By RHETT B. ROWE

CEO, Bridge Business Credit

Throughout his 2024 election campaign, Donald Trump pledged to impose tariffs of 10% to 60% on all U.S. imports. The International Economic Powers Act gives the President the ability to do so.

Upon taking office President Trump imposed a 10% baseline tariff on all imports and higher tariffs on some of our country’s biggest trade partners. Part of his initial plan was to charge a tariff of 25% on all goods from Mexico and Canada (except energy) as well as China with a rate of 34%. These countries account for 40% of the imports into the United States.

The countries with the higher tariffs based on trade deficit are as follows:

Country	Tariff Rate	Trade Deficit
China	34%	$295.4b
European Union	20%	$235.6b
Vietnam	46%	$123.5b
Taiwan	32%	$73.9b
Japan	24%	$68.5b

The main reason that tariffs are being used is to protect the domestic production in the U.S. and strengthen the economy and bringing back jobs to the U.S. that were once outsourced to other countries with cheaper labor. Three of the main industries that the President is targeting is:

• Steel Manufacturing
• Aluminum Manufacturing
• Auto Manufacturing

As of April 10 this year the United States has implemented a series of tariffs that have significant implications for the broader economy, including the business lending sector. These tariffs include a blanket 10% levy on all imports and a substantial 125% tariff specifically targeting Chinese goods.

In response to the United States tariffs on U.S. imports, most countries are retaliating by placing a tariff on U.S. goods. These tariff decisions will likely impact costs to the consumer, who will have to absorb increases in higher daily living expenses.

This has had a global effect on the world’s economies and led to considerable volatility in financial markets. Major stock indices, such as the Dow Jones Industrial Average, and the S&P 500,  have experienced significant declines, reflecting investor concerns over potential economic downturns and increased inflation. 

With the uncertainty in the global markets, investors are seeking less risky investments like bonds and gold. As a result of these global trade disputes, this could slow down global growth and possibly lead to a recession.

This market instability has prompted financial institutions to reassess their risk exposure and lending strategies. Senior executives at major banks, including Citigroup and Goldman Sachs, have engaged in discussions to address client concerns and strategize amidst the heightened volatility. ​ 

Effects on Business Lending

The tariffs have introduced several challenges for business lending:​ 

Increased Costs for Borrowers: Businesses reliant on imported goods face higher costs due to the tariffs, which can compress profit margins and affect their ability to service existing debts or qualify for new loans. ​

Tightened Lending Standards: In response to economic uncertainties and potential risks associated with tariff impacts, lenders may adopt more stringent lending criteria, making it more challenging for businesses to secure financing. ​ 

Sector-Specific Impacts: Industries such as construction, which rely heavily on imported materials like steel and aluminum, are particularly vulnerable. Increased material costs can lead to project delays or cancellations, affecting loan demand and repayment capabilities in this sector. ​ 

Government Negotiations and Economic Outlook

The Treasury Department has initiated negotiations with over 70 foreign governments to address the newly imposed tariffs and Treasury Secretary Scott Bessent has indicated that tariff levels are negotiable, provided that affected countries do not retaliate. 

Despite these efforts, concerns persist about the potential for a recession, with financial leaders expressing caution about the economic outlook. ​ 

Relationship Between Tariffs and Business Borrowing

Increased Costs for Businesses: Tariffs raise the cost of imported goods (raw materials, components, machinery). This increases impact costs, squeezing margins, especially for manufacturers and import-dependent firms. The result: Businesses may borrow more to cover these higher costs in the short term.

Uncertainty and Investment Delays: Trade tensions or abrupt tariff changes introduce volatility and uncertainty. Companies may delay expansion or capital investments, lowering borrowing needs. Lenders may also become cautious about lending to firms in high-tariff-risk sectors.

Interest Rate Impact (Indirect): Tariffs can influence inflation (higher import prices → higher CPI), which may push central banks to raise interest rates. Higher interest rates make borrowing more expensive.

Current Tariff Effects 

Here’s a brief summary of sectors most likely to be impacted by major tariff changes, along with borrowing trends and loan term changes.

Sectors Most Affected

• Manufacturing, especially autos, steel, electronics.
• Agriculture, subject to retaliatory tariffs from trade partners.
• Retailers, especially those importing consumer goods from Asia.

Borrowing Trends

• Increased Short-Term Borrowing: Some firms are taking out working capital loans to manage increased costs due to tariffs.
• Cautious Long-Term Debt: Many businesses are hesitant to take on long-term debt for capital expansion due to policy uncertainty.
• Shift to Domestic Suppliers: Some are borrowing to finance supply chain shifts away from tariff-hit regions (e.g., moving sourcing out of China).

Loan Terms Changing

• Lenders are pricing in higher risk premiums for tariff-exposed sectors.
• Some banks are tightening credit for industries that could see a profitability squeeze due to trade frictions.

In summary, the current U.S. tariff policies have introduced significant uncertainties into the business lending landscape. Financial institutions and borrowers alike are navigating a complex environment marked by increased costs, market volatility, and evolving trade negotiations.