Federal Reserve survey shows small businesses face cost pressures from tariffs and inflation

Investing.com - According to a report released by the Federal Reserve on Tuesday, U.S. small businesses in 2025 face significant challenges from rising costs related to tariffs and inflation.

A survey of small business credit conducted by 12 regional Federal Reserve banks found that increases in the costs of goods, services, and wages were the most common challenges faced by small businesses last year.

Over 40% of respondents said that rising costs related to tariffs posed a financial challenge, with retail and manufacturing firms experiencing the greatest pressure. Among businesses coping with increased tariff-related costs, 76% passed some of the higher costs onto customers, while 60% absorbed some of the costs themselves.

Nearly half of the surveyed businesses reported that at least some of their inputs came from outside the U.S. The report showed that the vast majority of these companies experienced higher prices for foreign inputs between 2024 and 2025.

Track key economic data in real-time on InvestingPro — now at 50% off.

The survey found that businesses did not respond to rising costs by switching suppliers or relocating operations to the U.S.

The tariffs implemented by President Trump in 2025 worsened inflation, with Federal Reserve officials attributing most of the inflation above the 2% target to increased taxes. Most Fed officials expect the impact of tariffs to diminish this year.

The Trump administration has maintained that tariffs are paid by foreign entities, aiming to bring manufacturing back to the U.S. and generate revenue for the government. Tariffs have also been used as a diplomatic tool.

A recent report from the New York Fed and the Congressional Budget Office found that, contrary to the government’s stance, tariffs are almost entirely borne by entities within the U.S. The Supreme Court ruled that Trump’s tariffs exceeded his authority, but the president subsequently imposed additional tariffs on imported goods.

The Fed survey also examined small business adoption of artificial intelligence in 2025. Less than half of small businesses are using AI, and 15% plan to adopt the technology within the next year. Major uses of AI include writing and marketing, followed by enhancing individual productivity.

The report states that AI has not changed labor costs but has increased productivity for many businesses.

This article was translated with the assistance of artificial intelligence. For more information, see our Terms of Use.