American manufacturers, logistics firms and retailers are facing what analysts call a three-way squeeze — tariffs imposed under President Donald Trump's trade policies, surging fuel prices linked to the Iran war, and the Federal Reserve's first rate increase in three years — forcing executives to make difficult trade-offs between absorbing costs and raising prices.
At Original Saw Co., a 25-person industrial saw manufacturer in Britt, Iowa, owner Allen Eden has been stockpiling inventory as prices for aluminum, steel and components spike. A bracket used in the company's saw motors more than doubled this summer, jumping from $42 to $87. "It's awful," Eden told CNBC. "I'm just trying to keep more of the stuff around because I don't know if we can get it down the road." Price increases for the company's saws, sold to megaretailers like Home Depot and directly to smaller manufacturers, appear inevitable.
The Federal Reserve's decision to raise rates — the first since 2023 — came amid persistent inflation that prompted Fed Chair Kevin Warsh to act against the administration's wishes. The central bank signaled another hike remains possible this year, raising borrowing costs precisely when input costs and record diesel prices are squeezing margins.
Smaller companies are disproportionately exposed. JPMorgan Chase global strategy head Dubravko Lakos-Bujas noted in a Sept. 14 research note that smaller firms typically rely on shorter-term lending, meaning Fed rate increases pass through more directly to their costs. Capital-intensive sectors — manufacturing, equipment suppliers, trucking fleets and commercial real estate — suffer most in a rising-rate environment, he wrote.
Gregory Daco, chief economist at EY-Parthenon, said the combination of higher rates and fuel prices puts heavily exposed sectors "first in the line of fire," adding that any type of manufacturing is "disproportionately exposed to higher fuel prices."
Eastman Chemical CEO Mark Costa said in May that the combined pressure of interest rates and inflation was forcing his industry into a corner. "Everyone had their back against the wall and had no room to absorb these increases," Costa said. "Everyone is very quickly raising prices faster than I've ever seen in 20 years."
On the retail side, Home Depot CFO Richard McPhail said unexpected energy and raw-material cost pressures would "fully offset" the benefit of $730 million in tariff refunds. "There's just so much uncertainty right now," McPhail said at a recent conference, citing inflation, interest rates and fuel prices.
The domestic auto supply chain has been among the hardest hit. Lucerne International, a privately held Detroit-area auto parts maker, stopped U.S. manufacturing operations last year and canceled plans for a $50 million aluminum forging plant in Michigan. CEO Mary Buchzeiger cited the "Trump tariffs 2.0" for tearing holes in global supply chains and raising costs for aluminum and finished parts. The company has shifted its U.S. operations toward warehousing and tariff-mitigation services, which offer better margins.
Profitability among auto suppliers has deteriorated sharply. Earnings before interest and taxes for the top 100 suppliers fell to 4.2% last year from over 6% in 2021, according to consulting firm Berylls by AlixPartners. Among the top 10 automakers, the figure dropped to 5.2% from nearly 8% in 2022. Spanish parts maker Grupo Antolin, which supplies Ford, GM, Volkswagen and Stellantis, filed for Chapter 15 bankruptcy protection in July, citing tariffs, higher raw-material and energy costs, and supply-chain disruptions.
Larger corporations have more resilience. Tech and financial firms dominating the S&P 500 generally carry bigger cash reserves and rely on long-term debt, insulating them somewhat from higher borrowing costs. JPMorgan's Lakos-Bujas estimated that most large companies can endure until the 10-year Treasury yield reaches 6%, up from roughly 5% currently, based on eight decades of data.
Borrowing costs are expected to remain elevated, driven by persistent inflation and heavy U.S. government borrowing. Across corporate America, the dividing line comes down to pricing power — the ability to pass higher costs onto consumers without destroying demand. Airlines have managed to pass fuel costs through; fares rose more than 23% in August from a year earlier. But even strong demand has limits, United CFO Mike Leskinen acknowledged, noting the carrier has cut marginal routes that don't make sense in a higher-fuel environment and expects to continue doing so.
