‘It’s awful’: How tariffs, rising fuel costs and higher interest rates are squeezing U.S. businesses across sectors
Table of Contents
You might want to know
How are tariffs, surging fuel prices and higher interest rates interacting to affect U.S. manufacturers, retailers and logistics firms?
Which companies are best positioned to withstand these combined pressures, and which are most vulnerable?
Main Topic
The U.S. business environment in recent months has been shaped by three overlapping cost pressures: tariffs that raise the price of imported inputs and finished goods; elevated fuel prices driven in part by geopolitical tensions; and higher interest rates intended to control persistent inflation. Individually each factor raises costs or reduces demand. Together they create a compound effect that forces companies to make difficult operational and financial decisions.
Tariffs increase the direct cost of raw materials and finished components for many manufacturers and suppliers. For firms that rely on aluminum, steel or other tariffed inputs, procurement expenses can jump quickly. Some businesses respond by hoarding inventory to avoid future price rises and supply disruptions. That strategy can protect production continuity and lock in availability, but it increases working capital requirements and storage costs.
At the same time, surging fuel prices raise the cost of transporting goods and the cost of energy-intensive production. Diesel price spikes directly affect trucking and logistics firms, raising freight costs and squeezing margins all along the supply chain. For manufacturers that use fossil-fuel–intensive processes, higher energy costs feed into unit costs and reduce the ability to absorb other price increases.
Higher interest rates compound those stresses by making it more expensive to finance both short-term working capital and longer-term investments. Companies carrying larger inventories or with heavy capital expenditure plans face higher borrowing costs. Smaller and middle-market firms typically rely more on short-term lending facilities, so they often feel the rate increases sooner and more acutely than large corporations with ample cash reserves or long-term fixed-rate debt.
The combined impact is not uniform across the economy. Capital-intensive sectors such as manufacturing, equipment suppliers, logistics (including trucking fleets) and commercial real estate are particularly exposed to this three-way squeeze. This key insight significantly impacts the understanding of which firms are most at risk: exposure to commodity inputs, fuel dependence, and reliance on short-term financing make firms vulnerable. These structural characteristics determine how much of the increased cost burden can be absorbed, passed on through higher prices, or mitigated through efficiency gains.
Some firms can and do pass costs to customers. Large companies with market power and strong pricing ability — such as certain retail chains and airlines on popular routes — have raised prices to offset higher fuel and input costs. Airlines, for example, have cut marginal and less-profitable routes while increasing fares on routes with sustained demand, allowing them to pass on some fuel-related costs without wholly depressing demand. However, raising prices is not a universal solution; for many manufacturers and suppliers, demand elasticity or competitive pressures limit the ability to transfer costs to end users.
Smaller manufacturers and suppliers frequently lack the pricing power to fully recover cost increases. They face a trade-off: raise prices and risk losing customers, or absorb costs and suffer margin erosion. In some cases, firms alter their business models — shifting U.S. production to distribution, logistics or tariff-mitigation services where margins may be less squeezed — or move final production offshore to seek cheaper inputs. These adjustments can preserve profitability for some but reduce domestic manufacturing activity and job growth in affected sectors.
Financial performance data illustrate the uneven impact. For example, earnings before interest and taxes for many auto suppliers and manufacturers have dipped, reflecting the squeeze of higher input and energy costs combined with tighter financing. Some suppliers have seen profit margins decline materially year over year. At the extreme, firms with constrained liquidity or heavy exposure to rising raw-material prices have sought bankruptcy protection or restructured operations.
Large, cash-rich corporations and those that borrow long term are comparatively sheltered. They can better absorb interest-rate shocks and maintain investment plans, which partly explains why profit margins among major corporations remain at historically high levels in aggregate. Strong productivity, controlled labor costs in some sectors, and investment in high-return technologies like artificial intelligence have helped sustain margins for many large firms despite rising input and financing costs.
That said, monetary policy cannot fully address all drivers of higher consumer prices. Geopolitical disruptions that push energy prices up, and trade policy choices that raise costs through tariffs, are factors outside the direct control of central banks. Raising rates may slow demand and rein in wage- and demand-driven inflation, but it does not reduce tariff-related or war-driven supply shocks. As a result, policymakers face a delicate balance: tighten enough to cool broad inflationary pressures without tipping vulnerable sectors into deeper distress.
Ultimately, the question for corporate decision-makers becomes one of strategic positioning: identify where pricing power exists, where efficiency and supply-chain redesign can reduce vulnerability, and where access to low-cost, long-duration financing can be secured. Companies that can optimize procurement, diversify suppliers, hedge energy exposure, and lengthen debt maturities are better placed to navigate the current environment.
Key Insights Table
| Aspect | Description |
|---|---|
| Tariffs | Increase costs of imported raw materials and finished goods, prompting inventory hoarding and supply-chain adjustments. |
| Fuel price spikes | Raise transportation and production costs, particularly affecting logistics, trucking, and energy-intensive manufacturing. |
| Higher interest rates | Make borrowing and working-capital financing more expensive; smaller firms with short-term debt are hit hardest. |
| Sectoral vulnerability | Middle-market manufacturers, auto suppliers, logistics firms, and CRE face elevated risk due to capital intensity and fuel exposure. |
| Adaptive responses | Price increases, inventory management, supply-chain shifts, model changes (e.g., from manufacturing to distribution), and seeking long-term financing. |
Afterwards...
Looking ahead, companies and policymakers should explore several technology and policy areas to reduce vulnerability to these compound shocks. Enhanced supply-chain analytics and diversified sourcing can lower exposure to tariffs and single-country disruptions. Investment in energy efficiency and alternative fuels can reduce sensitivity to fossil-fuel price swings. Financially, broader access to long-term, lower-cost capital — through market development or targeted public programs — would help smaller firms extend debt maturities and avoid short-term refinancing stress.
On the policy side, more predictable and transparent trade policies, together with multilateral engagement to de-escalate tariff tensions, would reduce one structural source of cost uncertainty. Geopolitical risk mitigation and strategic energy policy can also help stabilize fuel markets over time. Exploring these avenues — from resilient supply chains to energy transition and improved access to long-duration finance — could materially reduce the three-way squeeze currently confronting many U.S. businesses.
In short, while some firms will adapt and even thrive, others will continue to face hard choices unless the underlying drivers of cost volatility are addressed through coordinated corporate strategy and public policy.