When it comes to trade policy, negotiations, tariffs and, ultimately, the impact on businesses, to say the last six months have been chaotic would be a huge understatement. The “Liberation Day” announcements in April of this year sent companies and their supply chains into a spin, which seemingly changes by the day. Ask any good leader what is almost universally desired in the macroeconomic environment – or really ,to drive any business decision – and they will tell you they seek at least some level of consistency, if not certainty. Of course, nothing is certain in the world except death and taxes, as the saying goes, but having consistent regulations and policies in place influences decision-making, including where to invest, where to expand, whether to hire, how and where to innovate and so much more.
Data from the Mid-Year 2025 MMI provides a glimpse into the impact of the swirling back-and-forth on trade. Among the various challenges executives cite, trade and tariff policy ranked second (41% of leaders cited it as a significant challenge) behind inflation/cost of business (44%). Nearly three-quarters of middle market companies state some level of concern about trade policies over the next one to two years, anticipating the need to increase prices, realize lower margins and absorb higher material costs. For example, while middle market companies only obtain 3-5% of total revenues from Canada and Mexico, they source 31% and 23% of their raw materials, respectively, from these two North American countries.
The challenges run deeper than just the cost/revenue/margin calculations. Potential risks in supply chain operations include critical areas such as demand forecasting amidst market volatility; ensuring supplier reliability and managing supplier risk; and balancing inventory levels to manage cost and working capital while also ensuring product availability. Based on previous middle market supply chain studies, the center knows many mid-size firms build deep, strategic relationships with a limited number of suppliers to enjoy the benefits of familiarity, shared growth and integration. Disrupting those relationships is costly – not just financially, but in terms of time and effort as well.
We often say that middle market businesses have “big company problems with small company resources.” The current trade situation offers up yet another example of how mid-size companies often get caught bearing the brunt of major policy implications. The center will be monitoring closely to see if future negotiations lead to smoother conditions for planning and execution.