As the American economy absorbs the rising costs of tariffs, risks to small and medium enterprises are often overlooked.
These firms that do not have adequate financial depth or profit margins to absorb a baseline 10% tariff on all imported goods, let alone an effective tariff rate of 17.8% when other trade taxes are factored in.
Consider the firms that make up the Russell 3000, which is a solid working proxy for the middle market. An analysis of their earnings calls provides a strong indication that the current trade war will soon, if it has not already, hurt their bottom lines.
Since last August, total mentions of tariffs have increased from 91 to 5,071 in May using a three-month moving average.
Not surprisingly, industrials, consumer discretionary, health care, and information technology firms have had the greatest increase in mentions in those earnings transcripts.
Read more of RSM’s insights on the economy and the middle market.
One area of risk is that the trade will spill over to the service sector, which accounts for the majority of overall American economic activity.
This is why one should track the mention of tariffs among financial services firms, which has jumped from 9 in January to 180 in May.
