Businesses are trying to pass tariff costs onto customers: Fed report

Businesses grappling with the initial stages of President Donald Trump’s tariffs are exploring ways to shift growing costs onto consumers, as per a Federal Reserve report released on Wednesday.

With Trump’s imposition of broad tariffs on U.S. imports and increased duties on Chinese goods, the Fed’s Beige Book outlined the strategies being considered by businesses. Companies have started receiving notifications from suppliers regarding escalating costs, prompting them to seek ways to avoid absorbing the hikes while acknowledging the uncertainty surrounding their ability to pass on these costs to customers.

The report highlighted that “Most Districts noted that firms expected elevated input cost growth resulting from tariffs,” with many firms already being informed by suppliers about impending cost increases.

In a general sense, the report, published approximately every seven weeks, described economic growth as “little changed” from the previous March 5 report. However, it emphasized that “uncertainty around international trade policy was pervasive across” all twelve of the Fed’s districts.

During the period covered in the report, which included Trump’s announcement of blanket tariffs on April 2, prices experienced a general uptick. Employment levels remained “little changed,” with reductions observed in government jobs.

“Firms reported adding tariff surcharges or adjusting pricing strategies to accommodate uncertain trade policies,” the report stated. “The majority of businesses anticipated passing on additional costs to consumers. Nonetheless, reports indicated margin compression due to increased costs, particularly in sectors with subdued demand, such as consumer-facing firms.”

In the New York area, businesses reported price hikes, notably in food, insurance, and construction materials. Manufacturers and distributors have already begun incorporating surcharges into their shipments.

Furthermore, indications of strain in the trade conflict with Canada were observed. Tourists are booking fewer hotel accommodations in New York City, and a tech company reported losing business connections in Canada.

“The outlook for service sector firms deteriorated significantly, with contacts foreseeing a marked decline in activity in the upcoming months. Service sector firms reported a substantial reduction in planned investments,” the report conveyed.

The report also highlighted the impact of the Department of Government Efficiency, spearheaded by Elon Musk, on employment in the Washington, D.C. region. The department has initiated efforts to downsize the federal workforce, resulting in layoffs and buyouts.

Although the overall employment landscape remained “unchanged” for the period, “many federal government employees were either laid off or placed on administrative leave in recent weeks.”

“These reductions in the federal workforce have reverberated through businesses across the entire district. In addition, federal contractors have downsized their workforce in response to budget cuts. For instance, a research organization based outside the D.C. region downsized its staff due to canceled contracts. Similarly, a consultancy in Northern Virginia reduced its headcount by 25% following the loss of half its contracts,” the report elaborated.

Elsewhere in the report, service organizations reliant on government support faced challenges following the White House’s review of agencies receiving federal assistance. The report specifically mentioned food banks in New York experiencing cuts in programs and personnel.

“Contacts at non-profits and other community-based organizations expressed significant apprehension regarding the future of federal funding and services support, leading to staffing, strategic, and planning difficulties,” the report highlighted.

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