Mid-Market Firms Brace for Impact Amid Tariffs’ Stunning Sweep

The tariffs announced by the President Donald Trump administration Wednesday (April 2) are now a reality, and a trade war is a real possibility.

For middle-market firms, supply chain changes and external financing may be the first lines of defense before raising prices on consumers, who have already shown just how fragile their intent to spend — or even ability to spend — is at the moment.

Markets reeled Thursday (April 3), off by mid-single-digit percentages, and multinational corporations’ stocks plummeted with outsized losses, as did firms that rely on supply chains that stretch across nations. Nike, for example, declined by 13% at the start of trading; Target was down a similar amount.

The carnage on Wall Street was and is symbolic of the uncertainty about prospects — of the economy and corporate earnings — as the Trump administration’s tariffs were more significant than many observers had anticipated. The 10% baseline tariff applies to all imports, and there will be 34% tariffs and 20% tariffs directed, respectively, at China and the European Union.

We haven’t been here in more than a century, and there’s no real playbook. However, as PYMNTS Intelligence found, even in the face of uncertainty and the looming prospect of a recession, mid-market firms have been taking stock of how and when to adapt to the changing new world order of global trade.

The latest data from the government, released Thursday morning, underscores the supply chain dynamics that are due for a reckoning. The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services trade deficit stood at $122.7 billion in February, down $8 billion from the revised $130.7 billion recorded in January. This reduction was primarily driven by an $8.3 billion increase in goods exports, which reached $182 billion in February, up from $173.6 billion in January — the highest level since 2022. Overall, the goods trade balance was a negative $147 billion, while the services sector posted a surplus of $24.3 billion, an increase of $0.8 billion from January.

Among key export categories, industrial supplies and materials saw a $3 billion increase in exports in February. Simultaneously, imports in this category fell by $4.2 billion, following the 25% import tariff on steel and aluminum announced by Trump Feb. 10.

China remained the United States’ top trading partner, with a trade deficit of $21.2 billion in February. This marked a $10 billion improvement from January, primarily due to a sharp decline in imports, which fell from $41.6 billion in January to $31.6 billion in February. This drop followed the announcement of a 10% tariff Feb. 4. The deficit is expected to decrease further after the tariff increase March 4 and an additional 34% increase announced Wednesday, raising the total tariff to 54%.

The U.S. trade balance with Canada also improved, with the deficit shrinking from $11 billion in January to $6.6 billion in February, driven by a reduction in imports from $38.3 billion to $35 billion. Conversely, the trade deficit with Mexico widened from $13.7 billion in January to $14.9 billion in February, mainly due to a decline in exports. Both Canada and Mexico are subject to a 25% tariff on most goods and services, with certain exceptions.

The trade deficit with the EU widened to $25.4 billion in February, up from $23.3 billion in January, due to a decline in exports while imports remained unchanged. The impact of the newly announced 20% tariff on EU imports remains to be seen in the coming months.

The PYMNTS Intelligence report “Tariffs and Business Uncertainty: The Current State of Play” took stock in February of the planning and mindsets of chief financial officers at firms with international presence and revenues between $100 million to $1 billion. The report found that 45% of goods CFOs and 9% of services CFOs said they would raise prices, passing increased costs onto consumers in the near term. Of the 60 CFOs queried, 27% said they saw the impact of tariffs as a net positive for their individual businesses.

There was a bit of a divide, as 25% of service-focused firms said a positive impact would be in the offing, compared to 35% of goods-focused companies. The read-across here is that insurance, finance and other service-oriented companies may feel the brunt of tariffs more keenly than manufacturers, for example.

As for supply chains, 80% of goods-producing companies said they expected to see shortages or delays in getting the products they need from supply chains, and nearly two-thirds of respondents were eyeing increased costs as they sourced those goods. There’s a silver lining here, as only 10% of goods-oriented firms said they had no plans in place as the reality of tariffs neared. Two-thirds of firms said they planned to negotiate with suppliers, particularly on prices. More than a third said they would diversify their international supply chains.

This is where external financing and more closely interwoven partnerships between buyers and suppliers come in. The PYMNTS Intelligence “Growth Corporates Working Capital Index,” a collaboration with Visa, found there has been a growing recognition and use of external financing solutions to improve working capital management — and by extension, manage fund flows across supply chains in ways that prove mutually beneficial to those buyers and suppliers.

The data showed that 81% of mid-market firms used at least one solution last year. Virtual cards, which enable buyers to hang on to cash as long as possible, and for suppliers to be paid on time or even before terms (often with a discount to the buyer), have emerged among the top choices used by the best-performing mid-market companies (as measured in cash flow conversion cycles). There was a 32% and 37% boost in the use of corporate and virtual cards, and bank lines of credit, respectively.

The sweep of tariffs may be stunning in breadth and scope, but companies also have a range of tools at hand with which they will strive to meet the new challenges of a global trading system rapidly being refashioned.

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