Businesses say Trump tariffs will raise prices and decrease demand, Cleveland Fed survey shows

Even before President Donald Trump unleashed a barrage of tariffs on April 2, three fourths of businesses surveyed by the Federal Reserve Bank of Cleveland said they would have to raise prices in response. Some said they already were.

Rising prices — particularly for people with lower incomes — are thought to be one of the primary factors in Trump’s win last November. If the surveyed businesses are correct in their expectations, Trump’s tariffs will only make it worse.

Tariffs are taxes on imports. Trump has sold them as a way to encourage manufacturing and other businesses to return to the United States. Critics say that ignores that manufacturing is increasingly automated, and that many of the jobs filled by workers overseas aren’t attractive to Americans.

On April 2, Trump announced sweeping tariffs on the great majority of our trading partners. The announcement was greeted by plunging markets for stocks and bonds, signaling that because of Trump’s unpredictable policies, investors were losing faith in U.S.-backed securities.

The shock prompted Trump to implement a 90-day pause on most of the import taxes. But a baseline 10% tariff and much larger ones on China remain. That had the International Monetary Fund on Tuesday significantly worsening its outlook for global and U.S. economic growth.

Businesses across Ohio, and in adjacent parts of Pennsylvania, West Virginia, and Kentucky seemed to predict much of this in February.

The Federal Reserve Bank of Cleveland conducts eight yearly surveys of business and community leaders in the Fourth District, which it represents. It uses them to inform its contributions to the Federal Open Market Committee.

Known as the “Fed,” that institution sets key interest rates that influence how expensive it is to borrow money throughout the economy. It’s an important tool in stimulating a slow economy or cooling one that’s overheated.

Trump’s attacks on the independence of the Fed led to a major stock selloff Monday before mostly recovering on Tuesday. 

“​​Many companies in the Cleveland Fed’s District said tariffs would raise their costs and lower demand, according to a new report summarizing the results of several tariff questions included in the February round of the Survey of Regional Conditions and Expectations,” the agency said Tuesday in a press release announcing the results.

Of those surveyed, 85% said they anticipated higher input costs as a consequence of higher import taxes. The retail, manufacturing, construction, and real estate sectors anticipated the heaviest impact, with transportation and financial and professional services expecting less of a blow.

A full 75% of those who said their businesses would be impacted by tariffs said they would have to raise prices in response, and 60% said the tariffs would reduce demand. Despite Trump’s claims, just 9% of respondents said that increased tariffs would raise demand for their products or services.C

Nearly half, 46%, of those who said they would be affected by tariffs said they would or already were passing those costs on to their customers. Twenty nine percent said they’d find a new domestic supplier and 27% said they move up purchases ahead of implementation of any tariffs.