A new report from the Federal Reserve Bank of Cleveland released Tuesday found tariffs may cause higher prices for customers at local businesses.
The Trump administration's trade war has upended global markets, including in the United States. President Donald Trump has put a 90-day pause on some tariffs, but left in place a 10% across-the-board tariff and ramped up tariffs on China. Trump has sent mixed messages on whether these tariffs will be permanent or simply used as a negotiation tactic.
The Cleveland Fed asked businesses in the Fourth District, which covers Ohio, Western Pennsylvania, Eastern Kentucky and the northern panhandle of West Virginia, about how the tariffs may impact them.
Sixty four percent of respondents said the tariffs will impact their business. Of those that said the tariffs will have an impact, 85% expected higher input costs, 75% expected to increase prices and 60% expected demand to decrease.
“The back and forth on the decisions around trade policy have really caused a lot of wait and see mode is what I hear a lot of from businesses, particularly as it relates to potential capital expenditures to either expand their business or maybe bring on a new product line," sais Russell Mills, Regional Executive of the Pittsburgh branch of the Cleveland Fed.
Twenty four percent of respondents were unsure whether the tariffs would impact their business, and 12% said tariffs would not impact their business.
On the employment front, 75% of businesses expecting an impact said they do not expect the tariffs to affect employment, however, 22% of respondents said the tariffs would cause a decrease in their employment. The ethos of "wait and see" could end up impacting employment, however, as businesses may decide not to hire for new positions, Mills said.
In anticipation of tariffs on imports, 46% of respondents said they are passing anticipated cost increases through to customers, though nearly half of respondents said it would be somewhat or significantly harder to pass along higher costs to their customers compared to one year ago.
“Businesses who sell directly to consumers are seeing more of that pullback when they do attempt to raise prices," Mills said.
Mills is mainly seeing prices rising in transactions between businesses, not necessarily for consumers – at least not yet, he said.
“For the consumer really the story hasn’t been written so to speak yet," he said. "I think firms are still trying to figure out where they can raise prices or what they can’t raise prices on.”
Other actions respondents are taking or planning to take include finding new domestic suppliers, moving up purchases ahead of tariffs, seeking new foreign suppliers and bringing outsourced production in house. However, 26% of businesses said they haven't taken any action and don't yet plan to.
Retail businesses clocked in as the top industry impacted by tariffs. Eighty two percent of retail respondents said tariffs will impact their business. The majority of respondents in manufacturing and in construction and real estate also said they will be impacted by tariffs, 75% and 70% respectively.
Responses were gathered from Feb. 6 to Feb. 13.
