Tariffs Test Margins While Companies Invest to Protect Profitability, Study Finds

Core Insights - Tariffs and shifting trade policies have created ongoing operational challenges for U.S. businesses, particularly affecting financial and product leaders [1][3] - Middle-market firms are experiencing heightened uncertainty due to tariffs, policy changes, and uneven global demand, which has become a defining feature for 2025 [3][4] Impact on Goods vs. Services Firms - A significant divide exists between goods-producing firms and services providers, with over one-third of CFOs at goods firms reporting high operational uncertainty by late 2025, a sharp increase from pre-tariff conditions [5][6] - Goods firms face higher input costs and supply-chain disruptions, leading to operational constraints, while services firms are more insulated from these impacts [6] Margin Pressures - More than 40% of CFOs at goods companies reported declining operating margins in 2025, while only 12% saw improvements, indicating a severe impact on profitability [7] - High uncertainty correlates with margin deterioration, as over three-quarters of firms under high uncertainty reported margin declines [7] Strategic Responses - Companies have shifted to "reset mode," prioritizing defensive strategies over aggressive growth, with over one-third of CFOs focusing on risk management and compliance [8][9] - Goods firms are diversifying supply chains and renegotiating vendor contracts, while services firms are concentrating on operational efficiency [9] Technology Investment Trends - Technology investment has decreased, with only 15% of firms prioritizing AI and digital transformation in 2025, but expectations for 2026 indicate a shift towards prioritizing digital transformation [10] Future Outlook - As companies approach 2026, nearly two-thirds expect growth despite ongoing tariff uncertainties, emphasizing the need for flexible cost structures and resilient supply chains [11][12]