditures, or spending on buildings, machinery, long-term projects and more.
Hiring also slowed and executives expressed more economic pessimism.
57% of executives said they had raised prices in the current quarter, and 63% said they intend to do so over the next six months.
The fine print: The survey was conducted in the field from April 7 to April 29, so respondents had lived through both the "Liberation Day" shock and the tariff pause that followed, while absorbing the hikes that did go through.
Effective tariff rates are substantially higher than at any time since 1937, according to the Yale Budget Lab, about 15.6% as of early June.
The intrigue: The deal announced with China on Tuesday doesn't change that number, and that's a particularly rough problem for these companies.
Very large firms have profit margins at around 13%, Brusuelas said, but among midsize businesses the number is in the 5% to 7% range, which isn't sufficient to absorb at 15.6% increase.
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The Hill
2 hours ago
- The Hill
Trump tariffs: A grocery shopper's guide
President Trump's tariffs could raise the cost of some of the most popular imports in American grocery aisles, from coffee and olive oil to wine, matcha and spices. After the 'Liberation Day' tariffs kicked in worldwide in early August, businesses and consumers alike are watching closely for when — and how much — prices tick up. Inflation data released Tuesday did not show an overall increase in food prices, but economists say that's likely to change as businesses pass more costs on to consumers. Wholesale prices surged 0.9 percent last month, the biggest monthly jump since June 2022 and a sign that inflation may not be cooling off just yet. 'Many of us anticipated ahead of time that you might see some faster movement in groceries, partly because you can't stockpile stuff right in the same way,' said Martha Gimbel, the Budget Lab at Yale's executive director. 'You can't stockpile a year's worth of avocados. That being said, the price increases that we've seen in food so far are pretty muted, so we'll just have to see what happens,' she said. Here are six iconic imported grocery products that could be impacted by Trump's tariffs. Coffee Coffee prices were already up before a 50 percent tariff on Brazil, the top coffee importer to the U.S., went into effect last week. Coffee prices sharply rose 25 percent over the past three months, according to inflation data released Tuesday. Reuters reported Tuesday that Brazilian coffee exports have started seeing postponements to their U.S. shipments. How hard your morning habit gets hit varies between brand, shop and choice of bean. Nespresso pods, for instance, are entirely produced in Switzerland, which is subject to a 40 percent tariff. Colombia, the second-largest importer of coffee to the U.S., only pays Trump's 10 percent baseline duty. 'Some importers might shift sourcing toward countries with exemptions, but in many cases the increased costs will all be passed on to you, the coffee lover,' Todd Carmichael, the co-founder of La Colombe, wrote in The Washington Post earlier this week. 'Surely, coffee is too essential and too global to put at the center of a geopolitical chess match.' Rep. Ro Khanna (D-Calif.) said Wednesday he would introduce a bill with bipartisan support to repeal tariffs on coffee. Olive oil Trump's tariffs have only added to the uncertainty facing olive oil producers, who are grappling with climate shocks. Extended droughts in Spain in 2022 slashed production, and other top production regions like Sicily and Greece have also confronted record-high temperatures. Allen Dushi, a co-founder of olive oil brand Graza, said the company has held off on increasing prices, adding that any uptick in import costs could take at least three to four months to reflect on grocery shelves. Many retailers or distributors require 60 to 90 days notice for a change, he said. The company uses Spanish olives, and production and bottling are all based in Spain. That limits the extent to which the company can keep stocks in the U.S., which would have to be finished bottles. 'We are not trying to stockpile inventory, because our priority number one is always the quality of what's inside the bottle,' Dushi said. 'That's not something we really compromise on.' Switching to American production wouldn't help, Dushi added; the company would still have to pay tariffs on Spanish olives, as American olive production doesn't meet the same standard. 'So as long as you're buying the oil, and importing the oil, you're going to be paying the tariff on that,' he said. Spain and Italy accounted for two-thirds of U.S. olive oil imports in 2024. Both are subject to the 15 percent tariff under the trade deal struck between the European Union and the U.S. in July. Other top producers are still subject to tariffs, such as Tunisia (25 percent), Turkey (15 percent) and Argentina (10 percent). Wine The July U.S.-E.U. trade deal was seen as a starting point. As negotiations have continued, the beverage industry and European officials have pushed for an exemption for wine and spirits, The Wall Street Journal reported. A group of nearly 60 associations representing wine, beer and liquor interests warned last week that the industry could face nearly $2 billion in lost sales and have to cut more than 25,000 jobs in the U.S. as a result of the tariff. The coalition, Toasts not Tariffs, pointed to products like cognac that have to be produced in a specific region and cannot be switched to a tariff-free alternative. Eric Foret is a wine buyer at Le French Wine Club, which operates several locations in New York City and Washington, D.C., alongside an online shop. He said that he had to increase his prices, although they were fairly gradual. 'It's a dollar here, a dollar there, a dollar here, a dollar there and then at the end, you spend ten dollars more on the bottle of wine, you don't even notice it,' he said. In addition to France, which accounted for more than one-third of U.S. wine imports last year, the EU tariff impacts shipments from Italy (33 percent of imports) and Spain (6 percent). Matcha A 15 percent tariff on Japan could impact the price of a matcha latte — already a pricey product before tax, tip and oat milk. While U.S. trade data does not specifically track matcha, Japan generally accounts for about half of American green tea imports by value each year, and Japanese origin is a selling point for many specialty matcha shops. The industry is also grappling with the impacts of record heat waves in Japan last summer that curbed harvests of tencha, the tea leaves dried and ground into matcha. Demand for the vibrant green beverage has also soared in recent years, driven by young enthusiasts and social media. David Cooper runs Spot of Tea, a Washington, D.C.-based shop with three locations selling matcha and other tea drinks. He considers himself lucky to have bought his 2025 stockpile before the tariffs and shortages hit. Now, however, 'we're looking at how much stock we have in our warehouse and then how much we're going through per month and doing the math and trying to push the suppliers to finalize the order as quickly as possible,' he said. 'It's definitely a little anxiety-inducing.' The uncertainty for the drink industry even extends to things like cups, Cooper said, which his shop sources from South Korea. 'I think on the day I was about to put the deposit down, Trump announced 25 percent tariffs for Korea. And so our supplier was basically, like, we cannot absorb all this cost,' he said. 'It's just so hard to tell at this point what percentage tariff is actually going to be applied.' Chocolate Switzerland, home to many famous chocolate brands, is facing a 39 percent duty, one of the highest in the world. Some of the country's larger manufacturers will be able to escape some tariff impacts because they already have production sites in the U.S. Lindt & Sprüngli, for example, produces the 'vast majority' of its products for the American market in New Hampshire, a company spokesperson said. That plant will still have to factor in tariff effects on raw materials like cocoa, imported from countries like Ivory Coast, Ecuador, Indonesia and Malaysia. Other companies, however, have made their brand on manufacturing in Switzerland. That's the case for Läderach, which is now figuring out how to manage 'massive additional costs,' its CEO said this week. 'I cannot change the tariffs. It is only human to get angry about them, enquire on who's guilt they are or be discouraged,' Johannes Läderach wrote in a LinkedIn post. 'But none of these options change anything, so I better pray for serenity to accept it.' Swiss leaders have attempted to negotiate with Washington on the tariff, which also impacts cheese and other exports. Swiss officials are now reportedly weighing whether to cancel an order for American F-35 fighter jets. Spices Trump shocked many observers by raising tariffs on India to 50 percent last week, citing its purchase of Russian oil. India is the top U.S. importer for spices like nutmeg, cardamom, anise, fennel, coriander, and cumin. Indonesia, another key producer, is subject to a 19 percent duty after negotiating with the White House. The American Spice Trade Association said in a Tuesday letter to Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer that many of its products could not be cultivated in the U.S.. 'The importation of spices directly supports approximately 50,000 U.S. jobs across processing, quality assurance, distribution, and product development,' the association said. Spice producer McCormick said in late June that tariffs could cost it as much as $90 million a year and that it was planning to raise some prices by the end of the year.
Newsweek
2 hours ago
- Newsweek
What the Fast Food Industry Is Telling Us About the Economy
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. For many Americans, cutting back on dining out is one of the first signs of financial pressure—especially among lower- and middle-income households. And when they do choose to eat out or order in, they're shifting to lower-cost options. That change is showing up in restaurant sales. Between January and March, Americans ate one billion fewer restaurant meals than during the same period last year, according to market research firm Circana. So-called "fast casual" chains like Cava, Sweetgreen, Panera Bread and Shake Shack—viewed by many as too expensive for everyday dining—are the first to send the distress warning. Cava, which posted double-digit same-store sales growth in the first quarter, slowed to just 2.1 percent in the second. Sweetgreen reported a 7.2 percent sales decline in Q2, while Chipotle dropped 4 percent. Analysts say these chains are caught in the middle: too pricey to compete with budget deals at fast-food chains, yet not premium enough to justify the cost when consumers are watching their spending. "There's a fog for consumers where things are changing constantly and it's hard to see the clear," said Cava CFO Tricia Tolivar, according to CNBC. Sweetgreen CEO Jonathan Neman said the company began seeing a more cautious consumer starting in April, aligned with a dip in consumer sentiment that manifested around the time of President Trump's "Liberation Day" tariff announcement. Chipotle COO Scott Boatwright pointed directly to the rise of low-cost competitors. "You have to look no further than what's going on with our competitors with snack occasions or $5 meals. That's where the consumer is drifting towards," he said. Customers order food at a Chipotle Mexican Grill restaurant on April 26, 2023 in Austin, Texas. Customers order food at a Chipotle Mexican Grill restaurant on April 26, 2023 in Austin, Texas. Getty Images A Broader Economic Signal The restaurant slowdown is part of a larger shift in consumer behavior. U.S. inflation was 2.7 percent in July, but core inflation—excluding food and energy—jumped to 3.1 percent, the fastest pace in five months. Meanwhile, job growth has slowed, and Trump's renewed tariff policies are raising prices on imported goods. Combined, these factors are hitting household budgets. "Tightening the belt on restaurant spending is one of the earliest signs that households are feeling economic strain," said Todd Belt, professor at George Washington University. "It's not just about skipping a night out—it's about families making daily trade-offs." 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"It's going to take a lot of levers being pulled in order to get consumers more comfortable to spend more money out of home." Value Still Wins Some brands are adjusting more successfully. Domino's posted a 5.6 percent gain in U.S. same-store sales in the second quarter, rebounding from a decline earlier this year. Papa John's also returned to growth after two straight quarters of losses. McDonald's has outperformed by leaning heavily into value. Its U.S. same-store sales rose 2.5 percent in Q2, supported by a national $5 combo meal and a refreshed McValue menu. "Re-engaging the low-income consumer is critical," CEO Chris Kempczinski said on the company's July earnings call. "We've got to get that fixed." Chili's has also gained ground with its "3 for Me" deal, starting at $10.99, which helped drive a 31 percent increase in same-store sales and a 21 percent boost in traffic. Taco Bell's $5 and $9 Luxe Cravings Boxes are resonating with lower-income and younger diners. A closeup view of the exterior of a McDonalds in Kissimmee, Florida on February 6, 2022. A closeup view of the exterior of a McDonalds in Kissimmee, Florida on February 6, 2022. Getty Images On social media, consumers are vocal about the growing price gap. "Sweetgreen charged extra for every small thing you add to the bowl, and the base price is like $16. At those prices, I'll go somewhere nice," one user wrote on X. Another said, "$12 burrito, $3 guac, $3 drink—at that point, I'm just eating at a real restaurant." Some fast-casual chains are trying to respond. Cava has added about 50,000 loyalty members a week and now counts nearly 8 million users. Sweetgreen has increased protein portions and added $13 loyalty-exclusive bowls, though sales have continued to decline. Still, executives say improvement depends largely on economic factors out of the restaurants' control. "I think much of what we're experiencing right now is due to macro and the consumer—the low-income consumer is looking for value as a price point at present," Chipotle's Boatwright said. The company recently lowered its sales growth forecast for the second time this year.
Time Magazine
a day ago
- Time Magazine
Why the U.S. and China Are Playing Nice
The U.S. and the People's Republic of China are strategic rivals in the battle for global leadership in the 21st century. So it was no surprise when President Donald Trump hit China with 20% tariffs in the first few weeks of his second term and then imposed reciprocal tariffs of 34% on 'Liberation Day.' And when Trump a few days later lowered tariff rates for everyone else to calm markets, he quadrupled duties on China to a whopping 145%. But all that now feels like ancient history. Over the past four months, Trump has bent over backwards to be kind to Beijing. The two sides announced a 90-day ceasefire in Geneva in early May, agreeing to reduce tariffs and negotiate their differences over export controls and other issues. (Remaining U.S. tariffs on China are still at roughly 55%, and China's tariffs on the U.S. stand at almost 33%. These are historically high levels, but not sufficient to outright stop trade.) Further discussions in London and Stockholm made enough progress for the two sides this week to announce another extension of the ceasefire, with the White House praising Beijing for being cooperative and flexible in the negotiations to date. Read More: Why Trump Will Blink First on China In the same vein, the Trump Administration has not shut down TikTok in the U.S. despite the fact that it is still Chinese-controlled, in contravention of American law; it denied a transit visa for Taiwanese President William Lai; and it is allowing Nvidia and AMD to sell advanced chips in China despite originally blocking many of these sales, following a pay-for-play deal. So why the sudden about-face on China? It is doubly odd given the U.S.'s simultaneous tough tact toward other members of the BRICS—a rival to the U.S.-led G7 that includes Brazil, Russia, India, and South Africa—not to mention many of America's traditional allies. Three reasons stand out. First, both Washington and Beijing now have proven weapons that are restraining the aggressive instincts of the other side. Unlike others who caved in to Trump's pressure, Beijing retaliated, first with its own high tariffs, and then, more importantly, with restrictions on rare earth minerals, over which they have a global chokehold. Once Trump began lowering most of the initial reciprocal tariffs and calling for talks with Xi, they had confidence that restricting rare earths minerals and magnets would be met not with counterstrikes but with concessions. That includes the Trump Administration backing off imposing new export controls on several technologies and scrapping their threat to 'aggressively revoke' Chinese student visas. Beijing now believes it has perfected the recipe for making a 'TACO' ('Trump always chickens out'). Second, Trump and Xi both have an interest in strengthening economic confidence at home. With persistent overcapacity and price wars across industrial and consumer sectors, 'involution' has become the word of the year in China, a nod to the excessive competition that is hurting local businesses. Xi needs to shore up government finances, consolidate industries, and avoid further international barriers to Chinese exports and investment. The U.S.'s current economic picture is stronger, but constituents in town halls across the country have expressed deep worries about lost export markets, inflation, budget deficits, and a potential recession. Third, both Trump and Xi want to meet each other, most likely in the Fall in Asia. Trump has been signaling his desire for direct communication with Xi since at least April. He wants to assemble a deal that he can sell at home as boosting U.S. business opportunities and stopping the fentanyl epidemic, given China's role in producing most of the precursors in the synthetic opiod that is trafficked to America. The Chinese have played hard to get, privately saying any summit must be preceded by detailed negotiations and planning. Based on my conversations with experts in China in recent weeks, Xi wants to avoid being disrespected, as Ukrainian President Zelensky and other world leaders were during their White House visits. And with Trump making concession after concession, Beijing may want to consolidate its recent gains and aim even higher, perhaps inducing Trump to make further compromises over tariffs, export controls, and Taiwan. Read More: It's Time for Trump and Xi to Meet Although one should not dismiss the value of stable ties between the world's two largest economies, each equipped with massive stockpiles of nuclear weapons, this warming trend is unlikely to last very long. Both sides prefer calmness now because it aligns with their short-term interests. Chinese official rhetoric aside, neither side sees the relationship in cooperative terms, and neither is willing to take major steps to provide strategic reassurance to the other. The underlying fundamental challenges created by the countries' deep divisions over their economic ties, the potential for conflict over Taiwan and other hotspots, and their competing visions of the international order can only be papered over for so long. At some point Beijing may run out of luck, and either not concede enough in negotiations or push too hard to make a TACO, and instead generate a Trumpian tirade or policy overreaction. Trump's unpredictability make linear extrapolations of any U.S. policy or strategy a risky bet. At some point, for either reasons of policy or fashion, the U.S.'s current gentle approach toward Beijing is likely to eventually harden, and for a new scene in the drama to unfold. Read More: Why China Can't Win a Trade War Beijing knows no deal with Trump is permanent. They will enjoy the peace and quiet as long as they can, but they know they need to be prepared for the next round of escalation—whenever it arrives. Other countries, companies, and markets should, too.
